Wall Street gave the thumbs down today to Steve Ballmer's strategy for building its online business in the wake of its failed six month battle to buy Yahoo!.

Mr Ballmer was addressing Wall Street analysts yesterday at an annual event hosted by the company at its Seattle headquarters. Attendees expressed frustration at the lack of detail shown to them about how Microsoft plans to spend $500 million on growing its online business so that it can better compete with Google, the world's biggest internet company.

Microsoft is trying to seize more of the $40 billion a year online advertising market, the lion's share of which is taken by Google.

Charles Di Bona, an analyst at Sanford Bernstein, the Wall Street broker, said Mr Ballmer’s comments did not supply enough details about how that additional investment will be spent and how the company arrived at its funding decision.

He said: “It’s spending $500 million dollars and then it says we’ll tell you later how we’ll spend it. The market’s concern is not about how it is running its core business. It’s about decisions about larger chunks of money that people can’t track."

Microsoft shares have fallen 8 per cent this week after the software group revealed an outlook for the year was poorer than Wall Street expectations.

The $500 million brings the total online investment to $1.5 billion.

Mr Ballmer said: “Everything you read, everything you watch, everything you want to communicate, all of those experiences are going to happen over the internet,” He described internet search as "the killer app, if you will, for this new world. How do I find the merchants? How do I find the people? How do I find the information?”

Mr Ballmer also told analysts that the company is willing to absorb continuing online division operating losses of between 5 and 10 per cent of the company’s total operating income. During the financial year 2008, Microsoft recorded operating income of $22.5 billion.

Mr Ballmer did not indicate to analysts how long he expected the losses to continue, but the division has already posted eight consecutive quarters of negative returns, having plunged $1.23 billion into the red during the last financial year.

The Microsoft boss was forced to address analysts himself because the head of the online business - Kevin Johnson - announced earlier this week that he was leaving the company.

Microsoft's plans for its online division have attracted new scrutiny since the company was forced to abandon plans to buy Yahoo! for $47.5 billion in cash and shares this year.

At the end of January, Microsoft wrote to Yahoo!, offering to buy the world's second largest online search engine for $42 billion, representing a large, 62 per cent premium. It spent the following five months trying to persuade Yahoo! to agree to an acquisition, and failed.

Analysts pressed Microsoft on the likelihood that it might return to a deal with Yahoo!.

Chris Liddell, chief financial officer, said: "The chances of us buying Yahoo on a full acquisition basis are so small that they are essentially negligible."

Mr Liddell insisted that Microsoft had walked away from Yahoo! because it saw Yahoo as a “declining asset” and its value continued to sink while it dragged its feet about accepting the offer from the group.

Aside from its future investment in online, Microsoft also announced that it had expanded its existing pact with Facebook, the social networking site, to offer internet search facilities.

Shares in Microsoft were trading up 31 cents on Wall Street yesterday at $25.75, having fallen from around $30.45 in May.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive