Did Microsoft loose $560 million on Windows Live?

Online services have been a financial drain for Microsoft, and the company said it has moved financial reporting for Windows Live from the Online Services Business to the Client division.

In a conference call with Wall Street analysts, Microsoft executives said Windows Live pulled in $520 million in revenue in fiscal year 2009, but posted a loss of $560 million. This is by no means a recent trend. Overall, the Online Service Business posted an operating loss of $2.2 billion during fiscal 2009, after racking up a $1.2 billion loss in fiscal 2008.

Tami Reller, Chief Financial Officer and Corporate Vice President, Windows Business Group, said Windows Live operates at a loss primarily due to data center construction costs, research and development, and sales and distribution costs.

"The investments in the data centers 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," said Reller.

Windows Live, which includes Hotmail, Live Messenger, and Skydrive, has more than 500 million users, and makes the bulk of its money through online advertising, according to Microsoft. As the user base grows, Microsoft will continue to invest in building out the data center infrastructure to support them, while also maintaining its investment in R&D, sales, and distribution, according to Reller.

"It is an organizational move, not new or changed investment," said Reller.

Microsoft will report its fiscal 2010 first quarter results on October 22, and Wall Street will be looking for some signs of improvement from several consecutive dismal quarters. Slowing PC and server sales have decimated Microsoft's business, and company officials have called the situation the most difficult economic environment the company has faced in its history.

Agencies