Microsoft Search Lags, but Display Ads Up

Microsoft reported overall revenues of $12.54 billion for the fourth quarter 2006 today, but acknowledged that it had lost ground in the search marketplace. Display ad revenues were up over Q4 of last year. The firm’s overall Q4 revenues mark a six percent increase over the same period of the prior year.

“Advertising revenue grew 20 percent over the quarter and we’re happy with that,” according to Chris Liddell, chief financial officer for Microsoft, who noted a boost in image-based ad revenue over Q4 2005. “On the search side, we lost market share, and we’re clearly not happy with that,” he said.

According to ComScore, MSN came in third in share of online searches in December 2006, with 11 percent, compared to Google’s 47 percent and Yahoo’s 28 percent.

“We continue to take a long term view of this business,” added Liddell regarding the firm’s search ad platform. “We are getting advertisers onto our platform and turning the corner on revenue on a quarter-by-quarter basis. We still expect to get revenue per search channel equal to where we were a year ago, by the end of this year.”

The company expects to continue its overall revenue growth following the release of Windows Vista, Outlook 2007 and other products, through the quarter ending March 31, 2007. The company predicted revenues of $13.7 billion to $14 billion.

Liddell attributed the previous quarter’s growth to a number of factors, including sales of the Xbox game platform and the business distribution of Windows Vista.

Web traffic monitoring firm Nielsen/NetRatings backed up Microsoft’s growth claim with its January 2007 “Windows Live Local growth calculated using MSN Maps & Directions for Q4 2005” which found that Web traffic to the Microsoft itself increased seven percent year over year. It went from a three-month average monthly unique audience of 111.4 million unique visitors in Q4 2005 to 119.5 million unique visitors in Q4 2006. The report also found that Web traffic to the MSN/Windows Live brand increased eight percent year over year, from a three-month average monthly unique audience of 90.7 million to 97.8 million.

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