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Microsoft’s Online Advertising Revenue Drops 16%, Time to Give Up?




Microsoft reported its first ever year-over-year quarterly drop in revenue, in its entire 30-year history!

I’ll let that sink in for a second.

In its three decades of existence, Microsoft had never before seen a year-over-year quarterly drop, so if you needed a sign of just how bad this recession is, this is it!

Here are the official numbers:

…revenue of $13.65 billion for the third quarter ended March 31, 2009, a 6% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $4.44 billion, $2.98 billion and $0.33 per share, which represented an increase of 3% and declines of 32% and 30%, respectively, when compared with the prior year period.

Perhaps even more significant is the 16% decline in online advertising revenue (just $521 million) with its overall online services posting a loss of $575 million.

Which makes you wonder–why doesn’t Microsoft just give up on online advertising?

Seriously, with all the attention it’s spending on trying to get its search product any kind of traction, and the continued infatuation with Yahoo, you’d think that the online services side of the business was a huge part of what makes-up Microsoft. Clearly it isn’t.

Aside from the investment in R&D and promotion, Microsoft’s online services are weighing down its bottom line–net income for the quarter fell 32% compared to last year.

Perhaps Microsoft needs to concede the battle to Google. Maybe, instead of acquiring Yahoo to bolster its online offerings, it should be begging Yahoo to take its own online services off of its hands. Maybe it’s time for Microsoft to go back to being a software company.

What do you think? Should Microsoft press on? Is there a greater risk in not trying to compete in the online space?

PS. Bonus points, if you get the connection between the image above and this post. ;-)

PPS. WebbyThoughts correctly identified the cover for Rush’s “Exit Stage Left” album.

  • http://www.webbythoughts.com/ WebbyThoughts

    That’s the Exit Stage Left album cover. What do I win!

    It’s strange to me to think that getting $500 million plus of revenue in the online advertising is small enough that they should consider giving it up. I’m not sure how to fix it be based on the report in one of your recent posts, online advertising is going to increase quite a bit over the next 5 years.

    It seems like a worthwhile investment to keep poking at it and trying to figure out how to get a larger martket share.

    WebbyThoughts’s last blog post..Check your Google Webmaster Tools account

  • http://none Alex Cook

    hmm giving up online? maybe not, but becoming as lean as they can yeah…

    ¿back to being a software company? absolutely, MS is facing strong competition from apple and linux… i say go back to making efficient OS´s, launch a free or $5 OS that can fly on old pcs, low spec pcs, and win back the hearts of all those linux lovers and windows haters.. theres so much that MS could offer, but with there attempts at diversifying their core expertise seems to have become outdated.

  • http://www.marketingpilgrim.com Andy Beal

    @WebbyThoughts – the problem is MSFT has been “poking at it” for many years now–when do they give up? BTW – congrats on spotting the album cover for Rush’s “Exit Stage Left.” You win a link back to you site. :-)

  • http://www.webbythoughts.com/ WebbyThoughts

    Thanks. Google helped me find the answer. Maybe MSFT really should give up the online efforts :)

    WebbyThoughts’s last blog post..Check your Google Webmaster Tools account

  • Dean

    Re: Bonus points, if you get the connection between the image above and this post…maybe as a Canadian I am at an unfair advantage but that’s Rush’s Exit Stage Left album cover ;)

    As for Microsoft, may be the strategy is to cede the market to Google. This will accelerate its position as a monopoly after which MSFT can re-enter the market.

    Or in the words of Geddy Lee maybe they just need a better “Salesman!!!!”

  • http://www.russellholidayhouse.co.nz/ Steve

    Thanks for the interesting Article Andy.
    I have to wonder how long Steve Balmer can hold on to his CEO role at Microsoft. Stock price has only gone only 1 way since he took over as CEO, declining from something like $45 in 2000 to a low of $17 in Jan this year. Despite Microsoft having a crack at many things (including advertising, its still makes something like 70% of its revenue from windows & office. Google must surely be looking at making a serious play for the OS space with an expansion of the Android OS. They have already have dabbled with Google docs. I would have to say the writing is on the wall for MS, and its not just in advertising space.

    Of course the flip side is that 99% of Google’s revenue comes from search & the associated advertising it attracts (i.e adwords etc). If someone develops a better search algorithim, Google would be dead within a couple of years.

    Steve

    Steve

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  • http://notnews.today.com/ David Gerard

    The thing is that Google AdSense is the owner of online ad publishing, and while paying best also upsets a lot of people.

    So there’s room for Microsoft (Microsoft!) to behave like an upstart and *outcompete them*.

    I’m not sure what the holdup is. Are they waiting to make it only run on Windows or something?

    David Gerard’s last blog post..Sound copyright extended into perpetuity

  • http://www.noprescriptionrequired.blogspot.com Shalini

    Thanks for posting this, Andy. I am reading the Google story right now, and it sure seemed like they were looking to take out Microsoft (although they never explicitly say that).

    Shalini’s last blog post..No Prescription Required for Provillus

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  • http://www.renk.web.tr ankara web tasarım

    İt’s a nice blog.Thanks.

  • Ross Bradley

    “Maybe, instead of acquiring Yahoo to bolster its online offerings, it should be begging Yahoo to take its own online services off of its hands.”

    I’d go as far as suggesting that a “logical” move for Microsoft and probably one that’s being ‘fine-tuned’ (in their discussion at this very moment), is one that would see the existing Yahoo! Publisher Network get to [soon] “join” up with MSN’s new (beta), ‘pubCenter’. [That the Yahoo, YPN]

    This would then see Microsoft’s ‘pubCenter’ now virtually BUYING Ads from both Yahoo (from all their existing advertisers) along with others in Yahoo’s Open (Right Media) Ad Exchange (that operates on the same as Google’s DoubleClick) and not surprisingly,would then be buying for on behalf of, yes, BOTH the existing Yahoo and MSN publisher sites. And it’s really ‘no big deal’, with technology, surely?

    And with both MSN and Yahoo (now) “co-peting” like this, they are then providing that necessary (and what will become an inevitably required) ‘NEUTRALITY’ (or, a complete transparency), for both (or, all of Yahoo’s) advertisers & the new Microsoft ‘pubCenter’, along with all of it’s ‘new-found’ (additional) publisher sites, that they’d then get to represent.

    How hard would that be?

    This “logical” move really is a ‘no-brainer’ and one that IF it hasn’t already been considered, should be. And is one that would leave Google (in time), almost sitting on the “raw end of the pineapple”.

  • Ross Bradley

    “Maybe, instead of acquiring Yahoo to bolster its online offerings, it should be begging Yahoo to take its own online services off of its hands.”

    I’d go as far as suggesting that a “logical” move for Microsoft and probably one that’s being ‘fine-tuned’ (in their discussion at this very moment), is one that would see the existing Yahoo! Publisher Network get to [soon] “join” up with MSN’s new (beta), ‘pubCenter’. [That’s the Yahoo, YPN]

    This would then see Microsoft’s ‘pubCenter’ (now), virtually BUYING Ads from both Yahoo (from all of it’s existing advertisers) along with others in Yahoo’s Open (Right Media) Ad Exchange (and one that would be operating on the same basis as Google’s DoubleClick) and not surprisingly, would then be buying for on behalf of, yes, BOTH the existing Yahoo and MSN publisher sites. And it’s really ‘no big deal’, with all the technology that’s now available, surely?

    And with both MSN and Yahoo (now) “co-peting” like this, they are then providing that necessary (and what will surely become an inevitably, required) ‘NEUTRALITY’ (or, having complete transparency), for both (or, all of Yahoo’s) advertisers and the new Microsoft ‘pubCenter’ (currently in beta), along with all of it’s ‘new-found’ (additional) publisher sites, that they’d then get to represent.

    How hard would that be?

    This “logical” move really is a ‘no-brainer’ and is one that IF it hasn’t already been considered, should be. And it is one that would leave Google (in time), almost sitting on the “raw end of the pineapple”.