Microsoft's "Black Hole" sucks 2.5 billion dollars for the year

Microsoft has a huge problem and it is their Online Services Division. For those who may not know, the Online Services Division manages the Bing, MSN, and online advertising teams. It also works with other teams across the board to develop strategy for software and services. They also are responsible for most of Microsoft's sites.

The Online Services Division reported 15 percent of growth for the year and 17 percent in the fourth quarter. That's impressive growth. Unfortunately, according to TechCrunch, the division lost 728 million dollars for the fourth quarter and this is the second highest loss in the Online Services Division's history, with the highest occurring in Q4 2009. So that begs the question, how can Microsoft report growth in the Online Services Division and still lose money? However, it gets even worse: The Online Services Division has also lost 2.5 billion dollars for the year.

Oh and by the way, some say give Microsoft more time to improve revenue in the Online Services Division. However, the loss for the quarter was 2 million dollars higher than the third quarter. This is also the 22nd consecutive quarter with a loss reported in the Online Services Division. Microsoft mostly blames the loss on the Yahoo! deal:

OSD operating loss increased due to higher operating expenses, offset in part by increased revenue. Cost of revenue grew $641 million driven by costs associated with the Yahoo! search agreement and increased traffic acquisition costs. General and administrative expenses decreased $157 million or 60% due mainly to transition expenses in the prior year associated with the inception of the Yahoo! Commercial Agreement. Research and development increased $117 million or 11% due to increased headcount-related costs.

This is not good news for the division and signals there may be problems with the company's online strategy. Microsoft needs to close the gap in revenue, or it may be left behind in the online arena. Simply pouring money into the problem won't fix the issue.

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My point is that ultimately 6 years of work have resulted in billions of dollars of loss. Any other company would have changed course by now. Not Microsoft. The definition of insanity is doing the same things over and expecting different results.

jwoodfin09 said,
My point is that ultimately 6 years of work have resulted in billions of dollars of loss. Any other company would have changed course by now. Not Microsoft. The definition of insanity is doing the same things over and expecting different results.

You should REALLY read some of the more educated replies here.

Shadrack said,
I say, if you can't make any money ad spamming (word used loosely) whats the points of ad spamming?

They could if they sold the information to 3rd parties, and provided premium advertising opportunities for companies like Google does by giving access to information on their users.

I guess ethics doesn't pay so as well... Hmm...

How can the writer not understand how a company can have growth and a loss? Growth is overall revenue and loss is expenses... Neither refers to profit...

M_Lyons10 said,
How can the writer not understand how a company can have growth and a loss? Growth is overall revenue and loss is expenses... Neither refers to profit...

QFT.

The byline for the article in the top window 'Microsoft's 2.5 billion dollar hole' makes it sound like there is a gap in their financial reporting. No such thing has happened.

The author then writes 'So that begs the question, how can Microsoft report growth in the Online Services Division and still lose money?'. Think about it. Whenever a company starts a new business venture, that is they are growing the business, do they make money (ie. profit) immediately?

Seriously, I would prefer if Neowin refrained from posting these kinds of mis-informed articles because it makes me cringe every time I read them.

Everyone looks at Apple. Everything they do is magically SUPER profitable right away, they never have to make any long-term investments that lose money in the short-term.

KingCrimson said,
Everyone looks at Apple. Everything they do is magically SUPER profitable right away, they never have to make any long-term investments that lose money in the short-term.

Orly?

KingCrimson said,
Everyone looks at Apple. Everything they do is magically SUPER profitable right away, they never have to make any long-term investments that lose money in the short-term.

Every company knows that in order to persist in winning, you must make long term investments. The reason why Apple starts off in every market winning, and never wins a market, is because they never make any long term investments. When Apple first entered the PC market in the 80s, they quickly made a fortune (due to overpricing, as usual) and gained up to 75% of the PC market. But, because Apple never invests in ways to make their products stay superior, and because they are so terrible at competition, they quickly lost when a newer and superior product was introduced: Windows. Windows took advantage of many of the things that Macs didn't have, including color and a better window management system, and quickly took over Apple's product. Because Microsoft invested heavily into Windows, they made sure that their product stayed superior even after some minor hiccup versions in the past. Apple always permanently loses in a market where a new product is introduced. The reason why the iPod never lost is because it was never subjected to real competition that could match it. The iPod was Apple's only true "win." The rest were always temporary. And now, history is repeating itself with the smartphone race. Once again, the iPhone initially gained a large percentage of the market that it was introduced in. However, with Apple's inability to compete and stay superior, Android came along and has now beaten Apple. In my honest opinion, just like how Apple never recovered from a defeat in the PC sector, thr iPhone will never again be popular, once again due to Apple's inability to plan ahead and make investments. And now, with WP7, it's yet another market where Microsoft has entered with a winning strategy that's different from Apple's and Apple has been caught off guard. Once again, history repeats itself. Now, even the tablet sector has come under the same fate: just a few months after the introduction of the Android tablets, Apple's iPad went from 95% to around 70% market share. And with Windows 8 in development, it looks like Apple is once again poised to lose. And this is all because of their inability to plan ahead.

KingCrimson said,
Everyone looks at Apple. Everything they do is magically SUPER profitable right away, they never have to make any long-term investments that lose money in the short-term.

Ya, and if the Online Division at Microsoft hadn't put a massive investment into their technologies over the past couple of years, the MAGICAL 'iCloud' would not exist, as it is running on Microsoft Azure (Online Division) servers...

This article and any measure of Bing or Live or the 'viewable' side of what the Online Services Division is doing is just freaking insane.

[quote=PlogCF said,]
. But, because Apple never invests in ways to make their products stay superior, and because they are so terrible at competition, they quickly lost when a newer and superior product was introduced:

Thanks, I didn't have the energy to bang out that paragraph, so I took the Apple way and just compared it to Tortoise and Hare. Nicely said, and right on target. I do believe Microsoft could have come out with a WinPh7 tablet shortly after the phone, but they are taking anothe approach. Everyone assumed the WPH7 was going to be an Iphone clone, but it was Android that took that title. Ms came out with something totally new. Cudos. The beast is back. With a much harder shell this time around. And the Govt. shackles are off.

well... their online services (Bing and Maps) are useless in Europe. This makes a pressure on Windows Phone too. I would use Bing to search locally (next gas station or restaurant), but it simply doesn't work! So, the only solution is Google, which intentionally don't release Apps for WP7. We'll see, what Ovi Maps brings for us here...

cpu said,
well... their online services (Bing and Maps) are useless in Europe. This makes a pressure on Windows Phone too. I would use Bing to search locally (next gas station or restaurant), but it simply doesn't work! So, the only solution is Google, which intentionally don't release Apps for WP7. We'll see, what Ovi Maps brings for us here...

Not so bad in the UK actually. MSN is even actually more popular there then the US. Don't generalize Europe as one thing in everything

Why do people defend certain companies? I could understand it if you had some kind of link with them but while your still paying the same price as me for a product then your just a sheep. Your opinion is already so bias and it means nothing to anyone, including the company you choose to follow.

Big accomplishments come from big risk. Xbox was a HUGE venture to risk going in to. And it is paying off big time. Same with Bing and the rest. Microsoft is the tortoise, apple is the hare. The tortoise always wins in the end.

jimmyfal said,
Big accomplishments come from big risk. Xbox was a HUGE venture to risk going in to. And it is paying off big time. Same with Bing and the rest. Microsoft is the tortoise, apple is the hare. The tortoise always wins in the end.

Totally agreed with this until the random mentioning of Apple.

jimmyfal said,
Xbox was a HUGE venture to risk going in to. And it is paying off big time

Really? I'm pretty sure overall the XBox is still in the red. Don't forget Microsoft was subsiding it for many years. Then of course you have the Wii, which blew the XBox out of the water.

DrakeN2k said,
Bing will generate more and more cash as time passes. its at war with the Goliath that is Google.

Most people just see a bit of healthy competition.. still, whatever floats your boat

Orange Battery said,

Most people just see a bit of healthy competition.. still, whatever floats your boat

I would be nice if both had 50% market , that will be intresting

they still need their online services to keep their profitable divisions connected, keep their servers online....

IT/IS will always be a cost center....


mocax said,
they still need their online services to keep their profitable divisions connected, keep their servers online....

IT/IS will always be a cost center....

This is the Online Services division.

Nothing to do with microsoft.com, or Windows Update, or keeping internal Microsoft systems running. That shows up in the SG&A line item on the income statement.

oceanmotion said,
It's amazing that it has continued to lose money for so long. Where are the revenue streams ?

The same place they've always been, Windows and Office, specially selling those two in large quantities to companies.

Live service is not even included in this. It's in Windows Department.
But I think Bing will eventually grow, to become a billion dollar business for Microsoft in due time. And I think a lion share of this yearly losses is contributed by Bing.

FMH said,
Live service is not even included in this. It's in Windows Department.
But I think Bing will eventually grow, to become a billion dollar business for Microsoft in due time. And I think a lion share of this yearly losses is contributed by Bing.

I started using Bing recently. It's not bad, but I don't really see what makes it different from other search engines.

Enron said,

I started using Bing recently. It's not bad, but I don't really see what makes it different from other search engines.

Nothing. Except that Google doesn't get yet another veeeeery good look at you. That's why I switched. Garanoia.

Enron said,

I started using Bing recently. It's not bad, but I don't really see what makes it different from other search engines.

There are particular search quarries that are handled in a different way. Look up a sports team, Google gives you some information right away, but Bing gives you a lot more. If you look up a team that has a game in prossess, Bing shows you the score and status of the game. Google shows you nothing. Bing handles travel better, movies, music, tv, celebrity searches a lot better. It's more consumer friendly and visual without being too much. Bing Images however are not as great as Google and when I need to search something technical, Google is better sometimes.

well sometimes stuff takes time, like xbox. and now you can see it sells well. and they release xbox star wars theme and alot of people will buy it because of that even if they have a good xbox360. so bing can do the same against google.

Enron said,

I started using Bing recently. It's not bad, but I don't really see what makes it different from other search engines.

and whats make google better because i hear people saying "bing sucks" bla bla. when i find better or the same results as google, sometimes you can find better in google, but thats like when you are finding software and then you see alot of sites for cracked software. also when you search by link google is better, but i never need this or i dont care much about it. after that Bing feels better for me. besides you get scores, weather, currency, metric converter, also if you live in US, you can find the map of stadiums, you can see the places where you can buy tickets, some have even pictures to show you the view of the sit you are buying, obviously there is price and way to buy it. algo i always liked when bing started how i didn't have to search images by pages.

but in the end, its just about what people likes. what i hate its their "bing sucks" just because its from microsoft. when some haven't even tried. even my mom finds stuff in bing, sometimes i dont even find it but she does magically. sometimes its about how people search as well, it seems she searches better than those that say "its not good i cant find anything" but some people dont even try to find anything, sometimes its about changing region to help bing to know where to search. but oh well, in the end its about what people like. but as long as bing finds stuff, i can careless about google haha.

Enron said,

I started using Bing recently. It's not bad, but I don't really see what makes it different from other search engines.

The reason for that may be Google, which immediately copies any new feature that crop up on Bing. And later comment that this has been under works for months before Bing launched!

Which mostly sounds like, like they had all these features readied, and were waiting for Bing to launch them first! And it's crystal clear, that Google's updates to it's Search are in defensive mode, or in other words, to protect their own user-base from converting. They are not going after other search-engine users, but more specifically trying to keep their users away from other search-engines. And that's not a good sign.

Having said that, Bing's data representation is by far, better than anything out their. And that one thing could will launch Bing forward.

FMH said,
Live service is not even included in this. It's in Windows Department.
But I think Bing will eventually grow, to become a billion dollar business for Microsoft in due time. And I think a lion share of this yearly losses is contributed by Bing.

Which part of Live do you speak? As there seems to be a lot of confusion, as the online division revenue that is being talked about and the work they were doing included Live. It was only recently folded into the Windows division fully, and still uses the Online Division's resources for a lot of what they build around Live services.

If you read the what division does what, it makes it seem like all the Online Division does is Bing, and even it is cross listed for certain features.

So if anyone is trying to tie the Online Division to Bing and just what 'they' think the Online Divions is doing, they don't have a clue.

FMH said,

The reason for that may be Google, which immediately copies any new feature that crop up on Bing. And later comment that this has been under works for months before Bing launched!

Which mostly sounds like, like they had all these features readied, and were waiting for Bing to launch them first! And it's crystal clear, that Google's updates to it's Search are in defensive mode, or in other words, to protect their own user-base from converting. They are not going after other search-engine users, but more specifically trying to keep their users away from other search-engines. And that's not a good sign.

Having said that, Bing's data representation is by far, better than anything out their. And that one thing could will launch Bing forward.

Besides the obvious fact that, in general terms, whenever a company has the highest marketshare the primary goal is always to retain clients Bing has a specific issue:
It is quite good in the US but almost useless when used in the rest of the World.

dancress said,

Nothing. Except that Google doesn't get yet another veeeeery good look at you. That's why I switched. Garanoia.


Microsoft get a look instead. So you have a choice between a company under investigation for various things and a company repeatedly found guilty and notorious for its bad faith and lies.
I think I will stick to Gookle if this is the only choice.

It's because Microsoft needs an online presence even more than making their online division profitable. Other departments will cover their losses. These news along with their heavy losses are about four years old. During this time, Microsoft begun the Bing project - they didn't end it. And it will stay that way, since Microsoft lives in an online world. Of course, it would be in their and their shareholders interests that the online division's losses were at least not as great, but it's not something that is jeoparidizing Microsoft's online presence.

greenwizard88 said,
exactly. It's amazing how short sighted some people can be.

Short sighted ? 5 and Half years and 9 Billions lost for the future ? what future ? 10 years for now with 50 Billion lost and another 10% market share in US / 2% worldwide ?

alexalex said,

Short sighted ? 5 and Half years and 9 Billions lost for the future ? what future ? 10 years for now with 50 Billion lost and another 10% market share in US / 2% worldwide ?

I'm starting to agree with your sentiment. These online services (other than the ones that add value to their desktop software and mobile software such as the Live services and Sky Drive) are not needed with this kind of a loss.

Shadrack said,

I'm starting to agree with your sentiment. These online services (other than the ones that add value to their desktop software and mobile software such as the Live services and Sky Drive) are not needed with this kind of a loss.

And Microsoft probably knows more about this, than anyone here talking about it, wouldn't you think?

Your concerns are already happening, this is why they dumped a lot and moved on. Notice that MSN is just a shell of what it once was, with all the baggage discarded and what was working moved to Bing and Live.

There are very few non-essential pieces of what the Online Division is doing that is not part of the larger infrastructure and the features you mention that are necessary for other divisions to do what they do from WP7 and XBox to Office and Office Online to even Windows itself.

They integrate a massive amount of technologies, and also are working on their own new technologies that are part of MSN, Live, Hotmail, Bing, etc...

The other thing left out of this piece is all the restructuring and changes they have been investing in over the past couple of years, that will decrease future technologies added to the infrastructure.

Magallanes said,
Microsoft must put a lot more effort in their Ads service.

We obviously need more ads on the web! </sarcasm>

MFH said,

We obviously need more ads on the web! </sarcasm>

No, he has a point, Google are destroying them in this area.

MFH said,

We obviously need more ads on the web! </sarcasm>

Regardless of whether you choose to view or hide the ads, online advertising is only getting bigger. Google reported a 32% increase in advertising revenue last week. This alone speaks volumes in why MS must continue to invest in Bing and their adCenter platform regardless of the short-term losses they take.