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Microsoft: To Spend and Not To Spend

Whether or not the latest (and oddly persistent) flare-up of the Microsoft-to-buy-Yahoo rumor turns out to be true -- and we're not betting that it will -- Steve Ballmer does seem to have a hankering for a bit of shopping. Ballmer said this week that he wouldn't rule out dropping a bundle of Microsoft's dwindling pile of cash on acquisitions to beef up the company's still-cloudy Software Plus Services (not to be confused -- or maybe to be confused -- with software-as-a-service) strategy.

Big spending all in one place would buck the trend that Microsoft has set of late -- buying up smaller players and glomming their applications into the Microsoft stack. (Of course, it's not as though Microsoft hasn't tried to dump lots of money into one acquisition lately -- remember DoubleClick?) Furthermore, Ballmer's talk of pumping up S+S with a major buyout has the overtones of an executive who is maybe just a bit desperate to piece together a strategy in an area in which Microsoft is not at the forefront. Of course, any company with tens of billions of dollars in the bank and a chokehold on the markets for operating systems and productivity suites can't be all that desperate. Still, Ballmer's dropping hints -- will dollars follow?

If they do, they'll be dedicated to S+S, or at least not spent on enterprise applications such as business intelligence. Jeff Raikes, president of Microsoft's business division, said this week that Redmond plans to build, not buy, business applications. That, of course, is a bit of an odd statement, given that Microsoft announced a BI-related acquisition (albeit a small one) just this week. It's even more odd considering that Microsoft Dynamics, the company's enterprise resource planning offering, is really just a package consisting of four different suites that Microsoft purchased over the last few years by buying other vendors' solutions.

We'll take Raikes' comments to mean that Microsoft won't be spending any more money on business apps than it already has. Clearly Redmond seems more confident in its business offerings than in its S+S wares -- and probably for good reason. In any case, Ballmer seems ready to open the vault and perhaps redirect the course of the whole industry the way Microsoft has done in the past.

If you were Steve Ballmer, how would you spend Microsoft's money? Let me know at lpender@rcpmag.com.

And speaking of S+S, SaaS and lots of other unusual acronyms, Mike weighed in this week in Microsoft's Web-apps strategy. We edited this one a tad for length, but we liked it a lot:

"The good news for Microsoft is that the world is in a migration. Most of us use Windows and Office and are not leaving the womb (or tomb) any time soon. As new software, with new delivery models, is introduced, we consider it, and if it makes sense, incorporate it into our daily routine. I don't think individuals are any different than large corporations.

"I have made investments in real dollars to buy Microsoft software (and lots of other companies' software, too) and invested significant time in learning Microsoft products over the last 17 years. I'm not going to throw that away overnight. Just because Google has a Web-based spreadsheet, that doesn't compel me to switch to it when the one I'm using is working just fine. Like they say, if it ain't broke, don't fix it.

"Ten years from now, Microsoft will be around; it'll be an $80 billion company, and will have figured out how to monetize the Web and include partners in the process. But the model won't look the same as it does today. The revenue is likely to be recurring, maybe based on usage, and we will pay more for the same functionality than we do today. That's happened with television (cable), communications (cell phones) and that's the way it will be with software.

"Microsoft and Ray Ozzie have time and they know it. Their problem is that the sizzle is gone -- Google, Salesforce.com and others have taken away the franchise that they owned for almost 15 years. That hurts the stock price, makes recruiting talent more difficult and it makes playing the game a lot more difficult. In other industries, investors are ecstatic to own a company that has 25 percent net margins, is throwing off cash faster than they can invest it and growing predictably. Microsoft's problem is that that is not what it, or the market, is used to. Google will run into the same problem in five to 10 years, maybe sooner. Then the next big thing will get all of the attention.

"I think Microsoft and Ray are right on track. Keep the faith, experiment, react when necessary and everything will be just fine."

Posted by Lee Pender on May 11, 2007 at 11:54 AM


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