As someone working in the online services division I have to say that this analysis is extremely simplistic. Would they be saying the same thing about Facebook? It was in the red for many years before it became profitable. That was the plan.
Besides, the whole independent division comparison to a whole entity is a little ridiculous. Every company, including Facebook, spends a certain amount of cash flow on R&D, it's a competitive necessity. The fact that Microsoft structures a large part of their R&D into a division shouldn't necessarily be the fault of the division when they don't immediately turn a profit.
As long as they are meeting their internal (revenue/profit/growth) goals, I don't see the problem with giving out bonuses and rewarding the players involved.
If anything, I wish they had the same force behind online services as they have with the Xbox division. They really got Xbox Live right!
qualitatively, I don't see much difference between investing VC cash vs investing parent company cash.
Or are we hand waving and saying that Microsoft has technically lost more money than grains of sand on the beach, but has executed a brilliant strategic plan to keep Sony from taking the lead in the market for set top boxes?
Regardless, what's more interesting to me is that ten years ago I would have said "what the hell does MS want to make a game console for?" Now that things have shaken out, XBOX has given them a strong foothold not only in gaming, but in home media in general. That's the more compelling ROI to me.
[1] http://www.businessweek.com/news/2010-07-07/microsoft-xbox-l...
However, if you look over in Cupertino, you see a company with a foothold in home media that made money while grabbing their foothold. Therefore, I wonder if what we have is mediocre execution of a bad plan to grab a good market?
That sounds spot on to me. But that's the game MS plays - they throw money at problems for years until they get it right. I'm not saying its the best strategy, and certainly not the most efficient, but in this case I think they're achieving what they set out to do.
Further, I'd question whether "option C" (the Apple strategy of making money while establishing the foothold) is available to Microsoft. They're not known for that kind of innovation and precision, they're more like a wrecking ball that sometimes gets aimed in the right direction.
It's hard for me to believe that amount of loss comes just from datacenter/development costs of Bing and Msn.