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Microsoft pledges huge investment in search

By Reuters

Posted on 19 Jun 2009 at 08:19

Microsoft is willing to invest up to 10% of its operating income on search for up to five years, says Steve Ballmer.

The company's new search engine, Bing, has been winning market share from rivals, according to industry data released this week, but still trails market leader Google by a long way.

"Our shareholders, I told them we were willing to spend 5 to 10% of operating income for up to five years in this business, and we feel like we can get an economic return," Ballmer told a business lunch in Chicago, without elaborating on the timeframe.

The new search engine grabbed 12.1% of US searches for the 8-12 June work week, up from 11.3% from 1-5 June but trailing Google's 65% of US searches in May.

"You don't go from 8% to 80%. You have to be patient," said Ballmer. "We invested in Xbox for years and now it generates nice economic returns for us," he added, referring to the company's popular gaming console.

Microsoft reported operating income of $4.4 billion last quarter, which would mean Ballmer is envisaging spending up to $440 million per quarter, or almost $1.8 billion per year, developing Bing.

Microsoft does not break out investment in its various projects, so it's not clear if that is a significant increase in previous spending. Microsoft has continued to invest in internet projects, even though its online services business is a net drain on cash, losing $575 million last quarter alone.

Bing, fully launched on 3 June, is just the opening salvo in Microsoft's campaign to counter the dominance of Google in the search and related advertising business.

The world's largest software company, which is in talks with Yahoo over a potential partnership, has long been determined to play a role in that lucrative space after watching rival Google take a stranglehold on the market.

Ballmer regretted that Microsoft had not entered the internet search market earlier, saying that the company understood the technology's importance, but had not come up with a way to monetise it.

"If we could have one do-over I would probably say I would start sooner on search," said Ballmer. "Sometimes the error you make is what you don't do and don't see. Our mistake wasn't that we didn't see the technology change coming, we didn't see the business change coming."

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