After last week’s $6 billion offer to buy aQuantive, I’ve been thinking a lot about Microsoft and its future. See, the company has about $25 buh-illion in cash (after this acquisition!), and they seem to be, well, sitting on it. And that’s not exactly the best return to shareholders by a company that’s supposed to be the visionaries of computing. So it’s either time to issue a whole bunch of dividends, or else they need to really look to the future, spend some of that money, and help reinvent themselves as a competitive player for years to come.
I really enjoyed reading Thomas Hawk’s piece on turning MS around, and I agree with John Furrier that the company needs new blood. I think the best move they can make is a sweeping series of acquisitions (one of the few times I disagree with my friend Michael Gartenberg). Some big players that can bolster the company’s lineup, and some small players to bring a new generation of innovation into an increasingly stale-minded shop. Frankly, with the exception of Windows Mobile, Xbox, and some (and not all) of the Vista folks, it seems like all the really creative folks have jumped ship. So, here’s the list of companies (8, not 10, because I’m bored of top-10 lists) I think would help bring the right balance of creativity, ingenuinity, technology, talent, and in some cases – straight revenue:
- WordPress/Akismet/Automattic – This is the biggest no-brainer acquisition in my list. With over a million blogs served, the company is the hands-down leader in enabling blogging. Whereas MSN Spaces Live is the hands-down leader in… well, I have no idea. WordPress as a software package is the most powerful and yet easiest-to-use. WordPress as a hosted service is simple and elegant and professional. Akismet is one of the best spam filters I’ve seen (I’ll bet it could even help make Exchange server work better!). This acquisition would be one of those ‘intangibles’ the company should make – I don’t know if Automattic makes money or not, but this is a strategic bet, and in my eyes, it’s an easy one.
- Netflix (market cap: 1.5B) – While not an obvious choice, Netflix is a nice strategic bet for Microsoft. We all know that shipping discs around the country from distribution centers is not the game that MS wants to be in, but I’m not sure it’s the game that Reed and the Netflix crew want to be in either. Long term, with Netflix, what you’re buying is the customer information, the hollywood relationships and the interface. The company should have 7.5 million subscribers this year, all of whom are helping feed the machine information about their preferences. It’s one of the greatest collaborative filtering engines and quite accurately predicts what movies you would like to watch with great functionality linking friends. They also have the relationships with Hollywood to deliver platters of bits to your house as you select them from their interface which becomes its own mini-portal to content. As they move away from physical to digital distribution they are a great fit for Microsoft’s online properties and XBOX platform. Just imagine combining the Netflix queue with Xbox Live Marketplace, where the right movies are presented to you based on your Netflix account and are automatically delivered to the Xbox hard drive, or taken portable on your Zune (okay, the Zune part is a maybe, but I had to throw it in there). Also a good preemptive move against Google doing the same thing (as Google is still terrible at working with Hollywood and would love the collaborative filtering stuff for more ads).
- HTC – Unless you are an Engadget junkie, you might not have ever heard of HTC. Well, they are the not-so-little Taiwanese manufacturer that not only could, but does. They make all the hottest Windows Mobile phones, and typically contribute technology to some of the ones they don’t make. Their devices are setting the standard in innovative mobile platforms (yes, more so than the iPhone in my opinion). My reasoning for the acquisition here is for Microsoft to take some control over their destiny. It’s time the company acted a little more Apple-like in more of their hardware, just like they do with Xbox and Zune. Also, HTC has quietly attracted some of the top talent in the mobile space, so the company gains a cache of clever folks instantly. Now there’s a bit of a twist here, as I think MS should also spin out Microsoft Hardware (aka Microhard?), a division focused on taking their own software platforms “to the extreme”.
- Asus – The second hardware company on my list is here for the exact same reason as HTC. I’d love to see MS Hardware building stylish laptops that truly leverage all of the new technologies the company builds. Sure, there’s the potential this would lead to ‘evil’ since Asus’ motherboards are used in numerous manufacturers’ computers today. But think about it, that’s already a case of customer/competitor it would just be upping the ante a little.
- 37signals – I put this on the list with reservations (maybe it needs an asterisk or something). I use BaseCamp to manage some client work, and it’s really not the most impressive software I’ve seen (despite the ridiculous lauding I continue to read). But they are onto something, and when I compare it to the unbelievable bloatware that is MS Project, I can’t help but think there’s something to be done here. Marry these two teams together, and let’s see the offspring in a year or so – I have a hunch it’d be good. Also, rumor has it they’re profitable, which is a nice touch in 2.0-land. If nothing else comes of it, they have a pretty popular blog too…
- Salesforce.com (market cap: $5.4B) – Microsoft is a software company. While Salesforce’s pitch is “No Software” in essence any patent describing them would use the definition software; it’s just that the software is hosted. As Microsoft is going to adapt to a world of subscribers and services as Ray Ozzie puts it in his memo “The Internet Services Disruption“, Salesforce is a great fit. Microsoft never truly nailed the ERP space and can use the combined entity against their mutual rival, Oracle. Microsoft could integrate CRM applications into their hosted versions of Office. Web Outlook, Mail and/or Messaging and Salesforce are a solid fit, and Microsoft’s Live functionality could be weaved in to Salesforce’s app’s. This is also a block against Google who is planning on doing exactly this…
- Ingenio – Again, a move to cut off Google, buying Ingenio slots in really well with their recent TellMe acquisition. I don’t know how much bigger the online ad space is growing, but I do believe it’s pretty obvious that the opportunities in both Mobile and Voice are huge. Ebay wants to use Skype to sell advice, but they spent too much money on the company and are finding quickly how much work there is to efficiently offer such a service (hint: it’s a lot). Ingenio is one of those Bay Area startups that doesn’t come up in conversation all that often, but they are already providing services to MSN, AOL, AT&T, and a host of others, and guess what – they’re profitable. I don’t know how much this one would go for, but if MSFT is serious about getting into advertising (I did mention the $6B for aQuantive, right?), they should look to expand the concept horizontally while they still have the chance to get out in front of the pack on it. As an added bonus, the company is even built on top of MS technologies.
- Facebook (estimated valuation: $1-2B and up) – Well Microsoft is already giving Facebook $900 million (over 3 years), what’s a few $100 million amongst friends? I’m not sure that Mark Z. would sell to Redmond because he may not “feel like it” (plus they’re so old over there), but I think Microsoft needs to make itself relevant to the next generation (i.e., make him an offer he can’t refuse). If your online identity is with Facebook, then the services you use may naturally follow. Integrated IM. Mail. Video Posts. Blogs. All are natural extensions of your identity (all are things being done oh-so-poorly by the MSN group). Facebook isn’t just an advertising play, it also can help “sell” software by weaving Microsoft’s services into the Facebook platform. Oh, and by the way, it’s a pretty good advertising play. Rumor is that Facebook is signing up 1,000,000 members a week. Yeah, week. Yikes. Comscore and Hitwise have it outpacing their much more mature (57 million members) predecessor, MySpace.
Sure some of these might sound a bit controversial, and some might not make sense to everyone. But Microsoft needs to start thinking a little different, so to speak, and some radical acquisitions are one way to start that process. Fundamentally, I feel Microsoft is still waiting to enter the 21st century. All I have to say is: come on in guys, the water’s fine!
Disclosure: I do not work for any of these companies, nor Microsoft. I do own about $500 worth of MSFT stock as the last vestige of an E*trade account I set up back in 1999 and haven’t touched since. Oh, and I have a few friends at MS and some of these startups, and I guess if they ever make it rich and it was my fault they owe me a big fat steak dinner.
Interesting read, to be sure. I think that Netflix, particularly when paired with Xbox Live, is a slam dunk no-brainer. I also agree on WordPress and HTC (heck, HTC is the reason Windows Mobile is what it is in the US right now, in my opinion.)
Facebook, I don’t know. I do like the idea of more full integration with MSN and all, but I’m also slightly worried that Microsoft would affect Facebook more than Facebook would leak out onto Microsoft.
I agree with all of these except for maybe ASUS. For MS to get involved in that much PC hardware would be, in my opinion, a mistake. Their best bet here would be in developing strategic partnerships and funding hardware development for pieces of technology that they hold near and dear to their hearts. These pieces would then be made readily available to system builders/manufacturers for inclusion in their own products (i.e. a SideShow ASIC that I could incorporate in my own notebook). I believe that would go a lot farther towards selling software licenses than for MS to create their own motherboards, video cards and etc. Possibly JUST a notebook line would be a conceivable direction, but more hardware beyond that begins to exclude the people you have had bundling your software all along.
I might be swayed on this, but that is my 2 cents worth.
What about a company like Demand Media or a domainsponsor?
That would make sense for microsoft