5/11/2006
Can Microsoft Reinvent itself?
Great post from Ed Sim's from BeyondVC. Microsoft has a problem in that they are trying to build Google from the ground up within Microsoft with .NET and Microsoft's own stack of client server infrastructure. Byzantine? We'll find out and Microsoft will find out as well. Think of it as the ultimate experiment as to whether a billion dollar company can effectively scale out on Microsoft products. The acclaim piled upon Microsoft Server 2005 and SQL server 2005 will come to a full test. The problem is investors haven't bought into the idea and actually believe that the 2 billion dollars can be put to better use.
From a strategic point of view, this is money well spent. Google is on top of the world and has allied themselves with some angry characters including the forlorn former high flyer Sun Microsystems -- who has been bleeding talent including Vinod Khosla and Bill Joy to Kleiner Perkins. Scott McNealy leaving the helm to Jonathon Schwartz may be too little too late....
Still this is beside the point...in my assessment MS is making the right bet, despite investor sentiment.
-------------------
Can Microsoft reinvent itself?
Microsoft released its third quarter numbers the other day and while revenue growth was strong, the stock got hammered and dropped over 10%. Why? Microsoft plans on investing for the long term and putting another $2b into the Internet and other new technologies like the XBox. To sum it up, here is Rick Sherlund, Goldman Sachs' Software analyst, "It sounds like you're building a Google or building a Yahoo! inside the company."
Looking at the long term, I am quite excited about the prospects of all of this money coming into help grow the Internet sector and SaaS. First, having another big player push the concept of software as a service will only help further educate and soften the market, particularly business customers Secondly, this will mean that Microsoft will be aggressive with hiring and with acquisitions. I remember being at the Microsoft VC Summit a couple of years ago and hearing Steve Ballmer talk about his acquisition strategy. He would either do huge, billion dollar ones or look at acquisitions less than $20mm. That has been changing and will change rapidly with this renewed empahsis and focus. That only means good news for VCs and entrepreneurs. And as a VC, I wholeheartedly agree with Microsoft's CFO, Chris Lidell when he says, "Today, we believe we face the largest array of opportunities for growth and innovation the company has ever seen." I certainly feel the same way from a VC investment perspective.
Whether Microsoft succeeds or not is another story, but $2b invested in new technologies will go a long way towards solidifying their position. I would say that they did alright in 1995 when they decided to point their guns at Netscape to make sure the browser and Internet would not circumvent their monopoly on the desktop. The problem is that once they won the browser wars, Microsoft became satisfied, fat and happy. And as we all know, fat cats don't hunt. Others came around and outinnovated them - Firefox, Google, etc.
This is Round 2, which really started with Microsoft's purchase of Groove Networks and Ray Ozzie last year. To refresh your memory, I suggest reading Bill's email from October 2005 (also see the Ray Ozzie memo) where he leads the battle charge for the next generation web, the SaaS era.
Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.....
However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.
And yes, it sounds alot like the memo Bill Gates wrote 10 years ago called the Internet Tidal Wave where he helped the big battleship called Microsoft reposition itself and point its guns at Netscape and others. Round 2 is no different from Round 1 but the stakes are higher and it will cost Microsoft oodles more cash this time to create a dent in this market. While we all know that memos often do not mean a whole lot, it is clear that Microsoft is quite serious as they are not afraid to piss off Wall Street and really put dollars to work for the long term position of the business. This will certainly be an interesting battle to watch over the next few years.
Also lifted from Don Dodge's blog:
Here is a list of the 22 acquisitions sorted by product group;
* VirtualEarth aka MapPoint - Vexcel and GeoTango do 3D imaging and remote sensing.
* MSN - DeepMetrix (web site stats), Massive (videogame advertising), Onfolio (web research), Teleo (VoIP), Media-Streams (VoIP), MotionBridge (mobile search), TSSX (China mobile services), SeaDragon (Large Image manipulation)
* Windows Live - FolderShare (file synch), MessageCast (MSN Alerts)
* Speech Server - Unveil Technologies (call center SW)
* Security - Alacris (Identity Mgmt), FutureSoft (Web filtering)
* Systems Management - AssetMetrix (License tracking)
* Business Intelligence - ProClarity (analysis and visualization)
* Microsoft Game Studios - Lionhead Studios (games developer)
* Exchange Server - FrontBridge (email security)
* Microsoft Project - UMT (Portfolio Mgmt)
* Storage Server - Stringbean Software (iSCSI SAN)
* Vista - Apptimum (Application transfer)
It appears that many of these acquisitions were focused on MSN properties and consumer based services. One thing to remember about Microsoft...the product groups run the company, and they all work largely independent of each other. They make the decisions about what to acquire and when. There are acquisition teams but they tend to be called in to execute the deal after the product groups have decided what they want to do. So, there will not necessarily be a high level strategy that all these acquisitions fit into, but they make sense on an individual basis.
¶ 3:52:00 PM 
Great post from Ed Sim's from BeyondVC. Microsoft has a problem in that they are trying to build Google from the ground up within Microsoft with .NET and Microsoft's own stack of client server infrastructure. Byzantine? We'll find out and Microsoft will find out as well. Think of it as the ultimate experiment as to whether a billion dollar company can effectively scale out on Microsoft products. The acclaim piled upon Microsoft Server 2005 and SQL server 2005 will come to a full test. The problem is investors haven't bought into the idea and actually believe that the 2 billion dollars can be put to better use.
From a strategic point of view, this is money well spent. Google is on top of the world and has allied themselves with some angry characters including the forlorn former high flyer Sun Microsystems -- who has been bleeding talent including Vinod Khosla and Bill Joy to Kleiner Perkins. Scott McNealy leaving the helm to Jonathon Schwartz may be too little too late....
Still this is beside the point...in my assessment MS is making the right bet, despite investor sentiment.
-------------------
Can Microsoft reinvent itself?
Microsoft released its third quarter numbers the other day and while revenue growth was strong, the stock got hammered and dropped over 10%. Why? Microsoft plans on investing for the long term and putting another $2b into the Internet and other new technologies like the XBox. To sum it up, here is Rick Sherlund, Goldman Sachs' Software analyst, "It sounds like you're building a Google or building a Yahoo! inside the company."
Looking at the long term, I am quite excited about the prospects of all of this money coming into help grow the Internet sector and SaaS. First, having another big player push the concept of software as a service will only help further educate and soften the market, particularly business customers Secondly, this will mean that Microsoft will be aggressive with hiring and with acquisitions. I remember being at the Microsoft VC Summit a couple of years ago and hearing Steve Ballmer talk about his acquisition strategy. He would either do huge, billion dollar ones or look at acquisitions less than $20mm. That has been changing and will change rapidly with this renewed empahsis and focus. That only means good news for VCs and entrepreneurs. And as a VC, I wholeheartedly agree with Microsoft's CFO, Chris Lidell when he says, "Today, we believe we face the largest array of opportunities for growth and innovation the company has ever seen." I certainly feel the same way from a VC investment perspective.
Whether Microsoft succeeds or not is another story, but $2b invested in new technologies will go a long way towards solidifying their position. I would say that they did alright in 1995 when they decided to point their guns at Netscape to make sure the browser and Internet would not circumvent their monopoly on the desktop. The problem is that once they won the browser wars, Microsoft became satisfied, fat and happy. And as we all know, fat cats don't hunt. Others came around and outinnovated them - Firefox, Google, etc.
This is Round 2, which really started with Microsoft's purchase of Groove Networks and Ray Ozzie last year. To refresh your memory, I suggest reading Bill's email from October 2005 (also see the Ray Ozzie memo) where he leads the battle charge for the next generation web, the SaaS era.
Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.....
However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.
And yes, it sounds alot like the memo Bill Gates wrote 10 years ago called the Internet Tidal Wave where he helped the big battleship called Microsoft reposition itself and point its guns at Netscape and others. Round 2 is no different from Round 1 but the stakes are higher and it will cost Microsoft oodles more cash this time to create a dent in this market. While we all know that memos often do not mean a whole lot, it is clear that Microsoft is quite serious as they are not afraid to piss off Wall Street and really put dollars to work for the long term position of the business. This will certainly be an interesting battle to watch over the next few years.
Also lifted from Don Dodge's blog:
Here is a list of the 22 acquisitions sorted by product group;
* VirtualEarth aka MapPoint - Vexcel and GeoTango do 3D imaging and remote sensing.
* MSN - DeepMetrix (web site stats), Massive (videogame advertising), Onfolio (web research), Teleo (VoIP), Media-Streams (VoIP), MotionBridge (mobile search), TSSX (China mobile services), SeaDragon (Large Image manipulation)
* Windows Live - FolderShare (file synch), MessageCast (MSN Alerts)
* Speech Server - Unveil Technologies (call center SW)
* Security - Alacris (Identity Mgmt), FutureSoft (Web filtering)
* Systems Management - AssetMetrix (License tracking)
* Business Intelligence - ProClarity (analysis and visualization)
* Microsoft Game Studios - Lionhead Studios (games developer)
* Exchange Server - FrontBridge (email security)
* Microsoft Project - UMT (Portfolio Mgmt)
* Storage Server - Stringbean Software (iSCSI SAN)
* Vista - Apptimum (Application transfer)
It appears that many of these acquisitions were focused on MSN properties and consumer based services. One thing to remember about Microsoft...the product groups run the company, and they all work largely independent of each other. They make the decisions about what to acquire and when. There are acquisition teams but they tend to be called in to execute the deal after the product groups have decided what they want to do. So, there will not necessarily be a high level strategy that all these acquisitions fit into, but they make sense on an individual basis.
¶ 3:52:00 PM
