Windows Live lost $560m in FY09
Microsoft this morning gave Wall Street analysts new information about some recent behind-the-scenes reshuffling of its business groups. In the process, the company provided details about the financial performance of groups whose results are normally hidden …
Context & Ripple Effects
Microsoft's consumer-services numbers have long been buried inside broader segments, so the analyst briefing that surfaced them is itself the story: the company used a behind-the-scenes reshuffling of its business groups as the occasion to open books it normally keeps closed. The $560 million fiscal 2009 loss for Windows Live puts a hard figure on problems analysts had already been flagging — CNET reported as far back as January 2007 that poor Live branding was hurting Microsoft, suggesting the identity crisis predates the red ink.
The disclosure also lands against a longer reporting backdrop: Microsoft's quarterly results have historically been read through big-segment aggregates like the ones published in its fiscal 2006 Q1 release. Breaking out a single consumer division's losses changes what Wall Street can hold management accountable for.
First-order effects
- Analysts covering Microsoft gain a standalone P&L for Windows Live for the first time, letting them benchmark its consumer web and services spend directly against rivals instead of inferring it from segment averages.
- The executives running the newly reorganized groups now own visible numbers — a $560 million annual loss is no longer absorbable inside an opaque segment.
Second-order effects
- Google and Yahoo, competing with Microsoft's free consumer offerings funded out of Windows profits, face a Redmond leadership under new investor scrutiny to either fix those economics or shrink the footprint.
- Advertisers and partners evaluating Microsoft's web properties get a clearer signal about how much subsidy sits behind those products, sharpening their negotiating position.
Third-order effects
- If Microsoft keeps disclosing formerly hidden division results, other conglomerate-style tech companies will face pressure to do the same, making unprofitable 'strategic' consumer services harder to shelter inside healthy core businesses.
The trend: Tech conglomerates are moving toward finer-grained financial disclosure, exposing money-losing consumer web divisions that were once cross-subsidized invisibly by core businesses like Windows and Office.