Microsoft Corp. doesn't expect any short-term turnaround in its online services business, and warned investors to expect ramped-up investment with little immediate prospect of profitability.

Published: 21 Jul 2008

Microsoft Corp. doesn't expect any short-term turnaround in its online services business, and warned investors to expect ramped-up investment with little immediate prospect of profitability.

Company's Chief Financial Officer Chris Liddell, speaking after the company's fourth quarter results, reportedly also painted a darkening picture for online advertising..

"The online advertising area is the part of the business certainly that in the short term we think is most challenging," Liddell said. "The online advertising area at the moment is very difficult. That's across the board, that's not just us."

Microsoft said earlier that its online services business lost $488 million, on sales of $838 million. In the year-earlier period, the online services business lost $210 million.

"This is the area where we're seeing direct impact from the economic slowdown," said Liddell.

For the three months ended June 30, Microsoft's profit jumped 42 percent to $4.3 billion, or 46 cents per share. In the year-ago quarter, earnings totaled $3 billion, hurt by more than $1 billion in charges related to defective Xbox game consoles. Revenue increased 18 percent to $15.8 billion from $13.4 billion last year.

On company's plans, Liddell said: "We're focusing on the areas of search where there's a strong commercial intent, such as retail and travel," and on "disruptive" business models such as Cashback Search.

Live Search CashBack gives advertisers the option of offering users a direct rebate for purchases made after searching on Microsoft. The product shifts search advertising from cost-per-click (CPC) to cost-per-action (CPA) and give a lot of the revenue back to users.