Microsoft Corp is backing up its talk of investing in Web services with cash, months after chairman Bill Gates called the company to arms over an Internet "sea change" in which software and services become delivered over the Web.
Next year the company will invest $2 billion more than expected in a variety of technologies, and the clearest goal is to transform its way of doing business on the Web, analysts and investors said.
Wall Street was shocked by additional spending plans announced on May 4, sending shares down more than 11 percent on Friday. Microsoft arguably is coming from behind, having ceded the early advantage in online advertising.
But history smiles in Microsoft's favour. "If you look at Microsoft historically, it's usually had a second-mover advantage," said Todd Lowenstein, a co-portfolio manager for HighMark Capital Management's Value Momentum Fund who holds shares of Microsoft.
"Microsoft hasn't really been the one to innovate, but to copy and then leapfrog the first mover and that's been the company's modus operandi," he said.
"Microsoft must feel threatened and it wants to draw a line in the sand," he added. "The jury's still out on whether that makes good economic sense."
Microsoft's Windows operating system was not the first graphical user interface, but Windows grew to dominate the market and now sits on 90 percent of all PCs around the world.
Online advertising continues to win over clients abandoning television, newspapers and other traditional media. Forrester Research projects the online advertising to grow to $26 billion in 2009 from $15 billion now.