May 4, 2006 10:42 AM PDT

Ballmer details MSN spending plans

REDMOND, Wash.--Microsoft CEO Steve Ballmer on Thursday detailed just how much of Microsoft's extra spending will be devoted to bulking up its Internet services business.

Ballmer, acknowledging that Microsoft's stock has plunged over the uncertainty created by Microsoft's investment plans, said the MSN unit plans to spend $1.1 billion next fiscal year on research and development, up from $700 million in planned spending this year and $500 million in the prior year. The online unit also plans to spend $500 million on capital expenses in fiscal 2007, up from $100 million in fiscal 2005 and an estimated $300 million this year.

"We have told our R&D folks that our number one priority is software as a service," Ballmer said. He promised that Microsoft would spend as much as any player in the online space, an outlay that will be in addition to its substantial research and development budget for other areas of software development.

"I believe only two or three companies can really deliver the infrastructure that's required to keep pace," Ballmer said.

Those plans, he said, did take some by surprise. "Our stock showed some of that surprise."

During Ballmer's speech, Microsoft also offered a demonstration of its AdCenter engine, which the company now uses for 100 percent of its search advertising in the U.S. Until recently, Microsoft relied on paid search technology from Yahoo and still uses that company's engine in many overseas markets.

The Wall Street Journal reported that some within Microsoft want the software maker to take a stake in Yahoo and join forces against Google. Ballmer noted that the company has had both cooperation and competition with Yahoo over the years, but he did not address the speculation head-on.

Yusuf Mehdi, the senior vice president in charge of Microsoft's ad strategy, also showed a future version of AdCenter, which can handle both contextual ads and paid search. Mehdi said Microsoft plans to start limited testing of the contextual ad engine this summer.

Mehdi also showed two projects from Microsoft Research, where more than 50 researchers are working on new advertising technologies. One effort tries to predict user demographics based on the context of a Web site. Another project aims to counter a user's fast-forwarding through commercials by placing a 5-second minicommercial, which plays while the main ad is being fast-forwarded.

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6 comments

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Why he is wrong
Google finds technologies people want to use and later figure out how to generate income from it. The result is that people are interested.

Ballmer does not "get it", he is making these statements as though he is speaking directly to investors.

"our number one priority is software as a service"

Think monthly revenue $$$, great that is _exactly_ what I am out there looking for in a product. I will find a product that will charge me a monthly fee and come up with a use for it later!

The rest is about the "AdCenter engine" etc. which is also obviously aimed at investors and NOT the consumer.

Think: "I really this other product, but I decided on yours becasue of the impressive technology which drives the ads you force on me"

How about doing something with the consumer in mind for a change. After all, they are driving the market, right??
Posted by Dachi (797 comments )
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Agree, but
The problem is that businessmen have a hard time thinking critically, and Balmer is far more dense then your average businessmen.

They look at short term and only think of investors, which is why most businesses always fall short.

Think of creating quality products that your customers will happily use, but will attract new customers, and support them. Everything else will fall in line.

In MS case, it doesn't matter how much you throw at the problem. The money is not being spend on erasing decades of mistakes and legacy code, but to just build on the esisting junk heap. You get nowhere doing that.
Posted by Bill Dautrive (1179 comments )
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check your facts
The article did not clearly state that Ballmer was speaking to hundreds of MSN customers who are "paying advertisers". So in the context of the speech it was directly related to MS customers in this case who are the advertisers who have a direct link/interest in MS Ad center which is a tool for on-line advertisers. The market and customer base for MS or any other large IT supplier are much broader than your narrow definition of "consumer".
Posted by Shakingmy head (48 comments )
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Yet another $1Bln arrow in the wrong direction
$1Bln is a lot of money, even for Microsoft, too bad they're now the Microsoft that spends to hurt competitors instead of to help their customers.

So, where did this software as a sevice strategy come from? Did you just think it up? Or is this because you think its the best way to hurt your
"new" competitors, e.g. Google.

How about another $1Bln devoted to where it really matters: Helping customers and creating a better product.

How about $1Bln to simplify Windows? to remove all those "built-in applications" err, features.

How about $1Bln to get something (it doesn't have to be Vista) out the door that customers can really use.
Posted by Maccess (610 comments )
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