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

Few companies have the resources to lose $8.5 billion over nine years chasing an online dream.
Written by Larry Dignan, Contributor

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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