Is Microsoft Giving Up?

September 19, 2013

Yesterday brought news that Microsoft is raising its dividend by over 20% and allocating $40B of its cash horde to buy back its own stock.

Rational stock market investors and business school graduates will probably applaud the move. Generally speaking, it is better for a company to give money back to shareholders through dividends or buybacks rather than spending it on uncertain initiatives with unknown paybacks. That is true in many industries and I’m sure we’ll see Microsoft stock move up as a result.

However, Microsoft isn’t in most industries, it’s a technology company. Technology companies are supposed to make bets on uncertain initiatives in the hope of producing exceptional returns. In consumer and enterprise software, consumer entertainment technology, Internet media and search, and consumer and enterprise communication (and mobile phones and software), the world is changing rapidly. Competition is coming, and coming hard. And many of Microsoft’s emerging businesses, like Skype, Bing, Windows Mobile and Xbox are not dominant and could use additional investment or influx of talent from acquisitions.

By moving forward with the buyback, Microsoft seems to be signaling that it does not intend to invest further in these businesses, nor does it want to acquire large technology companies to pursue new talent, new technologies, or new ideas in order to stake a leadership position in an emerging area. (To be fair, Microsoft will still have billions available for acquisitions of smaller innovators). The company has been playing catch up in mobile, in search, in SaaS, and in consumer platforms like tablets.

The combined buyback/dividend raise seems to me like a very strong signal that they won’t invest internally NOR will they invest externally. While the PC isn’t going completely away, and Windows and Office will continue to generate substantial cash flow, it seems quite clear that Microsoft isn’t sure how to pursue dominance in any of these emerging areas. While they did just spend $7B to get Nokia’s mobile business, I’m not sure exactly what they got for it.


Microsoft STILL Doesn’t get it

June 28, 2010

Just when you think Microsoft may start to get the Internet, they dash your hopes again.

They just don’t get it.

In the most recent Business Week magazine, Steve Ballmer was interviewed about opportunities in Asia. He commented about the problems of what makes a country interesting and about the problems Microsoft has with software piracy. See the interview here

Two things really stood out to me:

1) On the question What excites you about Asia now? Ballmer answered, “Two things make a country interesting… One, they buy a lot of personal computers…”

Note that he didn’t mention mention Internet access or Smart Phones or broadband penetration. Just personal computers. I know Microsoft makes a ton of money from Windows and Office, but emerging markets and emerging technologies aren’t going to function the old way. The old metrics simply aren’t going to cut it. How could I ever believe that Microsoft cares about Search, or about SaaS, or Office in the cloud when the CEO doesn’t even mention mobile or the Internet when discussing opportunities in Asia? There are over 750 million mobile phone subscribers in China alone.

2) The second thing Ballmer comments on is the issue of software piracy in China. I won’t diminish the issue of piracy, because it is a real issue for all forms of IP. But Ballmer’s comments highlight how little Microsoft understands software as a service (SaaS). In a SaaS model, the software is typically paid for over time and accessed via a browser. SaaS doesn’t eliminate piracy, since users can share user names and passwords, but it does reduce it substantially. But Ballmer doesn’t think of the world this way.

They Don’t Get It.  Why Does it matter if they get it? Because Word and Excel and Outlook are industry standard tools, and they would be so much more valuable to all of us users if Microsoft did get it. If I could access all my documents easily in one place. If I could sync all my contacts easily. If I had a truly unified “In Box.”