Microsoft's Live Labs applied research group, formed three years ago to accelerate the company's Internet efforts, is being cut in half and given a narrower focus in the face of the difficult economy. Microsoft today confirmed that about half of Live Labs is being shifted to product groups, primarily in Microsoft's Online Services Business and Windows Mobile.

The remaining Live Labs team will focus on Internet search and other Web interaction technologies, such as data exploration and information retrieval. Live Labs founder Gary Flake will continue to lead the unit, reporting to Ray Ozzie, Microsoft's chief software architect. No layoffs are planned as part of the changes, a Microsoft spokeswoman said.

Joe Tartakoff at paidcontent.org reported the news earlier today.

The move reflects the fact that Microsoft's product groups are working under tight budgets and looking for innovations that can translate quickly into shipping products. In that environment, there appears to be a smaller appetite for the experimental Live Labs projects -- prompting the company's decision narrow the group's focus.

"The goal is to increase the likelihood that our investments will achieve critical mass and have a positive impact on the company," said Stacy Drake, a Microsoft spokeswoman. "The teams that are transitioning now have have an opportunity to directly shape the company and our products by contributing to the business groups."

She added, "The current economic environment does play a role."

Live Labs shipped Microsoft's first iPhone app last year, but the group is perhaps best known for the Photosynth online 3D photo-browsing program. That team was shifted to Microsoft's MSN unit last year.