Original URL: http://www.theregister.co.uk/2008/07/24/ballmer_ante_up_google/

Poker-faced Ballmer explains Google beating plans

Send in the marines

By Gavin Clarke

Posted in Financial News, 24th July 2008 21:45 GMT

When you report annual revenue of $60bn you'd expect Wall St would give a little credit where credit's due. Not take your stock price outside and rough it up.

Yet, a pounding it got last Friday from analysts concerned by increasing costs and ongoing losses at Microsoft's online business - MSN, Windows Live, Live Search and Microsoft Advertising.

The online business (OLB) reported a $1.2bn annual loss thanks to substantial spending on R&D - up 14 per cent for the whole company to a record $8.6bn - and increased marketing activities to promote Windows Live and Live Search among consumers to whom the internet means Google.

So it won't have helped when, on the eve of Microsoft's annual Financial Analysts Meeting, where senior management explain how they'll make stock holders even richer in the coming fiscal year, that the executive leading its online strategy just suddenly quit after 16 years with the company and less than two years since taking charge.

Not exactly a ringing endorsement, and a turn of events that saw Microsoft's stock take its second plunge in two weeks - down around seven per cent on Thursday.

Time to send in the marines, or one ex-marine in particular - chief executive Steve Ballmer - packing some shiny weaponry in the form of demos. Dazzle the money men and convince them Microsoft's online strategy is - contrary to perceptions - not a money pit that's failing to increase market share in search of advertising, and its strategic gambit for success - the purchase of number-two player Yahoo! - has not degenerated into an embarrassing soap opera.

"With [recent] organizational changes, it seemed like today was a good day for me to get in front of you with the topic [online and search]," Ballmer said referring to Johnson's departure and the fact he now has direct responsibility for Microsoft's separate Windows Live and OLB activities.

Microsoft OLB spending screenshot, by Microsoft

Spending up across most categories for Microsoft Live Search and Advertising

"It made sense to have the person talking about the big investment we were making online was going to be here in three weeks," Ballmer said.

Ballmer talked tough, telling analysts to brace for more losses from OLB as it "antes up" in R&D and marketing around Live Search and Microsoft Advertising. These are the two areas in OLB seeing the biggest increases in spending in what Ballmer called a "two-horse race" against Google.

Ballmer committed to "at least" an annual investment of between $1.2bn and $.15bn a year on search and advertising just to remain competitive against Google.

The goal is to attract more users, creating more searches, puling in more advertisers and inventory, with advertisers buying more key words. He dismissed the proposed Yahoo! deal as a mere "tactic" to provide advertising scale and relevance. "We have alternative paths for getting relevance up," Ballmer said.

The path to getting greater relevance includes gilding the search and interface experience for users hooked on Google, plus a massive indexing of results to make Live Search actually useful to users and advertisers.

"If we are going to be in this game we have to innovate and reinvent, but we also have to ante up and the ante can look very large to you. To me it looks very smart," Ballmer said.

He didn't detail future R&D and marketing spend, just promised Microsoft would succeed with more - yes - anteing up. "How do we succeed? We are going to have to ante up in a significant way to even be in this game. If you play poker, you have to meet the main pot to be in the game."

Time to deploy demos to divert and confound financial analysts. Ballmer brought on lower-ranking executives to demonstrate changes in Live Search that add capabilities such as scrolling down an endless page of search results, rather than having to click through to a new page of results as you do with Google, and the ability to combine images in results rather than have them display separately.

Also demonstrated was the use of improved shopping with the ability to suck in shoppers' reviews and to categorize them according to type. Also, analysts were promised they would be able to book travel tickets using algorithms that would let them predict the best time to purchase air tickets or hotel rooms.®