Microsoft's Online Division: Flat Growth Rate, Still Burning Cash

Microsoft’s core software business had another strong quarter–so how about the online division? Bottom line: organic advertising revenue growth of 24% (slight deceleration from last quarter) and cash operating losses of $199 million, a minor improvement.

The first problem with Microsoft’s online services division is the name: Microsoft’s online services division. MSN, Windows Live, Office Live,, aQuantive…we’d feel better about the company’s chances if it could begin by settling on a brand (or at least a couple of brands).

As for last quarter…

Online revenue jumped 38% to $863 million, for an overall annual run-rate of a respectable $3.4 billion. Of that, $623 million was advertising ($2.5 billion run rate), making Microsoft’s ad business one-seventh of Google’s size and about one-third of Yahoo’s size.

Of the advertising business, which also grew 38% year over year, $112 million came from the aQuantive acquisition. Excluding this, the division’s ad revenue grew 24% vs. 25% last quarter. This means Microsoft almost certainly lost more share to Google in the quarter, but may have picked up a small amount against Yahoo.

Most importantly, despite the acquisition of profitable aQuantive, Microsoft’s online business is still burning money–$800 million a year (after factoring out some non-cash charges). This is an improvement vs. Q207, when it was losing $1 billion a year, but it’s still horrible.  Even walloped AOL is still printing money. Microsoft’s online successes, such as they are, won’t be taken seriously until the company is running a large, organically growing, profitable business.

See Also:
MSN: Still Sucking Wind After All These Years
SAI MSN Analysis Spreadsheet

Microsoft-Yahoo Deal:
How to Structure a Microsoft-Yahoo Deal
One Problem With a Microsoft-Yahoo Deal: MSN is Only Worth $10 Billion
Proof that Microsoft Plans to Buy Yahoo?
Playing the AOL-Yahoo-Microsoft Chess Game

Microsoft-AOL Deal:
Why Yahoo Should Buy AOL
Why Microsoft Will Steal AOL from Yahoo

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.