Microsoft: To Spend and Not To Spend
Whether or not the latest (and oddly persistent) flare-up of the Microsoft-to-buy-Yahoo
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
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
"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