Microsoft's lost eight years online: More than $6 billion down the tubes

Microsoft has recently touted its success with Bing -- and with good reason. The search engine is gaining share and will continue to as Microsoft's partnership with Yahoo kicks in. However, the financial hit from the last eight years of Microsoft's Internet follies is staggering.

How big of a hit? Microsoft's online unit has delivered more than $6 billion in operating losses on revenue topping  $19 billion over the last eight years. My adventure in Microsoft's SEC filings began with a simple question: Has the software giant ever made money online? The good news: Microsoft has delivered a profit here and there since it has been consolidating online results. The bad news: Those profits are few and far between.

Let's roll through the numbers.

In fiscal 2010 ending June 30, Microsoft reported an operating loss of $2.35 billion on revenue of $2.2 billion for its online services division .

Let's be charitable and note that Microsoft's online services division has been building out data centers for Azure. Microsoft noted in its annual report:

Cost of revenue increased $700 million or 82%, primarily driven by increased online traffic acquisition, data center and equipment, and headcount-related costs. Research and development expenses increased $153 million or 17%, primarily due to increased headcount-related expenses.

Fiscal 2009 may have had a similar story, but Microsoft still had an operating loss of $1.65 billion on revenue of $2.12 billion.

In fiscal 2008, Microsoft lost $578 million on revenue of $2.2 billion.

In fiscal 2007, Microsoft's online unit lost $732 million on revenue of $2.43 billion.

In fiscal 2006, Microsoft's online unit reported a $5 million profit on revenue of $2.3 billion. (Note that profit figure is in the fiscal 2008 report. The fiscal 2007 report has 2006 at an operating profit of $74 million.)

In fiscal 2005, Microsoft's online unit reported a profit of $402 million on revenue of $2.34 billion. The key point from the 10K, which may sound a bit familiar:

In fiscal year 2005, we launched a new version of our MSN Search engine, which is based on our own technology. This change will help provide the ability to innovate more quickly and the opportunity to develop a long-term competitive advantage in search. In addition to the launch of MSN Search, we introduced many new products and product enhancements in fiscal year 2005, including a new version of the MSN home page which provides a richer user experience, quicker load times, higher levels of end user customization, and fewer advertisements and links. MSN launched the clarity in advertising program in fiscal year 2005, which removed paid advertising from inclusion in search results and resulted in a reduced number of advertisements that are returned with search results.

In fiscal 2004, Microsoft's online division---then classified as MSN---reported a profit of $121 million on revenue of $2.21 billion.

In fiscal 2003, Microsoft's online unit (MSN) reported an operating loss of $567 million on revenue of $1.95 billion.

In fiscal 2002, Microsoft's online unit (MSN) reported an operating loss of $909 million on revenue of $1.57 billion.

For previous years, Microsoft lumped its online assets into a consumer software, services and devices division so the results aren't really comparable. Also note that some of the profit and loss figures in the SEC filings shifted from year to year, but not enough to move the needle too much.

The big question after losing more than $6 billion chasing Google---and AOL and Yahoo---around: Is Microsoft getting anything out of its Internet quagmire?

At Microsoft's financial analyst meeting last month, CEO Steve Ballmer talked about shareholder value and how it was important to the company. Given the dividends Microsoft pays out, it's hard to argue with Ballmer.

Ballmer said the company may make a few mistakes but always thinks about ROI:

It doesn't mean that we won't err sometimes on the side of either over- or under-investment in certain things.  But at the end of the day, really thinking about the return on the investments that we make, really thinking about where we're going strategically and doing that not only from a management point of view but from shareholder point of view.

But here's the disconnect. Microsoft has generated no return on its Internet ventures. It has been nearly a lost decade for Microsoft online. Looking at the profit and losses, you could make an argument that Microsoft would have been better off avoiding the Internet. Strategically, that argument is absolutely crazy. On the financial front, shareholders may just want a dividend.

Things could change. Perhaps Microsoft's online investment has helped it with the transition to cloud computing somehow. As things stand today, the Web is one big money pit for Microsoft.