Is Microsoft bidding up acquisitions on purpose?

Don Dodge, who works at Microsoft, offers up some interesting analysis of Google and Microsoft’s acquisition strategy. Not saying I agree with it, but it does make for fun Sunday-morning reading.

Oh, there’s plenty of “paying more later” behavior on every side of the fence. Microsoft certainly has a “we can build that ourselves for less” kind of attitude in its halls that is still proving to be ineffective in the Web 2.0 space.

The thing I see in common between YouTube and DoubleClick is that Google is buying a moat around its search engine advertising business. Google doesn’t want there to be ANY reason you’ll think of going with another advertising company. They are spending billions to protect their core business: contextual advertising delivered to search engine users. Since Microsoft doesn’t currently need moats (its core businesses, Windows and Office, have no real competitors left anymore that’ll try to jump the castle walls) Microsoft is willing to drop out of such deals when they get too rich.

Are there any moats left on the block? I don’t know of too many more. News Corporation? (Owner of MySpace?) Too expensive. $74 billion market cap. Yahoo is only $42 billion.

I just went back and read the email reply that Steven Sinofsky sent me back in February 2005 (I asked Microsoft to buy Skype, Bloglines, SixApart, and Flickr, among others). Steven used the words “business value” 13 times (he couldn’t see it in what I was advocating). Flickr was purchased by Yahoo a few weeks after that email. Skype went to eBay in October. Bloglines went to Ask a few weeks before my email.

The email makes it very clear that Microsoft’s leadership isn’t willing to pay big bucks for things that don’t have clear business value. Don is quite right that at some point it’s hard to discern business value in acquisitions. Microsoft has been quite consistent in turning down best-of-breed deals because they get too expensive. Google, on the other hand, is seeing value in these things in the future.

It makes for an interesting contrast, that’s for sure.

Which strategy is best? The conservative Microsoft approach? The rock and roll Google approach?

82 thoughts on “Is Microsoft bidding up acquisitions on purpose?

  1. @44,

    It was a knee-jerk reaction IMO, but Google is far less evil than MS. MS loves to embrace and extend its technologies for lock-in. Since they have 95% of the desktops already, they’ve achived it, but they’ve started to bleed loyalty with customers. Vista sucks. Full stop.

    Google is beatable. I just don’t have to use them or their services. I block ads anyway, so I don’t have to see their tripe or anyone elses while online. Personal battle won.

    Very few players really innovate anymore. Opera ASA is an innovater. Apple is an innovator. BSD innovates with networking, the open source crowd innovates quite a bit with kernelspace coding.

    Most stuff is just a rehash of something else with a few twists and new gizmos.

    I’m patiently waiting for the new players in the search arena; someone who’s search stuff is better than Google’s. It’s only a matter of time.

  2. @44,

    It was a knee-jerk reaction IMO, but Google is far less evil than MS. MS loves to embrace and extend its technologies for lock-in. Since they have 95% of the desktops already, they’ve achived it, but they’ve started to bleed loyalty with customers. Vista sucks. Full stop.

    Google is beatable. I just don’t have to use them or their services. I block ads anyway, so I don’t have to see their tripe or anyone elses while online. Personal battle won.

    Very few players really innovate anymore. Opera ASA is an innovater. Apple is an innovator. BSD innovates with networking, the open source crowd innovates quite a bit with kernelspace coding.

    Most stuff is just a rehash of something else with a few twists and new gizmos.

    I’m patiently waiting for the new players in the search arena; someone who’s search stuff is better than Google’s. It’s only a matter of time.

  3. I thought it was pathetic when Microsoft goes into reactive mode wrt Google (spending 2 billion to try to compete in ad/search/etc). I still do.

    But lately, it seems that Google is constantly in reactive mode wrt Microsoft. Microsoft floats the idea that they’re interested in DoubleClick, and Google panics, and breaks the bank, not because they give a damn about DoubltClick, but just to keep it out of Microsoft’s hands. Same thing happened regarding other Google acquistions. Pretty pathetic.

    Google doesn’t innovate much “in house” either. Seems all they do is buy, buy, buy.

  4. I thought it was pathetic when Microsoft goes into reactive mode wrt Google (spending 2 billion to try to compete in ad/search/etc). I still do.

    But lately, it seems that Google is constantly in reactive mode wrt Microsoft. Microsoft floats the idea that they’re interested in DoubleClick, and Google panics, and breaks the bank, not because they give a damn about DoubltClick, but just to keep it out of Microsoft’s hands. Same thing happened regarding other Google acquistions. Pretty pathetic.

    Google doesn’t innovate much “in house” either. Seems all they do is buy, buy, buy.

  5. The fact that Robert’s question about *business strategy* in the online space devolves into a hoary OS war is more than a little indicative of the main challenge Google faces: they are a tech company still run for the most part by propeller heads with grand ambitions trying to evolve into a diversified business with more than a single revenue stream. Can the suits win the internal war?

    Their business strategy has been scattershot to this point (YouTube being the most expensive example). DoubleClick makes much more sense, though the pricetag suggests panic to me — keep out of MS hands at all costs and make a deal now because once the Dems take over in 2008 the regulatory environment might not be as friendly to such consolidation in the ad business.

  6. The fact that Robert’s question about *business strategy* in the online space devolves into a hoary OS war is more than a little indicative of the main challenge Google faces: they are a tech company still run for the most part by propeller heads with grand ambitions trying to evolve into a diversified business with more than a single revenue stream. Can the suits win the internal war?

    Their business strategy has been scattershot to this point (YouTube being the most expensive example). DoubleClick makes much more sense, though the pricetag suggests panic to me — keep out of MS hands at all costs and make a deal now because once the Dems take over in 2008 the regulatory environment might not be as friendly to such consolidation in the ad business.

  7. Ken: I agree with you but so far Web offerings are pretty meek when compared with Office 2007. Also getting people to switch to a new brand and a new approach is going to be more difficult than expected. I still see a lot of people using Windows 2000 and Office 2000.

  8. Ken: I agree with you but so far Web offerings are pretty meek when compared with Office 2007. Also getting people to switch to a new brand and a new approach is going to be more difficult than expected. I still see a lot of people using Windows 2000 and Office 2000.

  9. Robert,

    I want to question the “moat” around Microsoft Office. MSFT should be very worried about the web based office products. Products like Jotspot (now Google), editgrid and Zoho have some work left to catch up on features but they are getting close.

    It may seem funny but information woker products (spreadsheets, documents, presentations should be “web native”. Products like RSSbus, Yahoo Pipes and Plagger make sharing and collaborating very easy. It is easier and far cheaper to use an online spreadsheet for reporting on the web than it is to use Excel.

    This is the Office of the future and MSFT isn’t playing. They should be very worried but I don’t think they are. BIG companies never worry.

    -Ken Gardner

  10. Robert,

    I want to question the “moat” around Microsoft Office. MSFT should be very worried about the web based office products. Products like Jotspot (now Google), editgrid and Zoho have some work left to catch up on features but they are getting close.

    It may seem funny but information woker products (spreadsheets, documents, presentations should be “web native”. Products like RSSbus, Yahoo Pipes and Plagger make sharing and collaborating very easy. It is easier and far cheaper to use an online spreadsheet for reporting on the web than it is to use Excel.

    This is the Office of the future and MSFT isn’t playing. They should be very worried but I don’t think they are. BIG companies never worry.

    -Ken Gardner

  11. The problem is that most execs in larger software companies are under tremendous pressure to continuously grow their business buy 20-50%, quarter over quarter. When you reach 500M-1B revenue, the new incremental business you need to generate gets very significant, significant enough that buying and growing small companies does not make “business sense”.

    Specially given that there are important integration costs (both technical and sales related costs).

    This is probably why YouTube and DoubleClick are easier deals for Google than Microsoft and one can only hope that Ray Ozzie is working on a miracle plan because by not trying anything, Microsoft seems paralyzed.

    -Edwin

  12. The problem is that most execs in larger software companies are under tremendous pressure to continuously grow their business buy 20-50%, quarter over quarter. When you reach 500M-1B revenue, the new incremental business you need to generate gets very significant, significant enough that buying and growing small companies does not make “business sense”.

    Specially given that there are important integration costs (both technical and sales related costs).

    This is probably why YouTube and DoubleClick are easier deals for Google than Microsoft and one can only hope that Ray Ozzie is working on a miracle plan because by not trying anything, Microsoft seems paralyzed.

    -Edwin

  13. Carter: that’s a really tough question. I’d meet with both. Then if you get offers from both (very rare) you’ll have to decide what’s more important? People you like working with, technology you want to play with, or just the dollar amount? I’ve heard, for instance, that Flickr turned down a larger offer from AOL because they preferred the team at Yahoo.

  14. Carter: that’s a really tough question. I’d meet with both. Then if you get offers from both (very rare) you’ll have to decide what’s more important? People you like working with, technology you want to play with, or just the dollar amount? I’ve heard, for instance, that Flickr turned down a larger offer from AOL because they preferred the team at Yahoo.

  15. James: you might have a point there. But any of Microsoft’s executives’ email is pretty much an open book anyway due to various lawsuits and I didn’t reprint the email or give any details that would harm Microsoft’s position. But, gotta read over my NDAs some more.

  16. James: you might have a point there. But any of Microsoft’s executives’ email is pretty much an open book anyway due to various lawsuits and I didn’t reprint the email or give any details that would harm Microsoft’s position. But, gotta read over my NDAs some more.

  17. So my question (somewhat tongue-in-cheek, perhaps) is which company should I approach about buying out my company, Google or Microsoft? We’re in the audio/video arena, at the very unique place where content and community intersect. Our technology makes perfect sense for socializing Windows Media Player, but it has amazing search implications as well.

    Would someone take a look at one of our current implementations, and please tell me who should buy us? It’s keeping me up at night!

    Carter Harkins
    http://crowdabout.us

  18. So my question (somewhat tongue-in-cheek, perhaps) is which company should I approach about buying out my company, Google or Microsoft? We’re in the audio/video arena, at the very unique place where content and community intersect. Our technology makes perfect sense for socializing Windows Media Player, but it has amazing search implications as well.

    Would someone take a look at one of our current implementations, and please tell me who should buy us? It’s keeping me up at night!

    Carter Harkins
    http://crowdabout.us

  19. And in other equally important news, Prince William confirms to a stricken Kate Middleton that their romance, is like, totally, like, so, like, over, like, total.

    Google and Microsoft comparisons and Mac/Linux/PC wars are so overwrought…pointless geek soap operas.

  20. And in other equally important news, Prince William confirms to a stricken Kate Middleton that their romance, is like, totally, like, so, like, over, like, total.

    Google and Microsoft comparisons and Mac/Linux/PC wars are so overwrought…pointless geek soap operas.

  21. Ah, the PC wars. So tiresome.

    It doesn’t matter. An individual should use what they like and that is all that matters.

    With that said, my daughters, my wife and I have Mac laptops and no viruses.

    My stepson has a PC that gets riddled with Spyware and viruses and he has to wipe his drive every six months. He’s switching to a Mac when he enters college.

    That’s it from the trenches!

  22. Ah, the PC wars. So tiresome.

    It doesn’t matter. An individual should use what they like and that is all that matters.

    With that said, my daughters, my wife and I have Mac laptops and no viruses.

    My stepson has a PC that gets riddled with Spyware and viruses and he has to wipe his drive every six months. He’s switching to a Mac when he enters college.

    That’s it from the trenches!

  23. @22 “No matter what anyone says, MS will be slowly losing marketshare to Linux/Macs.”

    More likely Linux, but not Macs..at least in the F500 enterprise space. And a fair amount of those companies already have Linux/Unix servers in their environment. Key word in your statement is “slowly”. Sort of the same argument as global warming.

  24. @22 “No matter what anyone says, MS will be slowly losing marketshare to Linux/Macs.”

    More likely Linux, but not Macs..at least in the F500 enterprise space. And a fair amount of those companies already have Linux/Unix servers in their environment. Key word in your statement is “slowly”. Sort of the same argument as global warming.

  25. I am surprised that you feel comfortable divulging correspondence between yourself and Steven Sinofsky. It seems strange that you aren’t compelled to keep such correspondence private. Have you been released from any and all confidentiality agreements? Did you sign any such agreements?

    Curious …

  26. I am surprised that you feel comfortable divulging correspondence between yourself and Steven Sinofsky. It seems strange that you aren’t compelled to keep such correspondence private. Have you been released from any and all confidentiality agreements? Did you sign any such agreements?

    Curious …

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