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Microsoft will ante up $1.2b annually to keep pace with Google

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Bloomberg News / July 25, 2008

NEW YORK - Microsoft Corp. chief executive Steve Ballmer plans to spend at least $1.2 billion a year for the foreseeable future to compete with Google Inc. because the opportunity in online advertising is too big to ignore.

"The amount of economic value we have the opportunity to create by pursuing this world in which everything goes digital is at least 40, 50, 60 percent more than our economic value today," Ballmer, 52, said yesterday at a meeting with analysts at company headquarters in Redmond, Wash.

Microsoft, owner of the number three US search engine, is struggling to take market share from leader Google and working to justify continued investments to its shareholders. The company said social-networking site Facebook Inc. will run Microsoft ads with its searches, expanding on a deal for other promotions. Online ad sales will double to $51 billion in the United States by 2012, according to EMarketer Inc.

"If you think you can be successful with patience, it's a relatively small investment," Ballmer said.

He said he didn't know how long spending increases would continue. "We're going to need to continue to invest until we get greater scale in this business," Ballmer said. Microsoft must "ante up in a significant way" to compete in Internet technology, keeping pace with Google's annual spending on research and development.

Microsoft, which failed in an effort to buy Yahoo Inc. this year, will focus the additional money on boosting the online business and increasing marketing of personal computers and phones to consumers, Ballmer said. Ads for mobile handsets may help put the Web unit in a better position, he said.

"The average investor believes that every dollar they invest is going to evaporate," UBS AG's Heather Bellini, the top software analyst in an Institutional Investor survey, said.

Ballmer admitted the online business isn't where he would like it to be. "Why are we pursuing this? I get this question from shareholders," he said. "We don't have a lot of trillion-dollar markets that are being transformed. That's at least a big enough opportunity that at our size, our market cap, we have to go after those opportunities."

'We're going to need to continue to invest until we get greater scale in this business,' Microsoft chief executive Steve Ballmer said.

Pursuing opportunity

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