Wednesday, May 11, 2011
Barry Ritholtz on Microsoft's expensive and arguably irrelevant acquisition of Skype, but mostly an interesting argument that Mister Softy caused the "dot.com" bubble. Unintentionally.
My own view is that Microsoft needs to get smaller to get better. All that cash is making it stupid. It should buy in stock and raise its dividend and stop looking backward to its monopoly past.
As a (small) holder of MSFT, I say here here! MSFT could have tied up Skype for their products with a joint venture or some other long term deal to get the same benefits, without paying 10x earnings for a company with iffy earnings growth.
The only acquisitions MSFT should be engaging in are small tech acquisitions of complementary companies. At this point, Microsoft is a reasonably mature, though still growing and successful, company. It needs to start acting like one. It's past the time when investors should be looking to it for double digit percentage stock growth, and past the time when MSFT should be funneling 50% or so of their profit to shareholders either in dividends or buybacks.
Microsoft needs to stop thinking "strategy" and start thinking "shareholders." If the shareholders wanted to invest in Skype or some other big acquisition, they could do so on their own.
A few years ago I put all I could in Apple and a bit in Microsoft as a hedge. At the time Microsoft owned the world. I have since got rid of the hedge, no gain, no loss after many years.
I think actually Apple has something like 60 billion in cash. At any rate, their cash holdings would not be dwarfed by Microsofts.
Apple buys technology companies, chip fab companies, chip design companies, specialty software companies. Companies you probably never heard of which provide all sorts of patents and technologies and people which they then use to make highly evolved products.
Microsoft does some similar purchases also. But what they really love to do is swing for the fences. Like 48 billion for Yahoo which is now worth, what half that?
And yet, who talks continuously about being innovative? Bill Gates and Steve Ballmer. Ballmer, who seems to be running the show, is a color blind and tone deaf engineer, smart for sure, who just can't grasp that they are not the icon they used to be, that they not really thought of as innovative, and that we're all not waiting for their next big thing, anymore.
What Microsoft needs is a downsize and some humility and most of all, new leadership. And a star is not necessarily the fix. Somebody who will be a star would be a better choice.
14 year MSFT veteran here, at Architect level. The company is an embarassing shadow of its former self. We have missed every major trend for the last ten years, we sell me-too products in established markets. We're dancing to Jobs' tune these days, no doubt about it. There is some good work coming out of Microsoft (Win Phone 7 is surprisingly good), but man, we are so dysfunctional over all.
The stock has been dead flat for so long that we're having trouble attracting and keeping good talent. Compensation changed from stock options to stock grants a long time ago, and is now shifting (but not entirely) from stock grants to hard cash, except for senior leadership team -- a sure sign that not even Microsoft expects the stock to improve. Google has an office in Seattle whose main purpose in life is to poach dissatisfied MSFT people. Amazon basically has standing offers for every MSFT employee at L65 ("principle engineer") or better. We're losing good college hires to Facebook, fer chrissakes.
Ballmer as CEO is a profound disappointment. We are all counting the days until Steve is gone, but we don't see any sign of that happening. Good Sr. VPs have been shown the door (J Allard, Robbie Bach), and word around the campfire is that Steve is making sure that there are no credible internal replacements for him. It's a slow-motion disaster.
I love this company, I love the people I work with, I love the work we do. (I even think my particular Sr VP is a rare gem -- or I wouldn't still be here.) But MSFT is in serious, serious trouble, and it's all at Steve's feet. Blowing $8B on Skype is just the latest in a long series of disastrous decisions. At least Yahoo was too greedy to take Steve's staggering bid of $48B -- we dodged a bullet on that one, for sure.
Our only hope is that Apple and Google bloody us so hard, that the Board is forced to make some hard, agonizing decisions about what really matters, and to focus on shipping lean, mean, focused products that people want, on time and ahead of our competitors. Win Phone 7 might be the first to come of that -- I just hope it isn't too late.
MSFT has traded like a utility for ten years. Following the dot.com bust, I thought this was intentional. In fact I thought it’d have made a great b-school case study in how to downshift from being a growth stock, as MSFT engineered a big shift in its stockholder base. At the time, I thought they did it well.
Trying to buy Yahoo! and now buying Skype are inconsistent with this.
ebay paid “only” $2.5B for Skype, but couldn’t turn it into a transformative asset. What’s different now?
While Steve Ballmer wastes shareholder meetings bopping around stage like an idiot (see http://www.youtube.com/watch?v=e8M6S8EKbnU), consumers across the country are bailing out on MicroSloth as soon as they can. The board should fire his sorry Nero butt ASAP.
BTW, I'm using Chrome - have been for nearly as long as it's been out (so happy to dump dumb-as-a-stump Explorer) - and my next computer is a cloud laptop, with no MS software to be seen.
Apple generates a lot of cash but is not stupid. Microsoft is lazy the way GM was lazy. They are in the business of making money not making good quality products. Google seems to have their number. Instead of making the operating system inexpensive, make it free. Then the apps are where you can make money. Cloud based Chrome OS will be pre-installed on laptops soon.