Microsoft's online sinkhole: $8.5 billion lost in 9 years

Microsoft's online sinkhole: $8.5 billion lost in 9 years

Summary: Few companies have the resources to lose $8.5 billion over nine years chasing an online dream.

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TOPICS: Microsoft
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Microsoft completed another fiscal year and to no one's surprise the company threw a few more billion dollars down the sinkhole known as the Online Services Division.

The fiscal 2011 loss: $2.56 billion, a bit worse than the $2.33 billion dropped in 2010. For the second year in a row, Microsoft's online operating losses were larger than the annual revenue brought in via Bing and the gang. Microsoft's online unit brought in $2.53 billion in revenue for fiscal 2011 and $2.2 billion in fiscal 2010. Fortunately for Microsoft, the company has other cash cows to bring home the profits (statement, Techmeme).

Microsoft's mission should be to actually mention operating profits in one of its quarterly Bing slides.

As noted when we tallied up Microsoft's lost online years before, the software giant is persistent, but just can't get this online thing right. Now Microsoft is struggling with search monetization. But it has struggled every year.

Here's a tour on the way to losing $8.56 billion over nine years:

Fiscal 2011 and 2010 was about Google envy and investment in Azure, which may actually save the division via cloud services---someday.

Fiscal 2009 had an online 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 bottom line for Microsoft's online effort is that it is very rarely ever in the green. The online unit is more like a bottomless money pit.

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Topic: Microsoft

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  • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

    Where is the thumbs down button for this article? Its not about losing $8.5billion, its about research & development for the online division, new ways of presenting data. You only see it in a monetary figure, but think of what that $8.5 billion got them. Instead of reporting a loss what you should have done was had ways to help them by putting links to their online services so people can click on them and see what they have to offer. If everyone went to a Microsoft site they'd be in the green then you can write an article about that.
    LoverockDavidson
    • huh?

      @LoverockDavidson
      All other divisions will soon follow suit in the 'sea of red'. FOSS won!
      Linux Geek
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        @Linux Geek
        what is FOSS, is it something that we use to floss our teeth? :D
        Ram U
      • Even it they do Linux will remain 0.76%

        @Linux Geek Nobody is gonna use that crap.
        Mr. Dee
      • Yes, because iOS and OSX are so obviously GNU licensed.

        @Linux Geek I'm not sure there's any obvious sign of a change in the mix of open source and proprietary OSed computing devices we see out there. There've always been some systems on a somewhat open model (Server computers and farms, Android and Java phones) and some not (desktop computers, which almost exclusively run OSX and Windows, and iOS devices.)

        Not sure there's any sign of any change in the mix.
        Mac_PC_FenceSitter
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        @Linux Geek
        So you think all developers should work for free? Aren't you quite the advocate!!
        kstap
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        what distro do you use? To me LinuxMint is the best distro. I heard they're going away from Ubuntu and build it on Debian. Linux is a great os.
        Pug466
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        @Pug466 Linux is great OS for Geeks !!! For the rest of us who live in real world we use windows or osx !!!
        Voltus
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        If everyone went to a Microsoft site they'd be in the green then you can write an article about that. <a href="http://www.speedydegrees.com/">online degree</a>
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        jordanhawk
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        Instead of reporting a loss what you should have done was had ways to help them by putting links to their online services so people can click on them and see what they have to offer. <a href="http://www.speedydegrees.com/program/Master-Degrees.htm">master degree</a>
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        jordanhawk
    • Translation

      @LoverockDavidson
      If only all of those anti-capitalist ingrates would dump Google in favor of Bing then Bing would be profitable.
      John L. Ries
      • Look at it another way: &quot;Old habits are hard to break.&quot;

        But, as long as those habits are not part of the nature that one is born with, then those habits can be overcome. Google is something that people are very familiar with, and it's going to take time to displace them, but, it can be done.

        Atari and Sony gaming systems were deemed insurmountable at one time, but the people at MS kept up the good fight while losing large amount of money, but, XBox is now the number one game system in the world. Persistence and a good product can overcome the odds.
        adornoe
    • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

      @LoverockDavidson <br><br>"If everyone went to a Microsoft site they'd be in the green then you can write an article about that."

      If everyone gave me a dollar, I'd be rich. They haven't, and I'm not.
      msalzberg
      • RE: If everyone gave me a dollar, I'd be rich

        @msalzberg

        +1
        fatman65535
    • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

      @LoverockDavidson

      I don't think that Microsoft accounts for this as R&D. This is operating revenue - operating expenses.
      msalzberg
    • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

      @LoverockDavidson

      I think Larry may not be familiar with a software development company, too much time spent with that advertising company or the marketing and packaging one. Research costs money.
      tonymcs@...
    • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

      @LoverockDavidson I agree with you for the most part.

      But looking at the results, it certainly feels Microsoft is no longer focused. It is running like a conglomerate of several companies. This was not the case earlier(80s/90s) which rose them to these levels. It is like a tired horse at the moment. Numbers look good, but future is slightly hazy.

      At the moment they are just there to compete. Just content to be in the race. It's not in it to WIN it. Ref : Windows Phone 7 strategy.
      cbrcoder
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        @cbrcoder You're not paying attention. Microsoft's divisions and product lines have never worked closer together and it's only getting better with time. There is synergy like never before. For an outward sign, look at the UX and movement toward the Metro style.
        Skippy99
      • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

        @Skippy99 - do you by chance work for Mike Cox? Have lunch at Yarrows over scones? Riding your MCSDs had?
        MSFTWorshipper
    • RE: Microsoft's online sinkhole: $8.5 billion lost in 9 years

      @LoverockDavidson

      The point of this article is to highlight Microsoft's lack of ROI from the online services division in recent years.

      The author is not obligated to "help them" by directing readers to MS's site. There are plenty of other articles about MS's online services on ZDNet and other tech sites, let alone MS's own advertising, that allow users to be informed of their offerings. I don't think it's a lack of awareness that's the problem, and even if it is, one article on ZDNet isn't going to turn things around for MS online services.
      TroyMcClure