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Microsoft Needs Wake-Up Call: Outrage

Stocks in this article: MSFT AAPL GOOG VZ

NEW YORK ( TheStreet) -- Courier, your tablet idea, died on the drawing board while Apple's (AAPL) iPad rocketed. Your mobile phones don't stack up to Apple's iPhone or Google's (GOOG) Androids. And now your stalled travel business just got rear-ended.

What's next for you, Microsoft (MSFT)? Waiting for a challenge to your PC software franchise?

Steve Ballmer
Microsoft CEO Steve Ballmer

In yet another major defeat for Microsoft in two days, search rival Google has scooped up ITA, the travel data service used by Microsoft's Bing search engine.

The move comes a day after Microsoft killed its Kin phones after just seven weeks of pathetic sales at Verizon (VZ).

But it's Google's $700 million deal for ITA Thursday that provides probably the clearest sign yet that Microsoft is totally consumed by internal battles. The distraction has left Microsoft's growth ventures outside its core computer software vulnerable and neglected.

Bing, Microsoft's revamped search effort, has been the biggest challenge yet to Google's Internet dominance. So why take the pressure off?

How do you let Google get control of the industry's leading travel search engine, the very service that powers your own travel research and ticket booking site? And given that the Google-ITA deal has been openly in the works since April, how do you let them snag it for $300 million less than the $1 billion price tag originally batted about?

The dysfunction is racking up a big bill. Not only is it an embarrassment, but it does nothing to stop the bleeding of cash in areas where Microsoft needs to be expanding. Microsoft's online business runs deep in the red -- last year the online services unit had an operating loss of $2.2 billion.

To be sure, after the Windows Vista fiasco, Windows 7 has been a tremendous homerun for Microsoft. And the upswing in operating system sales has fed a whole family of upgrades like the new versions of Office and Exchange Server 2010.

But Microsoft should take a lesson from the auto industry. Truck and SUV sales can only mask deep problems for so long.

Investors certainly aren't oblivious to Microsoft's problems. Shares of Microsoft are down 23% this year, three times lower than the sagging Nasdaq.

--Written by Scott Moritz in New York.

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