LOS ANGELES (AFX) -- Microsoft Corp. plans to double the amount of money it spends on research and development in its online business, investing as much in the segment as any of its big rivals and focusing on providing software as a service, Chief Executive Steve Ballmer said Thursday.
The world's largest software firm plans to spend $1.1 billion on new products and initiatives related to its online activities like MSN in the coming fiscal year that starts July 1, Ballmer told a gathering of advertisers during a summit that was broadcast via the Internet.
The figure is double what the company spent in the segment in fiscal 2005.
Microsoft plans to invest 'as much as any of the other big players' in its Internet business, the energetic chief executive said in his speech to promote a new Microsoft advertising delivery and auction service, called adCenter. Ballmer, presumably, was referring to rivals Google Inc. and Yahoo Inc. , which both easily dominate MSN in the number of Internet searches conducted.
In total, the maker of the Windows operating system used to power more than 90% of the world's computers will spend about $6.2 billion on R&D, he said. Microsoft's No. 1 priority with the spending is software as a service, he added.
The company anticipates its capital spending will rise to $500 million in the coming fiscal year, from $100 million in fiscal 2005, according to Ballmer.
As Redmond, Wash.-based Microsoft looks for ways to better compete with nimble rivals like the relatively young Google, the software giant has ratcheted up spending plans. Last week, Microsoft surprised investors and analysts by unveiling plans to spend around $2 billion more than analysts had expected in its business.
'I think we surprised some in the financial community with some of this last week and our stock showed that surprise,' Ballmer observed. 'But our dedication and determination to invest in this is strong,' he said. Microsoft is 'patient, determined and long-term committed' to take part in innovation in online advertising and snag a 'more significant footprint in the advertising arena.'
Last Friday. Microsoft shares sank 11%, suffering their biggest percentage decline in nearly six years, as investors reacted to the increased spending news, delivered along with disappointing quarterly results.
Chief Financial Officer Chris Liddell said on a conference call held just after the results that Microsoft would 'quicken the pace of development on businesses where we can drive growth and build meaningful share.' Yet the company had provided few specifics on which initiatives would receive the billions in extra spending.
A platform to lift all boats
During his Thursday speech to unveil Microsoft's new adCenter online-advertising effort, Ballmer emphasized the importance of creating a platform for new types of advertising and content. Drawing a comparison between the technology ecosystem that sprung up around Microsoft's Windows, he said: 'As a platform provider, I think we do, as a company, understand better than anyone how a rising tide can lift all boats.
'These are certainly early days,' Ballmer added. 'I believe that only two or three companies can deliver the infrastructure that's required to keep pace with consumer demand and advertisers' needs.'
Microsoft is investing in a 'variety of different places and a variety of different experiences' that should be of value to marketers, the executive indicated.
With adCenter, which now serves all of the paid search traffic on Microsoft's online properties in the United States, the company ultimately seeks to provide advertisers one place to buy search, contextual or display ads across its online properties. It had been testing adCenter with some 6,000 advertisers.
The official launch of the new service also marked the end of Microsoft's use of Yahoo's ad-auction system, which had been used while readying an in-house system.
Microsoft's stock, a Dow component, gained more than 1% to close Thursday's session up 27 cents at $23.44. The stock remains down more than 10% for the year so far, and has ranged in price from $23.15 to $28.38 over the past 52 weeks. This story was supplied by MarketWatch. For further information see www.marketwatch.com.