An 11% increase in Q1 profits and revenue at Microsoft Corp. was undercut by a loss in its online division as ad sales declined 4.4%.
The company posted a net profit of $3.5 billion for the first fiscal quarter of 2007 on revenue of $10.8 billion. Those figures compare to $9.7 billion in revenue and $3.1 billion in profits for the same quarter last year. Much of the growth was produced by sales of enterprise servers and Xbox 360 gaming consoles.
But ad revenue at Microsoft’s Online Services Group came in at $539 million in Q1 2007, off from the $564 million the division posted last year. Display ad sales rose slightly for the quarter, but search revenue declined even though queries grew modestly.
In a conference call following the earnings release, Microsoft chief financial officer and senior vice president Chris Liddell said the company’s search pricing was still trailing year-ago levels as a result of the introduction of its adCenter search ad platform last December to replace pay-per-click ads from the Yahoo! network.
“In terms of revenue per search, that is going up sequentially as we get more advertisers onto the adCenter platform,” he said. “We’re now close to lapping where we were when we came off the Overture platform from last year.” He forecast that U.S. revenue per search would show positive year-over-year growth in the second half of the fiscal year.
The company predicts that online services revenue will grow 3% to 5% next quarter and will increase 7% to 11% for the full fiscal 2007.
Last Friday Microsoft also launched a print and online ad campaign to promote the recently launched Windows Live Search, which will eventually replace MSN Search as the house brand.
The print campaign depicted Microsoft’s search engine as a scrappy underdog battling Google. “Let us state the obvious,” said the full-page ads that ran in USA Today, the New York Times, Wall Street Journal and dailies in San Francisco, Seattle and San Jose CA. “We’re late to the game. We admit it. But… we’ve decided to write a few new chapters.” The ads went on to tick off some of Windows Live Search’s enhancements in image search, mapping tools and local search.
Microsoft will also promote its search in online advertising on external content sites and ad networks, as well as on its own proprietary sites.
