Microsoft has had a bumper quarter with net income rising 23% to $23.15 billion, but make no mistake where their profits have come from – the old enterprise staples, Windows and Office. The company is still losing money, and a lot of it in their online division.
The chart below from Business Insider shows the breakdown of profits and losses for each division, with the only one in the red, and increasingly so, is online.
Bing has been steadily gaining market share on Google in search, and Microsoft does now supply the search index for Yahoo as well – but they are a long way from turning a profit. Indeed, over the last year Microsoft’s Online Division has lost a staggering $2.5 billion – and that is 22 consecutive quarters of losses, with the problem getting worse. They may blame some of the increased losses on the Yahoo deal, but they also recently paid out $8.5 billion to buy Skype – another online company that has continued to lose money quarter after quarter.
As a ray of hope to turn the fortunes of this division around, Microsoft’s Windows Phone 7 platform has had very positive reviews from users, and whilst the userbase remains small at this point, the Nokia deal may well start to improve their fortunes. If all future Nokia smartphones have Bing as their default search engine, and that company manages to reverse its fortunes, then Microsoft may start to see significant revenues from their online division serving mobile ads. Throwing money at the problem has worked for Microsoft in the past in its entertainment division – we shall wait and see how this one plays out.
