Not all at Microsoft is golden

CFO Greg Maffei says the company's portal needs to start generating revenue.

Lost in the middle of Microsoft Corp.'s stellar second quarter earnings, soaring stock price, and Bill Gates' net worth is this: The software giant's portal business needs revenue.

On a conference call with analysts late Tuesday, Microsoft chief financial officer Greg Maffei said the company's Web network is on par with all the big Internet players on most metrics except for the one that counts -- revenue.

"We are doing incredibly well on reach and doing very well on page views," said Maffei. "We are still considerably behind a Yahoo! Inc. (Nasdaq:YHOO) or an Excite Inc. (Nasdaq:XCIT) in monetizing our business."

"We have not executed as well on the sales side," said Maffei. "We were not as revenue focused early, but we will catch up."

For Yahoo!'s most recent quarter, the portal reported sales of $76.4 million. Excite, which was bought Tuesday by At Home (Nasdaq: ATHM), reports earnings this week. America Online Inc. (NYSE:AOL) is the clear revenue leader with sales of $858 million in its most recent quarter.

Maffei's comments are the most detailed yet about Microsoft's interactive business. Wall Street analysts don't focus on MSN because it's a small portion of overall sales. And Microsoft (Nasdaq:MSFT) combines its Web sales with other side businesses, such as the MSNBC joint venture and talking Barney.

For the quarter, interactive and other revenue was $467 million, up from $343 million a year ago. For comparison, Microsoft's platform business had sales of $2.3 billion with applications and tools posting revenue of $2.1 billion.

Without getting too specific, Maffei said ad revenue for MSN was up 400 percent from a year ago and e-commerce sales jumped higher. Both of those percentage gains are from a small base, but advertising accounts for the bulk of sales. "We expect similar excellent growth in the third quarter for interactive," said Maffei.

But Maffei said the interactive business is far from where it needs to be. The financial chief said MSN needs to work on personalization and converting Hotmail's 30 million users into registrations.

Maffei said he was confident MSN could turn its users into cash because it is coming from a strong base. MSN's reach is more than 40 percent and the company has become more aggressive in its dealmaking.

The company recently acquired LinkExchange to expand MSN services to small-business customers and completed an advertising alliance with First USA Inc., valued at more than $90 million over five years.

Maffei was clear about the goal: Make MSN the leader. He pointed to America Online's sales as proof that leadership pays. "We have the ability to be number one," said Maffei. "Our challenge is to build up the service and monetize users."


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