TechWeek: The Trouble With Being Microsoft

Other analysts, including Mike Marzolf, a portfolio manager with Thrivent Financial, were bothered because Microsoft dropped a $2 billion spending bombshell and didn't specify where the money would go.

But that question was largely answered this week, when CEO Steve Ballmer unveiled adCenter, the company's new Internet search advertising service, and said Microsoft will increase R&D spending for MSN by 57% to $1.1 billion and increase capital spending for the Web portal to $500 million from $300 million this year.

That's plenty of cash, but remember: Ads related to Internet searches pulled in some $5 billion in revenue last year. And Google(GOOG Quote), of course, is a formidable competitor, with a very long lead over Microsoft, which leads investors to ask if Microsoft can defeat Eric Schmidt & Co.

But that's the wrong question to ask. The right question is this: "Can Microsoft make money competing with Google and Yahoo!(YHOO Quote)?

The answer remains to be seen, but Goldman Sachs analyst Rick Sherlund framed the question well in a recent note. "To be big it may not be necessary to beat Google. Perhaps the view is that Microsoft will be broader in directing ads than Google or Yahoo! by leveraging a broader array of services including video games with Xbox directed advertising, mobile, small business hosted services (Office Live), and third-party generated content built with Microsoft's tools."

Fair enough. But investors are running out of patience with the company, and it had better show some results -- or at least convince investors that good results are coming before too long.

"I'm going to give Microsoft a few more quarters," says Daniel Morgan, portfolio manager for Synovus Investment Advisors. Asked why he can't a bit more patient, Morgan spoke for many hard-pressed managers, saying: "I'm judged on my results and I've been in this stock for a long time."