Stock market sends Microsoft shares down 11 per cent

Microsoft's stock price fell 11 per cent on Friday, after the company said that it had to increase investments to fend off rivals including Google.

The drop wiped off $31bn in Microsoft's market capitalisation, which now stands at $281bn.

The Redmond giant disclosed the investment plan on Thursday when it released its earnings for the previous quarter.

Investment bank Goldman Sachs in a research note estimated that Microsoft would invest another $2bn in the 2007 fiscal year. But in addition to the cost of the investments, the plan sends a message that Microsoft is losing the race against its competitors.

The investments will be focused around the Live Software initiative that Microsoft unfolded last year. The software maker plans to unveil a slew of online applications that users can access through a browser. The move marks a dramatic shift from the company's traditional focus of developing applications that were installed on local systems and servers.

The software maker furthermore disappointed investors when its revenue forecast for the fiscal year 2007 fell short of analyst expectations.