Microsoft will spend $US1.5 billion a year to take on Google

Microsoft chief executive Steve Ballmer says the company must work harder to compete with Google in the online advertising sector or risk missing out on winning a slice of the $US1 trillion media and communications market.

Microsoft chief executive Steve Ballmer says the company must work harder to compete with Google in the online advertising sector or risk missing out on winning a slice of the $US1 trillion media and communications market.

Microsoft, which is number three in search, has now abandoned attempts to buy the world’s second largest search engine, Yahoo. But despite investor concerns that Microsoft’s online services division lost $US1.23 billion last year, Ballmer says the software giant has to keep pushing into the sector.

“We don’t have a lot of trillion-dollar markets that are being transformed. That’s at least a big enough opportunity that at our size, our market cap, we have to go after those opportunities,” Ballmer told analysts.

“The amount of economic value we have the opportunity to create by pursuing this world in which everything goes digital is at least 40%, 50%, 60% more than our economic value today.”

But it ain’t going to be cheap. Ballmer says Google spends $US2.5 billion a year on research and development and Microsoft will need to spend $US1.2 billion to $US1.5 billion to keep pace.

In a separate announcement, Facebook says it will start running Microsoft search ads later this year. Microsoft bought a 1.6% stake in Facebook for $US240 million in October 2007. The site already runs banner ads from Microsoft.

Related stories:

• The power of Google
• Microsoft pulls out of Yahoo takeover