Microsoft's Windows 7 is blowing the doors off, but the company's online division continues to piss away a fortune.

How much, exactly?

Nearly $2 billion a year.

$2 billion a year is actually a lot of money, even for Microsoft. And it puts the 3 points of market share the company's search engine Bing has gained since last summer's launch in perspective. (That's $750 $667 million per point).

In case you had any doubt that Microsoft was buying these share gains, by the way, we now have confirmation. Take a look at this helpful language in the company's 10Q:

Cost of [online] revenue increased $171 million or 50%, primarily driven by higher online traffic acquisition costs.

In other words, Microsoft bought its search traffic gains.

How much did it spend on them?

Call it $150 million (most of the $171 million increase).



Ad revenue in Microsoft's online business, meanwhile, dropped 2% to $516 million. Search revenue is part of that revenue. The search portion of the revenue grew, and the display portion shrank. But it seems highly unlikely that search revenue grew more than $150 million year over year.

Which means...

Microsoft spent more buying traffic to Bing than it generated in new revenue from Bing, even before accounting for all its overhead and marketing costs. That $150 million also doesn't include the $100 million Microsoft spent on the Bing launch campaign.

We therefore reiterate what we've been saying for the past three years: We have seen no indication whatsoever that Microsoft will ever build a successful Internet business. And we don't think we ever will.

But in the meantime Microsoft seems intent on flushing billions of those Windows dollars down the drain.





See Also: Steve Ballmer Is Making A Bad $10 Billion Search Bet



