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Windows Live: A little more than a dollar in ad revenue per user a year

In fiscal 2009, Windows Live had a loss of $560 million on revenue of $520 million. Given that Windows Live has more 500 million users, Microsoft is garnering a little more than a dollar in advertising revenue per user a year.

Microsoft gave Wall Street a lot of color on its Windows Live profit and loss statement and detailed the investment that the software giant is pouring into the unit.

The company outlined some of its financial reporting changes Tuesday, notably moving Windows Live into its client division and a few name changes.

The big takeaway from the meeting, as noted by Todd Bishop, was Microsoft's detail about the Windows Live business (transcript). First, the numbers. In fiscal 2009, Windows Live had a loss of $560 million on revenue of $520 million. Given that Windows Live has more 500 million users, Microsoft is garnering a little more than a dollar in advertising revenue per user a year. Obviously, the company will need to pick up the pace.

For context, Windows Live is dinky relative to Microsoft's other businesses. The company reported earnings of $20.36 billion on revenue of $58.44 billion for the fiscal year ending June 30.

Here's the money side:

Microsoft executives detailed the Windows Live product portfolio, which includes Messenger, Hotmail, SkyDrive and Essentials---a suite with Photo Gallery, Movie Maker, Writer, and Family Safety in it.

Tami Reller, corporate vice president and CFO of Microsoft's Windows Business Group, explained:

From a revenue standpoint, Windows Live primarily generates revenue from online advertising.  Going forward, this will continue to be the primary revenue stream.  And the drivers of this revenue continue to be a couple of key things.  First is the overall growth  in digital advertising.  Obviously, that's key as the movement from offline to online happens.  The growth of the user base as well as the engagement level of those users, and then also our ability to monetize the inventory that we create through innovations in our advertising platform.  So, those continue to be the key drivers of revenue as they have been.

Windows Live operates at a loss with the bulk of our investments in three major areas.  First, data centers that run the Windows Live Services, R&D, and innovation on the Windows Live platform, and then sales and distribution as we build out the user base and engagement of our Windows Live base.

The investments in the data centers is one of the most significant investments in the Windows Live business, and really is a result of the large customer base and the strong competitive position that we have today across these services.

Reller added that Windows Live "is clearly strategic to the company, and strategic to Windows." However, Windows Live looks like it will never be the cash cow that Windows is.