Kevin Johnson slipped into his new role as president of Microsoft Corp.'s online operations and Windows software unit a short time after Google Inc. went public and started reporting financial results.

His mandate was to shake up the company's MSN search engine business, just as Microsoft and the rest of the world was getting its first peek at how much money Google was making selling ads online. Mr. Johnson's job was to find a way to catch up.

Like his boss - chief executive officer Steve Ballmer, who hand picked him - Mr. Johnson is a masterful salesman working in a world of engineers, with an ability to rouse his troops with passionate sermons.

To date, Mr. Johnson has spent billions of dollars on acquisitions and made sweeping changes in Microsoft's executive ranks. But the company has so far been unable to find a way to challenge Google.

There is a sense among Microsoft officials now that "we have to buy our way out of this," said Matt Rosoff, an analyst with Directions on Microsoft, an independent research firm. That's what the purchase of Yahoo Inc. was supposed to bring.

For now, Microsoft's online services division remains the black sheep of the company, consuming billions of dollars of resources and hemorrhaging red ink. In the nine months ended March 31, the unit lost $745-million (U.S.) on revenue of $2.38-billion. Sales were up 35 per cent, but the loss widened by 83 per cent.

In the past seven years, the company has spent $17.6-billion on its online operations and suffered more than $2-billion in losses, Mr. Rosoff said.

With Microsoft's $47.5-billion bid for Yahoo apparently dead, analysts expect the software giant to direct substantial chunks of that purse to other acquisitions in the Internet world.

Mr. Rosoff and other analysts say that even though Microsoft was late to market, it now has a good search engine and an effective advertising platform, thanks in part to its $6-billion acquisition last year of online ad services firm aQuantive Inc.

The challenge for the company remains convincing consumers and advertisers to switch from Google's entrenched services.

Search ads are sold through automated auctions, and without sufficient traffic, Microsoft can't get the premium rates that Google does. In addition, the infrastructure costs of running servers and other technology run higher without sufficient scale.

Mr. Johnson pointed to Yahoo as a way of improving scale, efficiencies and the talent pool of both companies. The deal was supposed to bring Microsoft the millions of Internet customers and advertisers it has been unable to attract under its own brand.

"We are in the course of building an online business," Mr. Ballmer said in a February presentation to investors on the company's Yahoo bid. "It's consumer-focused, if you will. That's a new muscle, a new set of skills that we're building."

Last year, Microsoft did several smaller deals also designed to boost its base. It secured a deal with Viacom Inc. to get the media giant using its online advertising system. Microsoft also invested $240-million for a 1.6-per-cent stake in Facebook Inc.

"We are investing heavily in new tools and Web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships," Mr. Johnson said in a new release this weekend after Microsoft withdrew its bid for Yahoo.