Admit It, Microsoft: You Suck at the Web

Microsoft (s msft) is many things, but one thing it’s not is a successful web company. And it’s time Redmond faced up to that.

For 15 years, Microsoft has tried time and again to become a major player on the web. It started by integrating an AOL-like (s aol) dial-up content service in Windows 95. It shifted to a Yahoo-like (s yhoo) web portal model three years later. In the search era, it designed search engine after search engine, culminating in an awkward bid to buy Yahoo that felt more like a divorce than a proposed merger. Despite having the most popular browser, however, Microsoft has never really monetized the web in a significant way.

And what does it have to show for all its effort? Years of losses. Since 2002, when Microsoft began breaking out MSN and online services as a separate category, the division has seen aggregate revenue of $20 billion but a total operating loss of nearly $7 billion. In the past 18 months, the losses in proportion to revenue have only grown larger. Microsoft now spends nearly two dollars on its online businesses for every dollar it makes in revenue. Major points for trying, but it’s time to call a failure a failure.

But what about Bing? Hasn’t Microsoft’s latest search engine been growing market share for seven straight months? Yes, it has: Bing’s search share grew to reach nearly 11 percent in January from 8 percent in May 2009, the month before Bing was launched. But look where it’s stolen its search business from — AOL and Bing’s own partner, Yahoo. Meanwhile, Google’s market share during that period inched up to 66 percent. Unless Bing can start eating away at Google’s share, its prospects for growth are limited.

And Google’s big challenge isn’t Bing, it’s the evolution of the web from a primarily search-oriented media to one driven by social dynamics and discovery. The time to start chipping away at Google’s dominance of the search market was five or 10 years ago. Now is the time to be hitting at Facebook and Twitter, but if Microsoft has a plan of attack on that front, it’s not evident what it is.

Does Microsoft not realize that all the spoils of the mobile web are going to the companies that control the front-end interface — that is, the big mobile OS players like Android and iPhone and not the fringe players like Windows Mobile? Maybe. It’s reportedly trying to make Bing the default search engine for the iPhone, but that move may be temporary, if it happens at all. Delay is costly. It released a Bing search app for the iPhone last December — more than six months after Bing debuted for PC browsers — and after a Google app had already been a staple on the iPhone for nearly two years. As of this week, the Google app remains the top reference app in the App Store. Bing trails in the seventh spot.

Which is too bad because in some small but interesting ways Bing is actually an innovative search engine. But Microsoft’s only choice appears to be to keep spending money and creating bigger losses. So there are lots of expensive deals, with Yahoo, with Twitter, with Verizon and maybe with Apple. Indeed, rather than letting its online offerings grow organically, Microsoft is forced to pay rent to companies that have more of a knack for monetizing the online world.

After 15 years, the evidence is pretty clear. The web is just not a part of Microsoft’s DNA. The quarterly results it released this week showed that Microsoft is still surprisingly good at what it does best: selling operating systems and software programs for PCs. There is a long-lived if diminishing market for that business. What Microsoft is not and may well never be is a web company. Mabye it’s time the company sold off its online division to a company that is just that – like Yahoo.