Microsoft has owned up to the failure of an ambitious push five years ago to become a power in online advertising, revealing that it will take a $6.2bn writedown on the business.
The non-cash charge reflects the fact that online advertising is no longer expected to produce the growth or profits that had once been projected, the company said in a statement on Monday.
The charge stems mainly from Microsoft's failure to get the boost it hoped for from its $6.3bn purchase in 2007 of online advertising concern AQuantive, which at the time was its most expensive acquisition. AQuantive was a leader in the business of automating the selling and serving of display adverts over the internet, a business known as "adtech" and one in which Google has been the leader since its 2007 acquisition of DoubleClick.
AQuantive was once a strong number two player in the business but has lost ground as Google has benefited from the economies of scale and network effects that come from being the biggest player in the market, said Brian Wieser, an analyst at Pivotal Research Group.
The admission of failure in a core part of its advertising business raised broader questions about Microsoft's future in advertising-supported online services, according to some analysts.
"It reflects a tidal change in Microsoft's commitment to how much they're prepared to lose in this business," said Rick Sherlund, software analyst at Nomura. Since the AQuantive deal, Microsoft's internet businesses have suffered operating losses of some $9bn, almost as much as the revenues over that period of $11.5bn.
Besides the display business, it has invested heavily in search advertising and taken over Yahoo's operations in that area, though results from the partnership have fallen well short of its hopes.
"Most investors would be happy if they were to sell the whole online business to Facebook and back away," Mr Sherlund said. Facebook would be better placed to make money on the business, thanks to the amount of personal data it has on its users, and Microsoft would still receive a large proportion of the revenues after giving a slice to Facebook, he added.
Microsoft moved into online advertising as a response to the rise of Google and as a hedge in case advertising-supported internet services began to eat into its traditional software business. The software company said it had taken the charge due to accounting rules that require US companies to write down the goodwill from acquisitions which have not achieved their expected benefits.