Windows Live Still Losing Money

With the hype machine going full blast for the consumer release of Windows 7 next month, Windows Live has gotten lost in the noise. However, during a typically boring conference call with financial analysts Tuesday company executives revealed some interesting details about Windows Live finances.

As part of a conference call to discuss with analysts to discuss some changes in Microsoft’s accounting structure, Microsoft’s Chief Accounting Officer Frank Brod gave analysts a peek into an important component of the software titan’s “software-plus-services” strategy, specifically its Windows Live business.

Brod said that in fiscal 2009, which ended on June 30, Windows Live brought in $520 million in revenue, mostly from advertising, but lost $560 million total for the year.

One of the accounting changes was to move accounting responsibilities for Windows Live – which had been in the Online Services Business books – to the Windows Client business, prompting the discussion of Windows Live’s costs. Additionally, the Online Services Business has been renamed the Online Services Division.

Windows Live, which is free, constitutes the consumer side of the company’s push into Web applications and services hosted in the cloud. These include Live ID authentication, Live Messenger instant messaging, Hotmail e-mail, Live SkyDrive for file storage and sharing online, as well as Photo Gallery, Movie Maker, and Family Safety.

Microsoft launched its most recent rejiggering of its Windows Live tools and services almost a year ago in November 2008. At that time, Microsoft also rebranded them as Windows Live Essentials.

Microsoft has claimed on several occasions recently to have 500 million customers for Windows Live — most of which are likely Live ID, Live Messenger, and Hotmail users.

Not surprising, then, that high up on the list of Windows Live’s top expenses is the entire infrastructure built to host those services and applications.

“Windows Live operates at a loss with the bulk of our investments in three major areas. First, datacenters that run the Windows Live Services, R&D, and innovation on the Windows Live platform, and then sales and distribution as we build out the user base and engagement of our Windows Live base,” Tami Reller, CFO of Microsoft’s Windows Business Group — the organization responsible for both Windows and Windows Live — told the analysts.

“The investment in the datacenters is one of the most significant investments in the Windows Live business, and really is a result of the large customer base and the strong competitive position that we have today across these services,” Reller added.

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