by Ina Fried
July 18, 2008 10:10 AM PDT

As I listened to financial analysts grumble about how Microsoft continues to pour its hard-earned software profits back into its online services effort, I couldn't help but think that maybe Microsoft is on to something.

Wouldn't newspaper industry analysts have had the same grumbles if the Gannetts and Knight Ridders of the world had poured a huge chunk of their profits into online ventures a decade ago at a time when their ad revenues were still enjoying healthy growth? And wouldn't they now say such a move, if well done, would have been brilliant?

Newspapers have traditionally been funded by things like classified advertising in areas like real estate, help wanted, and car sales. Had one of the newspaper companies seen the online threat and said, "We need to own those categories online," perhaps they would be in better shape. Instead, they are faced trying to reinvent themselves at a time when their revenue is in sharp decline. Of course, it's not a direct parallel.

There's an argument to be made that, while newspapers were inevitably going to lose revenue to online sources, Microsoft could steer clear of advertising by focusing on business software. But if the biggest long-term threat to Windows and Office is free rivals and Web-based services, shouldn't Microsoft be using a significant fraction of its profits to develop its online advertising capacity?