Microsoft Gets Stung by MSN Butterfly

A big part of Microsoft's (MSFT Quote) mess is its also-ran MSN search engine.

Shares of Redmond, Wash.-based Microsoft plunged 11% Friday in the wake of Thursday's soft quarter and tepid guidance. The world's largest software maker attributed the miss to heavy spending in a number of areas, including the Xbox 360 product costs, accelerated hiring, more R&D and heavy marketing as the company prepares for the launch of Vista, the new version of its flagship Windows operating system.

But another key factor in Microsoft's surprising shortfall was the rising cost of competing with the better-positioned Net players, notably Google (GOOG Quote) and Yahoo!(YHOO Quote). Wall Street knows Microsoft is spending freely to play catch-up when it comes to its MSN search engine, whose corporate emblem is a multicolored butterfly. But Thursday's setback makes clear just how tall the task is going to be. ...