Within the msft extrememakeover blog are various comments that require mention.
In the April post :
So are you still around at The 'Soft or what? I am a long time reader here and have commented on every post you've made. I left the company three weeks ago after 10 years in. I am now a VP at a partner. I have to tell you, leaving was the best decision I've ever made. Sold most everything at $30 and $32 before leaving. Now, enjoying every day so much. Actually working at a company peopled with grown ups makes all the difference. Being treated with respect, priceless. The Microsoft detox feels so good, SOOOOOO good. 6:03 AM
In the April post another Microsoft employee "Former MS Winbuilder "states:
"leaving was the best decision I've ever made"'Extreme, I have to admit, my experience has been the same, even in this short time. I'd go so far as to call it an epiphany period in my life! The freedom, the satisfaction, the people actually, sincerely thanking you for coming to their company and helping them (when was the last time that happened), the joy I'm experiencing in my life now, it is truly a revelation, a liberating experience.I find myself now wondering why, why did I hang on so long? And then I realize that the reason was so I could truly learn to truly appreciate how good it is to be away from the toxic success I knew as a 'Softie.Your life, your TRUE life awaits you outside the gates of 1 Microsoft Way! 6:03 PM
A Microsoft employee stated:
I look forward to the day I leave Microsoft, or the day Ballmer does. Until then I can't stop caring how we do and every day it kills me a little more watching this once great company rot.4:12 PM
Another Microsoft employee states:
This is by far the best article I've read on the subject. It should be mandatory reading for every exec in the company. Hard to believe it's been 3 (great) years since I ended my own short-lived blogging career and left Microsoft. That place just isn't worth the frustration and aggravation.
Another post reads:
That web site for Windows suggestions is just about the saddest thing I've ever seen. Not because it's a bad site, but because MSFT's attitude towards it seems to be, "oh interesting, customers care about fit-and-finish? Maybe we'll do something about that."Apparently the idea to make good products got lost in the mix. For some reason everybody spent 5 years working on WinFS when the simple ability to reorder things in the task bar would have made the world a happier, better place.Tells you just about everything you need to know about the current state of the products
These comments are extracted from a former popular blog that was disbanded from frustration that Microsoft wouldn't listen to constructive comments from shareholders and users. Perhaps this comment extracted from the same site summarizes shareholders feelings:
Always enjoyed reading your posts. Unlike 99% of bloggers out there, you actually took the time to look at and understand the facts before arriving at an opinion.For anonymous @2:57, I rather think you have it backwards. I am sure MSFTextrememakeover will be fine without MSFT. In the long run, I'm not sure the reverse is true (although since leadership at MS is so resistant to listening to anything approaching reason, I'm not sure how much better off MSFT would be WITH him, either).
In the April post Charles states:
Ballmer must have a really low opinion of the average investor's IQ if he thinks we can review data like this and still believe him that MSFT has a "solid" strategy here with or without YHOO.
We decided to include the post from Charles,based on the reference of Mr. Ballmer believing that Microsoft has a "solid" 'Strategy'. This is the subsequent reason that we have created a "New Strategy" for Microsoft.
Within our research we also conducted a search of frustrated Microsoft shareholders. This search lead us to articles such as "Are Microsoft Shareholders Fed Up" located at http://www.networkworld.com/community/node/35547.
This atricle outlines Mr. MacDonald that in the year 2000 acquired $3 million worth of Microsoft shares. Mr. MacDonald expresses frustration based on the share price remaining at the same level for approximately eight years. We reviewed information concerning shareholders and there frustration with share buybacks.
According to an email that we obtained from Microsoft Investor Relations, the company has since 2004, deployed $115 billion on share buybacks and dividends. This strategy has subsequently failed to elevate the share price and create value.
Microsoft has for several years been referred to by Wall Street as a utility. It has the characteristics of creating cash flow and dividends, however, it lacks growth potential. Based on historical performance it appears that Microsoft lacks the ability to be growth company and will ultimately become a dividend company.
Perhaps the greatest concern is that despite massive cash flow and cash reserves, Microsoft seems unable to find more effective use of its capital. The company has deployed $40 billion on Research and Development since 2000. It has spent approximately $12 billion on acquisitions within the same year period. Despite failing to elevate the share price it has also deployed $115 billion in share buybacks.
In an effort to reduce Google's online search and advertising market share, Microsoft attempted a $45 billion bid for Yahoo. This strategy displayed poor decision regarding deployment of capital.
We compiled information and subsequently created a proposal or "New Strategy" based on the general consensus of information. The "New Strategy", involved presenting strategies that alligned with shareholders frustration.
Numerous shareholders were frustrated with the premium bid for Yahoo. According to a 2007 article in MarketWatch , Dan Gallagher states:
The stock was down 30% since the first of the year-having never recovered from a sharp sell-off when the company announced a plan to buy Yahoo for $45 billion.
As mentioned in previous posts, during the 2007 annual analysts meeting Mr. Ballmer and Mr. Liddell stated:
Buying their way in
On Thursday Liddell and Ballmer threw water on the notion that Microsoft will make a large, dramatic acquisition to quickly make up ground in the online services market. One such scenario pondered by analysts has been the potential purchase of Yahoo Inc. (YHOO:Yahoo! Inc to team up against online search leader Google Inc. (GOOG:"Are there some big things out there that we could conceivably buy? Sure," Ballmer said, though he added that he and Liddell are "basically organic-minded guys" when it comes to growth.
This report can be found at http://www.marketwatch.com/news/story/microsoft-asks-wall-stree-have/story.aspx?guid=%7B82BA2F9C%2D2893%2D4E3B%2DAA4A%2D38483104C35F%7D&siteid=yhoof
In the begining of 2008, Microsoft announces a 65% premium bid for Yahoo valued at $45 billion. Despite, management stating there is no intention to acquire Yahoo, less than one year later the company not only pursues a acquisition, however, it also offers a 65% premium for the floundering company.
MSN Summit
Ballmer Defends Microsoft's $6.2B R&D Plan
By Paula Rooney, ChannelWeb 2:45 PM EDT Thu. May. 04, 2006 Page 1 of 2 -->
Microsoft (NSDQ:MSFT) will invest $1.1 billion in MSN online and $6.2 billion in R&D overall during its next fiscal year to escalate adoption of its MSN AdCenter and Windows Live! and Office Live! platform services, its CEO said Thursday.
Speaking at a Microsoft Network Summit, Microsoft CEO Steve Ballmer said the company may have surprised some in the financial community with the size of its planned investment in its online business in fiscal 2007 but he said it's necessary to outseat competitors. Microsoft will launch an interactive ad service with AT&T that is now "under the radar" as well as a variety of enhanced AdCenter and Live! platform services including Windows Live! Local, Ballmer said.
Ballmer said Microsoft also will increase its spending on capital expenditures fivefold to $500 million in fiscal 2007, which begins July 1.
"A global infrastructure is not inexpensive. In the AdCenter platform there's a big technology challenge and a big business challenge," said Ballmer, claiming there are only two or three companies that can deliver the infrastructure to handle customer demand and advertisers' needs. "Our No. 1 priority is software as a service."
As part of that, Microsoft will develop better user experiences through its Windows Live! and Office Live! platforms including customized Live! services and Office authoring services for consumers and small businesses as well as large companies.
Microsoft also will commit resources to develop local and domain-specific searching technology as well as searching macros that allow end users to "customize their view of the world and what's on the Internet," Ballmer said.
As illustrated by the charts, despite Microsoft committing capital to improve an enhance MSN, it fails to compete with Google in comparison to advertising revenue and "Search".
This failure to remain competitive despite massive capital expenditure is the subsquent decision to attempt a $45 billion bid to acquire Yahoo. It demonstrates that Microsoft regardless of its massive R&D expenditures and acquisitions to enhance MSN, have failed to remain competitive with Google. Therefore, it presented Microsoft with the evident dilemma of requiring a strategy that would increase MSN's marketshare with advertising revenue and "search".
Word from a developer at Microsoft (me):
We spend less than 5% of our time coding. All the other 95% is around the process and saying the same story time and again for an immense number of managers.Then if you consider that MS has 19000 managers and 12000 engineers (yes, more managers than engineers), and only 1/2 of those engineers are developers, you get the conclusion that of all operational expenditures on salaries only 0.3% goes towards coding. All the other 99.7% is waste: process and management.So right there you see how we spend billions in R&D, countless years to build Vista and other without results.
In 2000, when Mr. Ballmer essentially assumed control of Microsoft the company was generating approximately $22 billion in revenue and $9 billion in net income.
Since 2000, Microsoft has annually deployed tremendous amounts of capital on Research and Development.
In 2002, the company spent $5.2 billion.Microsoft To Boost R&D Budget, Focus On PC InitiativeMicrosoft plans to increase R&D spending by 10% and focus on PC Initiative.
By Aaron Ricadela InformationWeek July 26, 2001 12:00 AMMicrosoft (NSDQ: MSFT) plans to increase its R&D spending by more than 20% this year, investing the greatest percentage in a PC initiative that would enable people to enter data in new ways and report problems to Microsoft, according to chairman Bill Gates.Gates told financial analysts during a meeting Thursday that the company plans to spend $5.3 billion in fiscal 2002, which began July 1.
In 2001, Microsoft spent $4.38 billion on R&D. "We're not scaling back our R&D ambition at all," Gates said.
Gates boosts R&D budgetMicrosoft to add up to 5,000 jobs in new investmentCarrie Kirby, Chronicle Staff WriterFriday, July 25, 2003
Microsoft will increase its investment in research and development by 8 percent, and add as many as 5,000 people to its workforce, Chairman Bill Gates said Thursday.The software giant will spend $6.8 billion on research in fiscal 2004, compared to $6.4 billion in fiscal 2003, which ended June 30.
Microsoft originally pegged last year's R&D budget at $4.7 billion, but a retroactive accounting change due to the company's change in stock compensation increased the number.Microsoft will increase R&D spending every year "as long as we can," said Chief Executive Officer Steve Ballmer. "We need to push forward the frontiers of what we do." While Microsoft has already sold its Windows operating system to practically everyone with a computer, Ballmer said plenty of opportunities exist in newer areas such as handheld devices and business software.
The commitment to research and development is a sign that Microsoft intends to use some of its earnings to keep a wide distance between itself and its competitors. While many tech companies are cutting costs as they struggle with the continuing crunch in corporate spending, Microsoft has had a relatively good year and can use that to its advantage. Ballmer said bold investments will be better for Microsoft in the long run than aggressive cost cutting.
Gates: Microsoft's Upping Security R&D BudgetJanuary 28, 2004 •
by Scott Bekker
More of Microsoft's $6.8 billion research budget will be directed toward making its software more secure and reliable, chairman and chief software architect Bill Gates said at a European technology conference."For Microsoft, security will continue to be our top R&D investment for years to come," the Reuters news service reported Bill Gates as telling industry experts at a Microsoft conference in Prague.
Filed under: Business, Windows, Google, MicrosoftMicrosoft has a $7.5 billion budget for R&D in 2007by Chris Gilmer Oct 18th 2006Microsoft is pumping up its research and development next year according to Steve Ballmer.
A step up to $7.5 billion--$1.3 billion more than the previous budget announced in May--comes in a move straight from investors who are worried about Google's lead in the marketplace. This R&D budget will most likely be used to steal recruit talented staff that can help support innovation in research laboratories in India and China, as well as in the US.
In our previous post “Microsoft is Fooling Itself” there is reference to the fact that Microsoft spent approximately $5-6 billion to create Vista. This has resulted in little innovation and a mediocre response from consumers. Although Microsoft controls approximately 80% of the operating system market share, only 17% of consumers use the Vista system. According to reports approximately 65% use the older version of Windows XP. Therefore, the result, Microsoft spent $5-6 billion to have its consumers primarily remain with an older product as opposed to changing to “new” innovation.
Despite deploying billions on Research and Development for operating systems, the company is losing market share to competitors such as Apple. Its massive Research and Development expenditure has failed to create innovation and satisfy or win customers.Since 2000, Microsoft has deployed over $40 billion in capital on Research and Development.
Ballmer Spotlights R&D at Microsoft Shareholder MeetingNovember 19, 2008 • by Kurt Mackie
The theme of the meeting, if there was one, was an appeal by Microsoft to preserve its long-term investment initiatives, particularly its research and development spending.
"Our strong financial position allows us to reinforce our competitive advantage by continuing to invest in R&D, continue to make carefully targeted acquisitions and continue to take a long-term view of the investment required for future growth," Ballmer said.
He said that Microsoft is also looking at reducing its costs, utilizing its resources more and "reducing the head count for this financial year and the next financial year." However, its R&D investments will continue.
View the entire article at:
http://redmondmag.com/news/article.asp?EditorialsID=10403
In November 2008, Mr. Ballmer announced Microsoft was going to continue with its previous "strategy" of spending on Research and Development. Mr. Ballmer stated "investing will reinforce the company competitive advantage". However, despite massive R&D expenditures the company has subsequently failed at remaining competitive.
According to Microsoft annual reports the company in 2000 generated $22 billion in revenue and $9 billion in net income.
In 2001, the company generated $25 billion in annual revenue and $7 billion in net income.
In 2002, Microsoft generated annual revenue of $28 billion. The company generated approximately $8 billion in net income.
In 2003, the company generated $32 billion in annual revenue and $7 billion in net income.
In 2004, the company generated $36 billion in revenue and $8 billion in net income.
In 2005, Microsoft generated $39 billion in revenue. The company had net income of $12 billion.
In 2006, the company generated $44 billion in revenue and $12 billion in net income.
In 2007, Microsoft has revenue of $51 billion. The company had net income of $14 billion.
Note:
These figures were obtained from Micosoft Annual Reports within its Investor Relations section of its website.
Microsoft
Revenue...........................................Research and Development
2000..............$22 billion.................$4.38 billion
2001..............$25 billion..................$5.2 billion
2002..............$28 billion...................$5.8 billion
2003..............$32 billion...................$6.4 billion
2004..............$36 billion...................$6.8 billion
2005..............$39 billion...................$6.8 billion
2006..............$44 billion...................$6.2 billion
2007..............$51 billion....................$7.5 billion
Based on the above chart, it appears evident that approximately every dollar increase in revenue from period to period, Microsoft is required to spend an equivalent amount on Research and Development.
In most periods, Microsoft deploys a higher amount of capital on Research and Development than the revenue generated in the next period. For example, in 2000 the company deploys $4.38 billion on Research and Development. However, the company increases revenue from $22 billion in 2000, to $25 billion in 2001. It spent $4 billion on R&D and increased revenue by $3 billion. In 2003, it had annual revenue of $32 billion and spent $6.4 billion on Research and Development. In 2004, the company revenue was $36 billion. Despite spending $6 billion on R&D, the company increased revenue by $4 billion.
This information demonstrates that Microsoft through revenue growth is required to deploy an equivalent amount of capital in the previous period on Research and Development.
Perhaps the most effective and direct way to address this dilemna is reiterating ourselves with a previous comment from a former Microsoft employee:
Word from a developer at Microsoft (me):
We spend less than 5% of our time coding. All the other 95% is around the process and saying the same story time and again for an immense number of managers.Then if you consider that MS has 19000 managers and 12000 engineers (yes, more managers than engineers), and only 1/2 of those engineers are developers, you get the conclusion that of all operational expenditures on salaries only 0.3% goes towards coding. All the other 99.7% is waste: process and management.So right there you see how we spend billions in R&D, countless years to build Vista and other without results.
The charts reflect this comment from a former Microsoft employee. Therefore, despite Microsoft being required to deploy a dollar in Research and Development for every dollar generated through revenue, Mr. Ballmer announced in November 2008 "we are based on our financial position going to reinforce our competitive advantage through Research and Development investing".
This "strategy" has failed to utilize capital to maxamize revenue growth. Despite the massive expenditure the "strategy" has failed at enabling Microsoft to remain competitive. It has lost marketshare in Operating Systems. It has lost marketshare in online services to Google. It is also failing to remain competitive with Apple and RIM within the handheld sector.
Numerous shareholders have expressed frustration with Microsoft deploying capital for share buybacks. As mentioned in previous posts, Microsoft has stated that it has since 2004 deployed $115 billion on share buybacks and dividends.
In a February 2008 article titled "A Yahoo White Knight Emerges!Microsoft Shareholders", in the comment section a shareholder states:
You left out the possibility that MSFT could simply take out more debt, and change the cash/stock mix to get back to $31. Frankly, as a MSFT shareholder, that's what they should have done in the first place, rather than saddled us with the dilution and downward stock spiral that you allude to. And btw, I'm against the deal as it sits and agree that your suggestion would be better. Unfortunately, it sounds like YHOO rejected those discussions throughout the past year. Which was incredibly stupid of them.
According to a September Marketwatch article by Dan Gallagher it states:
SAN FRANCISCO (MarketWatch) - Microsoft Corp. announced a share buyback Monday morning worth $40 billion - the largest on record for a repurchase deal - following a week of turmoil on Wall Street.
The software giant was one of a trio of major U.S. companies to announce large-scale buybacks Monday, with Hewlett-Packard Co. and Nike Inc. joining the fray.
Redmond, Wash.-based Microsoft (MSFT:
Microsoft Corporation
Sponsored by:
MSFT 19.82, +0.35, +1.8%) unveiled a program to buy back up to $40 billion in stock. The new program replaced a previous one, now completed, and will run through September of 2013.
The entire article can be viewed at http://www.marketwatch.com/news/story/microsoft-sets-largest-ever-buyback-plan/story.aspx?guid=%7b5284D06B-CAA
An article posted September 2008 at Tech News Review states:
Microsoft unveils $40bn buy-backMicrosoft has unveiled plans to spend $40bn (£22bn) buying back its shares from investors, the biggest single buy-back plan in history.
Analysts say the move is an attempt by the software giant to use its spare cash to prop up its share price which has fallen by almost 30% this year.
Since 2004, Microsoft has engaged in a "strategy" to buyback company shares. Despite deploying tremendous amounts of capital on this initiative it has failed to elevate the share price. Reflected in the above chart, the share price has remained relatively flat for a "long-term".
Therefore, this "strategy" of deploying capital to enhance the share price has proven ineffective. Despite the failure of this strategy, Mr. Ballmer has announced the company intention to continue with this "strategy" and deploy an additional $40 billion towards the "strategy" of share buybacks.
In a November 9, 2004 article called "Shareholders rubber- stamp Microsoft payout", Ina Fried reports on the annual shareholder meeting. Within the article a shareholder presents a question concerning the share price. We have included the response by Mr. Ballmer and Microsoft:
The company was also queried about its stock price, which has hovered in the same range despite the company's growth in profits and the plans for the cash payout, stock buyback and boosted dividend. On Tuesday morning PT, the price stood at $29.51.
"Our stock has been flat for four years," said one shareholder, noting that the enthusiasm and energy of executives has not translated into stock growth.
Chief Financial Officer John Connors commiserated with shareholders. "Obviously we have been in sort of a stagnant, narrow range for a while."
Ballmer offered his own take. "We don't surprise anyone numerically very often," he said. Much of the company's profit improvements in the past few years may have been priced into shares, but if the company can do all the things it has planned, it will be able to achieve further growth, he said.
"If that all happens, the stock price will take care of itself," Ballmer said.
In 2004, at an annual shareholder meeting, Microsoft is presented with the question of explaining the share price. Its recognized that the company is not a growth stock.
The company CFO states "we have been in a stagnant, narrow range for a while" and Mr. Ballmer states " if things go according to plan the stock will take care of itself".
These statements are extracted from a 2004 annual shareholder meeting. Both the company CFO and CEO acknowledge that the shares have been flat for "FOUR YEARS". However, the response is that "if things go according to plan the stock will take care of itself".
The plan has included a proposed share buyback plan. This amounted to $40 billion. It involved increasing R&D spending. It included offering a premium $45 billion bid for Yahoo.
Fast forward four years, we are at a 2008 annual shareholding meeting and the shares are still trading at the same level. We have witnessed another "FOUR" years of stagnant price, and narrow range.
It appears evident that the plan failed and the shares didn't take care of itself.
It appears that it equates to a total of "EIGHT YEARS" of stagnant share prices, and narrow range. The tragedy, Mr. Ballmer and management have announced "PLANS" to proceed with the same "strategy".
How long will shareholders be required to watch these "strategies" that fail to create shareholder value?
Will reports in four years during a 2013 shareholder meeting indicate that Microsoft spent $40 billion on share buybacks and the stock is still "STAGNANT"?
In four years will Mr. Ballmer and the CFO state "if things go according to plan..the shares will take care of itself"?
The entire cnet article can be viewed at http://news.cnet.com/shareholders-rubber-stamp-Microsoft-payout/2100-1014_3-5444986.html
Microsoft Announces Deal with Verizon
After a reportedly grueling two-year negotiation, Microsoft is partnering with Verizon to offer several Live services -- search foremost among them -- and advertising to the wireless carrier's roughly 80 million U.S. subscribers. (With its acquisition of Altel, Verizon is expected to edge out AT&T this week as the largest U.S. wireless carrier.)
The five-year deal, on new Verizon Wireless phones, includes a customized mobile version of Live Search, including local and location-aware search; access to the MSN portal; and Microsoft management of search and display advertising for Verizon. Microsoft apparently beat out Google for this deal, too. The Wall Street Journal reported in November that Microsoft was offering Verizon guaranteed search advertising revenue of between $550 million and $650 million over the life of the deal, roughly twice what Google was offering. Others have suggested those figures were inflated.
Microsoft did not comment on the financial terms of any of its deals. "All these deals have economics," Robbie Bach, president of Microsoft's Entertainment and Devices Division said in an interview this afternoon, "so I'm not going to say that there's not economics involved because of course there is, but the logic behind the deal for us is, the mobile search and advertising business is a very large opportunity and it's very early in the process of defining what it is. ... The challenge, and what will determine our success, to me, isn't necessarily the underlying economics, per se, but it's do we find the right experience for people for search on a mobile phone?"
Analysts had parsed a potential Microsoft-Verizon deal, at $500 million, as a strategic market-share play, rather than a grab at profits -- which will may be tough to come by via the nascent, but promising, mobile advertising business. Citi analyst Mark Mahaney calculated in November that Microsoft would need each Verizon customer to conduct 17 searches a month on average to break even on the deal. (Via Tricia Duryee at mocoNews.net.)
Rumor Mill: Google Acquiring Sprint Recent news that Sprint is not going to work with Clearwire to build out a WiMAX network only added to the rumors I have been hearing about Google acquiring Sprint Nextel. On the surface it seems like this would be a bad move for Google but in reality the world’s leading search engine has become so much more than just a website to go to when you want to find a trinket of information… The company now needs a wireless network to allow it to grow in the mobile search and related spaces such as watching YouTube videos on the subway.
Let’s look at Google from a philosophical level. The company has built almost everything from scratch in its past and present. Computers, operating system, web server software and more. Google likes to have complete control. In a way this is not unlike Apple. So one wonders if the mobile search market is so crucial to the company’s future, can it rely solely on the Open Handset Alliance to get into the mobile search market?
Look at it this way... When Google decided it was serious about the video space it launched a new tab titled video on its home page. At a certain point the company realized YouTube was too strong a competitor and Google threw in the towel and purchased the video competitor. So one wonders if history may indeed repeat itself and Google will start with the OHA and decide soon they need an acquisition to boost their presence in the space. Of course one problem with a Sprint Nextel purchase is that the company’s network isn’t GSM-based meaning devices will have to have multiple radios to be used around the world. But this is a minor problem; let’s look at the more serious issues such a transaction would pose.
1) Google gets into the messy business of telecommunications. I don’t mean to say Google’s day job is easy but the telecom market gets it involved with government agencies like the FCC on a more regular basis. Like many other large telcos the company will have to spend more and more money lobbying and technology differentiation may be less important than government regulations in ensuring future success.
2) Getting seriously into the telco business and having a corporate motto “Don’t be Evil,” may be tough to pull off.
3) Retail stores. Google’s investors love the fact that Google has a massively scaleable business model which can grow with the addition of servers. Imagine if Google had a slew of retail stores to deal with around the country (or world?). Google’s valuation would likely take a major hit.
4) Open Handset Alliance: One would imagine if Google owns its own network, other network operators would not be too happy to be part of the OHA. This could slow progress for Google getting on the handsets of other wireless service providers.
5) A purchase of Sprint Nextel would make Verizon and AT&T go crazy and they would make life even more difficult for the search leader. Could they make life any more difficult than they do today? Maybe. But for a company that craves control as much as Google there may still be a way to acquire Sprint without destroying their relationship with other providers. You see, Google doesn’t really need the messy wireless phone business.
What they really need is platforms which will allow them to display ads embedded in their services such as maps, videos, etc. Google could buy Sprint Nextel and in a complicated maneuver spin it back out as a different company (perhaps a nonprofit) which agrees to work more closely with Google to display ads and distribute its applications. This would allow Google to stay somewhat independent and work with other service providers worldwide. Another more drastic move would be to buy the beleaguered wireless phone company and start giving all service away for free. In addition the company could reinitiate the ClearWire talks and work with this company and others to blanket the world with a free (or at least ad-subsidized) WiMax network.
This sort of move is logical from a local search perspective. Imagine Google being able to light up your phone with information relative to where you happen to be. Think about the phone as a virtual tour guide. When you get a phone call from someone, the phone could pull up a MySpace or orkut page before the phone even rings. If the caller ID is blocked when receiving a call, you could see the results of a web search of the phone number as the phone rings. When you are walking past a coffee shop a coupon for 10% off any drink with a European sounding name could be displayed on your phone. It gets better… McDonalds could flash ads for $2-off any meal with more than 1,000 calories in total.
Of course I am kind of kidding about this last point but we should all realize the web is beginning to have more of our preferences stored in it somewhere and Google could indeed ferret out our likes and dislikes and match them up with ads from relevant companies in a way we never thought imaginable. I for one would be very excited to see what a Google phone might look like five years from now. Sure Apple is the reigning king of design but Google is the same in the world of information organization. I do wish someone would cross the chasm between my desires and my surroundings. I think Google with a cell phone provider under its wing can be the company to pull this off. So do I think Google will make such an acquisition?
Microsoft has invested enormous capital to enhance its marketshare within the handheld sector. However, despite this massive spending the company has failed to remain competitive.
Microsoft has been pursuing mobile services and attempting to obtain consumers for several years. It has created and launched the “o” phone. It has established alliance with Sprint Nextel. However, the result is Microsoft is losing market share to Apple and its iphone. While there has been better success in the smartphone sub-segment, Apple has surpassed Microsoft in less than one year. Additionally, Research in Motion through its Blackberry is also obtaining competitive market share to Microsoft.
As mentioned within this post, Mr. Ballmer announced a deal with Verizon. According to Citi analyst Mark Mahaney, Microsoft requires each Verizon customer to conduct 17 searches per month for Microsoft to recover its investment.
In 2008, prior to launching this "New Strategy" campaign, we forwarded letters to Mr. Ballmer stating that the company should acquire Sprint. We stated that the company should not be content with conducting deals with telecom companies when Microsoft has the financial capacity to acquire a company and dramatically enhance revenue.
Will Google through acquisition acquire Sprint and through this acquisition secure marketshare from Microsoft?
Microsoft currently has approximately $25 billion in cash. The company according to its 2007 Annual generated approximately $17 billion in net income. Therefore, Microsoft should engage in more effective utilization of its capital and pursue acquisitions that will enhance marketshare and revenue.
Microsoft through its "Old Strategy" has since 2000, deployed $40 billion in Research and Development. The company has deployed an equivalent amount on share buybacks. Both of these "Old Strategies" have failed to enhance the company competitive advantage, propel growth and enhance share price.
Based on historical data and information and concerns from shareholders, analysts and reporters, we created a "New Strategy" for Microsoft. It involves diverting from failed "strategies".
It incorporates adopting "strategies" that would exclude share buybacks. This strategy has wasted capital on a initiative that fails to enhance shareholder value.
It involves diverting tremendous capital from R&D, that according to Microsoft employees is a waste of capital. It includes utilzing its cash to enhance revenue and growth.
Numerous analysts refer to Microsoft as a utility. This is based on the company inability to present characteristics of growth potential. Our "New Strategy" involves creating product mix to establish new services and produce synergies with existing divisions.
Numerous analysts are concerned that Microsoft is losing marketshare within its Operating System division. The concern is compounded with the company potential inability to replace the loss in marketshare and revenue.
As mentioned in a previous post, more importantly, Microsoft has begun to relinquish undisputed technical leadership in desktop Operating Systems , the core of what the company does, to Apple. It’s difficult to calculate how much of a strategic impact that will have on Microsoft. Although Microsoft will argue that it has increased revenue and earnings, if activity within this sector remains constant for the next four to five years how will Microsoft’s revenue and earning appear?
The only savior for Microsoft is that Windows 7 will be the must-have product that Vista failed to accomplish. Microsoft is required to market a more compatible Operating System to have any chance of keeping up with OS X and Linux. The reality or “Success” as Microsoft stated in the email, is for Windows 7 being customer friendly and ultimately stopping share erosion at whatever level it has dropped to by then.
Although the company has experienced an increase in revenue, without a “New Strategy” will shareholders in the future witness that revenue growth erode as competitors continue to outpace Microsoft?
Under a Ballmer-led administration, expect more of the same results. Expect more lack of innovation and consumer satisfaction. Expect continued poor share performance and creation of shareholder value. Expect Mr. Ballmer to pursue similar strategies.
Therefore, despite failed strategies of share buybacks elevating share value, Mr. Ballmer has announced a "Strategy" to deploy $40 billion in capital.
Microsoft has engaged in massive Research and Development expenditures. These annual expenditures have failed to create "innovation" and provide the company with either solid revenue growth or a competitive advantage.
Microsoft intends to within the next four years deploy approximately another $40 billion on Research and Development. Based on historical data this has failed to prove beneficial to the company.
Microsoft intends to deploy another $40 billion on share buybacks in a effort to create share value. However, this "Strategy" has failed to instill investor confidence and create shareholder value.
In the next four years Microsoft based on historical records of spending and revenue growth has the potential to increase revenue to $80 billion. However, this is contingent on its ability to maintain marketshare in existing areas of operation. Based on data and analysts, there is the potential for Microsoft to surrender marketshare to competitors, and therefore expereince a decline in annual revenue.
It is time for Microsoft to abandon its "Old Strategy" and pursue a "New Strategy". Subsequently, we compiled information and data and created a "New Strategy" for Microsoft.
As mentioned in previous blogs, we are seeking to rally support for a “New Strategy”. The strategy incorporates three main ideas.
1) Acquire a major bank. We recommend ING. It provides global presence. It offers online services through ING Direct. It enables Microsoft to obtain a valuable asset. It enables Microsoft to increase revenue and offset a potential future decline in revenue through current operations. Microsoft can acquire a major bank that will add according to 2007 reports, $211 billion in annual revenue. This acquisition can with current valuations be achieved by spending approximately $17 billion.
This strategy would provide Microsoft with additional revenue. It will enable the company to aggressively enter the consumer and commercial finance sector. It will enable the company to have access to numerous commercial and consumer ING customers. This will enable Microsoft to offer "rewards" and cross-promotion services to ING consumers.
Hypothetically, a commercial ING client has the ability to secure "rewards" towards Microsoft office and operating system software. This would enhance the value of Microsoft divisions. It enables other divisions, such as operating systems, have more appeal to consumers.
2) Microsoft acquires Sprint Nextel. Microsoft has attempted to gain consumers in this sector. It includes creating an alliance with Sprint. Apple and iphone are gaining market share. The Sprint acquisition enables Microsoft to increase revenue by $40 billion annually. This acquisition at current market valuations would require Microsoft spending $7 billion. This includes offering a modest premium based on current values. Microsoft should not be content with an alliance that provides modest revenue when it has the capacity to acquire Sprint and increase revenue by $40 billion.
This "Strategy" enables Microsoft to secure Sprint consumers. It provides Microsoft with direct access to Sprint customers. It also provides Microsoft with an additional $40 billion in annual revenue.
It enables Microsoft to offer Sprint customers cross-promotion to Microsoft or ING products and services. Therefore, the corporate client that uses ING has access to products offered through Microsoft divisions and Sprint. A corporate client secures financing and loans from ING. It through "rewards" obtains products such as Operating Systems. It also has the potential to through cross-promotion secure handheld devices for its employees with Microsoft software and applications available only through Sprint.
3) Microsoft should enter negotiations with Yahoo for a “search” only deal. It can obtain an increase in market share and become competitive with Google. This “search” only deal will cost Microsoft approximately $3-5 billion.
Through the "Old Strategy" Microsoft will continue to deploy capital towards R&D, and share buybacks. It will potentially lose additional marketshare to competitors. It will potentially continue to remain a "Dividend" company with minimal opportunity for growth. It will through share buybacks, deploy capital in a failed effort to increase share prices and create shareholder value.
Through the "New Strategy", the company will deploy capital towards acquisition growth. It will obtain a major bank and create the opportunity for cross-promotion and growth.
Microsoft acquires Sprint. Through this acquisition the commpany secures consumers and provides the opportunity for cross-promotion and the ability to enhance handheld services and marketshare.
Microsoft pursues a "search" only deal with Yahoo. This "New Strategy" enables Microsoft to increase marketshare within the online division. The acquisition will increase the value of MSN and enhance the company brand.
The "New Strategy" through cross-promotion enhances the company brand and potentially consumer loyalty. It increase revenue to exceed $300 billion annually. It provides $30 billion in net income. It provides the company with additional growth potential within divisions of operation. The "New Strategy" through acquisition growth and cross-promotion has the ability to increase Wall Street and investor confidence in the company and subsequently increase shareholder value.
The "New Strategy" has the greater ability to create shareholder value based on capital deployed as oppossed to the "Old Strategy" and subsequent "Current Strategy" of share buybacks and massive R&D expenditures.
It is time for a "New Strategy" for Microsoft. Based on the "Old Strategy", Microsoft will through till 2013 deploy $40 billion on share buybacks. Within the same period, based on reports it will potentially also deploy $40 billion on R&D. However, through deploying approximately $80 billion in the next four years what value will be created?
How much annual revenue will be added in the next four years?
Will $80 billion in capital expenditures have the ability to generate annual revenue that exceeds $100 billion?
Will this expenditure within the next four years maintain growth?
If it creates revenue growth, what is the value created based on $80 billion spent?
As mentioned, will Mr. Ballmer and management present the same answers at the 2004 shareholder meeting in another four years at the 2013 meeting. When asked about growth, the company "Plan" and most important the share price, will Mr. Ballmer state "the shares have been stagnant...but..we have a PLAN...and the shares will take care of itself"?
Therefore, which "strategy" makes more sense and creates greater return on investment or capital deployed?
Microsoft can continue with the "Old Strategy", this equates to $80 billion in four years. At this time will the share price have increased from its historic "long-term" level?
Will the investment create any long-term shareholder value and elevate the share price?
The "New Strategy" involves deploying approximately $40 billion in acquisition growth. It involves spending less than the bid for Yahoo. Through deploying $40 billion it enables Microsoft to increase annual revenue to exceed $300 billion annually. It enables the company to generate $30 billion in net income. It also through cross-promotion creates unmeasureable value to current divisions through synergies.
Microsoft through the "Old Strategy" will probably survive. However at what cost?
How much marketshare will be lost in current divisions?
At what price will the company shares be trading in four years?
Perhaps this comment from a former employee summarizes the "Old Strategy" and "Current Strategy":
I look forward to the day I leave Microsoft, or the day Ballmer does. Until then I can't stop caring how we do and every day it kills me a little more watching this once great company rot.
How long will shareholders allow the company to continue to rot?
We are seeking to rally support. Offer your support through the comment section or we can be contacted at thecrandreagroup@hotmail.com
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