Is growing headcount by 40% really the best way to catch Google?

Is growing headcount by 40 percent really the best way to catch Google?

The most interesting piece of information from Microsoft's Q1 FY 2007 earnings release, in my mind, was the loss posted by the company's Online Services Business unit. While the MSN business has been in and out of the red over the past year, the main reason it fell from profitability in the most recent quarter was due to 40 percent (no, that's not a typo!) headcount growth, coupled with data-center infrastructure costs.

Todd Bishop over on the Seattle Post-Intelligencer's Microsoft blog, exposed the data buried in Microsoft's 10Q:

"OSB operating income decreased for the three months ended September 30, 2006, reflecting the decline in revenue, increased headcount-related costs primarily as a result of continued investments in Windows Live, adCenter, and other properties, and increased cost of revenue as a result of the build out of our data center infrastructure. Headcount-related costs increased 43%, reflecting both an increase in salaries and benefits for existing headcount and a 40% increase in headcount."

OK. There are a lot of Windows Live services, with more coming online all the time. But Google's total employee headcount is 8,000 people. Microsoft, with 71,000 (and counting) employees total must have more than 8,000 in online services alone, at this point.

(Update: My blogging colleague Donna Bogatin notes that Google's headcount is growing, too, and is no longer a "mere" 8,000. Google's total headcount grew from 7,942 in June, to 9,738 in September, according to a recent story quoting Google CEO Eric Schmidt.)