Activism-The Crandrea Group

Another Nail in The Coffin

2009-08-13T15:43:00.000-07:00

A recent anonymous comment on this site inquired or asked "Did We Give Up". The comment inquired why we failed to respond or post comments concerning Microsoft's last quarterly earnings. Well, the comments can be viewed at http://www.networkworld.com/community/node/43995

In response to the question "Did We Give Up?", the answer is no. We have been engaged in other projects that have consumed time and attention. However, if the question was "Have you lost HOPE?" the answer would be "Yes".

The campaign was initially launched in mid-December 2008. It gained attention from various blogs. It secured interviews with various blogs and reporters, including an article with PC Plus magazine. It obtained support from various Microsoft employees (who we thank for offering analysis and feedback). It also secured support from various shareholders.

Unfortunatley, it appears evident that Microsoft's fate is secured. Regardless, of conducting analysis and securing support, regardless of other sites indicating the same analysis, it appears Microsoft is headed on a path of no return. To quote the Phantom of the Opera "Microsoft has passed the Point of No Return".

Initially, the campaign indicated that Microsoft is relaint on its cash cows which will eventually fail to provide the desired revenue. The campaign indicated that Microsoft required a "New Strategy" to alleviate this dilemma. The campaign referred to the growing trend of SaaS, handhelds or mobile, and also online.

Despite trying to influence change, despite media attention, The SLT continued with its "Strategy". This resulted in the well publicized reality of a 30% decline in revenue. The primary direct result of less OS revenue.

Recently, the company has lost a lawsuit to a Canadian company. Refer to: http://www.marketwatch.com/story/microsoft-loses-in-toronto-firms-patent-suit-2009-08-12

The reality of the above article is that Microsoft is confronted with losing additional revenue.
This will potentially have a substantial impact on company revenue. Word is perhaps the most recognised and utilised product in the Office Products. This is subsequently another nail in the coffin.

The company is losing revenue with OS. It has lost Word. The trend is moving towards Saas and netbooks, which offer less revenue.

It is languishing in the online sector. The Yahoo and Microsoft deal will still only provide 30% share compared to Google controlling over 60%.

The company recently announced a deal with Nokia. Refer to: http://www.marketwatch.com/story/microsoft-nokia-form-mobile-computing-alliance-2009-08-12
However, the alliance will fail to compete with Apple or RIM. Therefore, Microsoft will fail to compete in this growing sector.

We don't believe the campaign has the definitive answers. However, it secured support from reporters, employees, shareholders and analysts. Microsoft employees provided analysis and feedback concerning the "New Strategy".

We have lost Hope that the SLT will ever understand the dilemmas confronting the company and listen to outsiders (this includes analysts, reporters, shareholders). Therefore, it appears evident that Microsoft will continue to loss revenue. It will fail to innovate. It will fail to recognise trends. It will fail to become relevent.

It appears more evident and understandable why msftextrememakeover gave up and Mini Microsoft creates fewer posts. The SLT has refused to listen to legitimate complaints and solutions posted on Mini Microsoft for years. The SLT appear to be blind and oblivious to the realities confronting the company. Unfortunately, it is to the detriment of employees and shareholders.

The SLT has failed to create shareholder value for a decade. It has failed to create shareholder value for a decade with the shares trading at approximately $23 per share or the same level for LONG-TERM. It has failed to listen to complaints for a decade. It has made false promises and ignored reports from other parties (newspapers, blogs, reporters) for a decade. Sadly, it appears obvious that the SLT will continue its "Strategy" adding more nails to the coffin until its time for the shareholders and analysts to deliver the eulogy.

Its time to rally support and effect change.

We can be contacted at thecrandreagroup@hotmail.com

Eric Jackson of Ironfire Capital

2009-07-06T17:06:00.000-07:00

In past blogs we have made reference to Eric Jackson of Ironfire Capital. In 2007, the firm acquired less then 100 shares of Yahoo. Utilizing the Internet the firm implimented "Plan B" and rallied support from frustrated Yahoo shareholders.

Mr. Jackson has a blog called Breakout Performance. In this post we wish to provide the article Mr. Jackson posted on June 10. The article reiterates what this campaign has been stating regarding R&D spending and a reality check.

Eric Jackson

A couple of weeks ago at the D7 Conference in Carlsbad, Calif., Microsoft(MSFT Quote) CEO Steve Ballmer boasted the software company could create a lot of new things by spending $9.5 billion annually on research and development expenses. That's right, Microsoft spends almost $10 billion each year on R&D. That's more than any other company in the world, by a long shot.R&D spending at many tech, pharmaceutical or biotech companies is treated as motherhood and apple pie. R&D is never a bad thing -- it's only good. More is always better.

When you invest in research, you are investing in hope and possibilities. No matter how much you have lost in past projects that never panned out, every new dollar invested in a R&D project holds the possibility that it will deliver a large multiple of that dollar in future earnings before interest, taxes, depreciation and amortization.

Spending a lot on R&D would be a good thing for Microsoft if it was generating a large return from that investment. But that's not the case and it hasn't been the case for a long time.Ballmer's comments show that Microsoft's senior leadership is proud of its continued investment in R&D and sees it as a source of competitive advantage for the company. On an absolute dollar comparison basis, Microsoft is making a much bigger bet than most in this area.Microsoft spent 46% more than the $6.5 billion IBM(IBM Quote) invested in R&D last year, 252% more than Oracle(ORCL Quote) ($2.7 billion), 763% more than Apple(AAPL Quote) ($1.1 billion), and 390% more than Google(GOOG Quote) ($2.8 billion).

Yet, most would conclude that Microsoft isn't 9 times as innovative as Apple, despite the discrepancy in how much money it is pouring into its research activities. Beyond its Office, Client, and Server core franchises, it's difficult to name innovations associated with Microsoft.

What is also remarkable about Microsoft's spending on R&D is the cumulative total racked up over the years. In the last 10 years, Microsoft has invested $62 billion in the R&D area. Microsoft could have bought back nearly 40% of its stock with that amount; it could have beefed up its dividend; it could have made a string of acquisitions which presumably would have continued to grow its top and bottom lines more than what it has achieved organically.It's hard to know exactly what Microsoft has delivered for its R&D investment; it doesn't break out the numbers according to its five business segments. However, the two smallest business segments -- Entertainment & Devices, which includes the Xbox, Zune, and Windows Mobile software groups, and Online Services, which includes Search, and the Microsoft MSN, Hotmail, and Messenger properties - likely have taken the lion's share of the investment. Combined, these two divisions have delivered $71 billion in revenue for Microsoft over those 10 years and $15 billion in losses.

So, what Microsoft's $62 billion R&D investment has led to a $15 billion loss for at least those two businesses in 10 years.Ballmer has argued that Wall Street investors are too focused on the short-term. One large Microsoft investor told me recently that Ballmer had complained loudly to him about the short-sightedness of investors who called on the company four years ago to do a large stock buyback and pay out a dividend with the excess cash on Microsoft's pristine Microsoft balance sheet.

Ballmer apparently said to this large investor: "We did everything they asked for. We did a huge buyback. We did the biggest one-time dividend ever. And what good did it do us?"Ballmer's right. Total shareholder returns, or TSR, for Microsoft since it initiated its stock buyback and dividend program are down 25%. For the last 10 years, TSRs fell 47% (as of early April). This includes returns from dividend payments (including the big, one-time dividend of $3 a share), as well as stock appreciation, over that time.Is 10 years a sufficient amount of time for a shareholder to wait to judge a company's management team for how it has performed?

Those TSR numbers are clearly unacceptable and likely reflect poor investment decisions and loss of confidence by shareholders in the future prospects for the company.Over that same 10-year time period (again, as of early April), Apple's total shareholder returns have been 826%, Nintendo's have been 243%, Oracle's have been 166%, IBM's have been 3%, and Nasdaq's returns have fallen 37% -- all substantially higher than Microsoft's TSRs.

If the predominant Microsoft strategy of investing more in internal R&D, steering away from acquisitions, and keeping tight control of the five business segments has led to these results in the last 10 years, should shareholders expect that the same approach will lead to different results in the next 10 years?

Are we being "short-termists" or "flippers" of the stock by pointing out these results and suggesting they should have been much better?

R&D spending can lead to blockbuster returns. And Microsoft has a big advantage relative to its competitors in that it can invest enormous sums for future product development. But Microsoft, in being proud of the fact that it can spend almost $10 billion a year on R&D, is like a driller of oil and gas being proud of the fact that it can drill thousands of dry holes. It doesn't matter what you spend on R&D; it only matters what return you make from that investment for your investors. So far, Microsoft hasn't delivered on its promises.

A private-equity investor friend of mine once told me that he only liked investing in companies who practiced "small 'r' and large 'D' R&D" - meaning he wanted to see fewer ivory tower white coats and more of an emphasis on taking cutting-edge ideas and technologies out of the lab and building a real product and revenue stream around it. That process requires discipline, but it can be managed.Microsoft isn't the first large company to face this challenge of effectively managing its R&D process. Hewlett-Packard (HPQ Quote) lost its way a few years ago. Pfizer(PFE Quote) and other "big pharma" companies are facing similar questions around their R&D activities.

Instead of patting Microsoft on the back for its continued spending on R&D, investors and the press should be asking, "Where's the beef?" The onus should be on the company's management to articulate why its status quo approach for running this function will lead to different results in the next 10 years. Otherwise, I can think of several better ways to spend the next $62 billion of cash flow.

This campaign fully agrees with Mr. Jacksons assessment. It is time that shareholders speakout against Microsoft and its investment practices and its strategy.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

"Ads" Fail to Add Value

2009-07-02T10:25:00.000-07:00

Various companies have failed to advertise and market their brand successfully. Ask.com has through numerous campaigns failed to increase its brand perception. Microsoft has also fallen into this category.

It is without dispute that Microsoft suffers from a battered image. Through our research we have discovered such sarcastic comments as Microsh*!. Please forgive the vulgarity. However, with such references it is clear that the company has poor brand perception.

Part of the poor brand perception is the failure to produce and market superior products. The company has offered Vista, Zune and other failures. As one Microsoft employee stated "if we can sell garbage and get away with it we will sell garbage".

Consumers want superior products. They want products that work. They want products that offer features. They want products that don't break or crash or freeze. They want products that are compatible with other products. In most of these areas Microsoft has failed.

Microsoft has also failed in changing its image. If you suffer from a poor image the logical strategy would be to improve it through some serious PR work and campaigns. However, this is an area that Microsoft has failed miserably.

Julie Bort at Microsoft Subnet was a tremendous catalyst for this campaign gaining attention. Julie provides some insight into Microsoft and its advertising campaigns. Refer to: http://www.networkworld.com/community/node/43240

Follow the link in the article to view the choices of the worst ads. The sad reality is that Microsoft continues to fail to capture consumers through advertising.

Regrading the recent IE 8 commercials refer to:
http://news.cnet.com/8301-17852_3-10276705-71.html?tag=contentMain;contentBody and refer to http://news.softpedia.com/news/Internet-Explorer-8-Vomit-Video-Gets-Pulled-115692.shtml

The ads are hosted by Dean Cain. However, the most recent called "OMGIGP-Oh My God I am Going To Puke" is repulsive. Who wants to watch someone puke during a commercial. The sad reality is the ads made me want to puke. Consumers are use to brand association. Lets refer to Win 95

http://www.youtube.com/watch?v=5VPFKnBYOSI

The Win 95 commercial was terrific. It had the Stones playing in the background. Everytime you thought of Win 95 you thought of "Start It Up". Incredible brand association. Now, the same company creates a commercial were IE 8 is forever linked and associated with Oh My God I am Going to Puke. There is marketing genius at its worst.

I think that its time Microsoft fire its ad agency?

Perhaps what is the most disconcerting with the recent ad is the message it delivers. The puke is repulsive. However, the feature it is trying to promote is watch and view Porn with privacy. Lets acquire IE 8 with "In Private Browsing" with no history so we can view PORN. Well, there is a selling feature to promote to consumers!!!

What demographic and audience is this ad trying to capture?

Is Microsoft seeking to expand its IE 8 into the prison markets?

Thankfully, the ads were yanked from the air. Yet, the company also yanked the Seinfeld and Gates ads. Yet, they said it was all part of the strategy. Well, that is certainly believable.

Why are they spending shareholder capital on such poor ads that eventually get pulled from the air?

Do they really think these ads are going to create excitement with consumers to buy the products?

Word of advice Microsoft. Revert back to creating excitement. Use brand association similar to "Start It Up". What about IE 8 with "We are the Champions" or the Beatles "Got to Get You Into My Life".

Fire Crispin Porter now?

Fire Bradley Montgomery now?

Its time to improve the company image with proper advertising and marketing. Maybe the $9 billion on R&D should be spent on making a decent advertising commercial. The past commercials aren't even worth 9 cents.

To offer support through shares we can be contacted at newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Will Microsoft Shares Ever Show Growth

2009-07-02T05:20:00.001-07:00

For several years Microsoft shares have remained relatively stagnant. For approximately a decade the share price has displayed minimal variation. Refer to: http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=MSFT&CP=0&PT=10

This campaign has indicated on multiple occassions that several years ago at an annual shareholder meeting Mr. Ballmer stated "the shares have been stagnant but we have plans and the shares will take care of itself". Despite Mr. Ballmers confidence in the "shares taking care of itself" there still is minimal variation.

A article with CBS Marketwatch makes reference to the potential of Microsoft shares reaching a level of $35 per share. Refer to: http://www.marketwatch.com/story/how-microsoft-msft-makes-it-back-to-35

In this article the author states that Microsoft could become a growth stock based on two primary factors. First, the author states "would be a home run for its new search technology, Bing". Microsoft has committed approximately $100 million towards an advertising campaign to promote Bing. Research shows that its share has increased by approximately 3%. That is relatively impressive growth, however, Google doesn't need to feel threatened. Google commands over 60% while Microsoft controls 13% of the search market. Bing will have to convince numerous users to steal another 50% share away from Google. It is optimistic yet not very likely.

In a CBS Marketwatch article the author Therese Poletti refers to Bing creating competition. Refer to: http://www.marketwatch.com/story/microsoft-stirs-search-engine-pot-with-bing.
The author concludes the article stating " So the key question now among investors, as Lindsay notes, is "is Bing sustainable, or will Microsoft mess it up?"

This campaign can very simply answer the above question presented by Ms. Poletti. At the beginning of the article she references to a parody video created concerning Bing. Refer to:http://techblips.dailyradar.com/video/googling_with_bing/

According to the initial CBS Marketwatch article the second issue confronting Microsoft is "More important to Microsoft's success is a very successful launch of Windows 7, the replacement for Vista".

It is evident that Microsoft failed with its release of Vista. The Mojave Experiment failed to rejuvinate interest with Microsoft and its operating system. There are numerous reports indicating that competitors such as Apple are slowly eroding Microsoft's dominance.

Microsoft still controls over 80% of the market. However, with increased competition and an weakened economy will Win 7 bring success?

Several consumers and companies will likely remain with a current operating system as oppossed to upgrading. Additionally, this segment of Microsoft will not bring much growth. It might show modest growth, sustain growth or loss share. Regardless, this segment is not a huge growth sector for Microsoft.

This ultimately leads to the final question or comment posted by the author of the initial CBS article. The author states "It is possible that both the launch of Bing and Windows 7 will under-perform investor expectations. Microsoft shares could go back to below $15, where they traded in March, if that happens".

Bing might have created a buzz with a $100 million advertising campaign, but, it is probably not sustainable. Google is part of the culture. Bing might be the best product from Microsoft in a long time, however, its probably not good enough to dethrone Google as King of Search.

Win 7 might generate renewed licenses and consumers might upgrade, however, it will not be perceived as growth. However, if Microsoft remains with Crispin Porter as their advertising agents then Win 7 will fail to create excitement with the consumer.

The sad yet realistic prediction is most likely Microsoft will remain stagnant. Despite Mr. Ballmers "plans" and his belief "the shares will take care of itself" they will probably remain flat. Microsoft requires a "New Strategy" before it ever becomes a Growth Stock.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

No Accountability in The Boardroom

2009-06-22T13:04:00.000-07:00

Activists typically target companies for various reasons. There is the natural underperforming company. Numerous companies have fallen within this realm and have subsequently become the target of a hedge fund or a shareholder activist.

Historically, activists have created pressure on companies to effect change. Sometimes the activist has controlled a majority interest within the company. However, occassionally the activist has controlled a minority interest. It is more difficult to lead an activist campaign through controlling a minority interest. It is more difficult but not imposssible. Ironfire Capital through owning less then 100 shares forced change at Yahoo.

Microsoft recently aanounced that a shareholder with 25% of the company shares can call a special meeting. Refer to: http://www.marketwatch.com/story/microsoft-declares-quarterly-dividend-board-of-directors-proposes-new-shareholder-right

The article makes reference to a comment by John Sethoof, the Deputy Counsel for Microsoft. In the article he states that "the ability for shareholders to call special meetings is important" and "proposing this new policy is our commitment to maintaining strong corporate governance practices".

No offense Mr. Sethoof, but, with the ability to sling crap like that comment you should consider a career in politics.

Lets briefly analyze these comments. The ability for shareholders to call a meeting is important. If it was truly important would the bar be set at 25% of the company?

This naturally leads to the next comment. Setting the New Policy or Standard at 25% of the shares is considered a commitment to maintaining strong corporate governance?

What this new policy is stating is simply this "Here at Microsoft we don't believe in accountability or TRUE Corporate Governance".

Currently, Mr Gates owns less then 25%. Mr. Ballmer owns less then 25%. According to information Mr. Gates owns 8% and Mr. Ballmer owns 4%. Refer to: http://www.startribune.com/science/47766497.html

The largest institutions such as Capital Research or Fidelity also own less then 25%. According to the above article the largest institutional investor only owns 4%. Therefore, it would require Barclays, Fidelity, Vanguard and numerous other shareholders to call a meeting.

Microsoft shares have displayed a modest increase in value. They are currently trading at approximately $23 per share. This gives Microsoft a market cap of approximately $200 billion. Therefore, what Microsoft is stating is "if as a shareholder you own $50 billion worth of shares then our strong commitment to corporate governance is important".

Now, even if Microsoft drops to former levels of the mid to high teens, the company would still have a market cap of atleast $100 billion. Subsequently, this strong and important commitment requires a shareholder to own atleast $25 billion worth of stock.

To quote Charles Elson of the University of Delaware "It would be impossible to hit that number and that's exactly why they picked it".

Regardless of the fact that Mr. Sethoof states "Its important to the company". Regardless of the fact that "its the company strong commitment to governance". Regardless of the fact that Mr. Sethoof states "its attainable". The reality is that 25% demonstrates that Microsoft set a standard that will never enable a shareholder to hold The SLT or the Board accountable for its decisions.

Once again this demonstrates Mr. Ballmers TRUE attitude towards shareholders. To set a standard at 5% would be realistic and attainable. A 5% stake in Microsoft would still constitute as one of the largest shareholders. Based on the 25% standard this means no mutual fund or hedge fund will ever have the capacity to utilize this "important and strong commitment to corporate governance".

We suggest that all shareholders vote against this provision and demand a more attainable number that would actually place accountability on Ballmer and The Board.

To offer shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Is Bing What Microsoft Was "Searching" For

2009-06-10T05:29:00.000-07:00

Within the past there has been various shifts within the search sector. Consumers have seen the rise and fall of former tech darlings Netscape and AOL. There was a shift to when IE was a popular search engine. Yahoo experienced a period when it was the favorite. Currently, the word Google is synonymous with search. Now, on June 3, 2009 Microsoft has released Bing.

According to a recent article with All Things Digital it states that Microsoft has gained share. Based on data accumulated by comScore, Microsoft has gained approximately 2%. It has increased share from approximately 9% to 11%. Refer to: http://digitaldaily.allthingsd.com/20090610/if-you%e2%80%99re-not-worried-about-bing-why-are-you-talking-about-it-so-much/?reflink=ATD_mktw_quotes

However, the primary question is will Microsoft be able to continue to drive share growth?

To achieve the desired results Microsoft is confronted with two fundamental issues. First, the company is required to create attention and drive consumers towards the product. Microsoft has very deep pockets. Reports indicate that the company has committed $100 million to advertising. Refer to: http://www.marketingvox.com/mfst-shells-out-bucks-for-bing-ad-campaign-044159/

The company has deep pockets to advertise and gain consumer attention, however, will it be positive or negative attention?

Microsoft through previous campaigns have failed to capture consumers through positive advertising. Consider the Seinfeld and Gates ads. The I Am a PC ads. These campaigns were considered terrible ads. The Gates and Seinfeld ads were according to reports nominated for the worst campaign.

The current Bing commerials and campaign are of the same poor caliber as previous campaigns. They fail to create excitement and a desire to use Bing. Refer to:http://www.pcworld.com/article/166067/microsofts_bing_ad_claims_to_terminate_search_overload.html

The next dilemma confronting Microsoft is the ability to retain attention and consumer loyalty. Microsoft has the ability to advertise and gain attention. However, does it have the ability to retain consumers?

Microsoft has become known for creating poor products. Remember Vista and Zune?

The biggest dilemma confronting Microsoft is if Bing will have the consumer loyalty to surpass Google. It will have to be a superior product that will cause consumers to leave Google and use Bing. Considering Google has over 60% of the market, it can easily be determined that Microsoft and Bing have a tremendous amount of convincing to acheive before Google has to feel threatened.

Hopefully for Microsoft and its shareholders Bing will produce some good results.

Hopefully, Bing will produce the results Microsoft has been searching for now for several years. Bottom line is it is going to take perhaps much more then $100 million in advertising to convince consumers to switch from Google to Bing.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Will "Bing" Bring Success for Microsoft

2009-05-29T05:54:00.000-07:00

It has been announced that on June 3rd Microsoft's new initiative at the search sector called "Bing" will be deployed globally. According to reports Microsoft is currently third within the search sector. Based on a Nielson rating, Microsoft commands approximately 9% of the search sector. However, Google and Yahoo control 64% and 16% respectively. Refer to: http://nielson.com/nielsonwire/online_mobile/top-10-search-providers-for-april-2009-us/

In 2008, Microsoft attempted a acquisition bid for Yahoo. Microsoft pursued a 65% premium bid for Yahoo valued at $45 billion. Hypothetically, if Yahoo had of accepted the bid, Microsoft would have deployed $45 billion and the combined entities would have 25% of the market compared to Google at 64%. Regardless of the failed bid, Microsoft is still required to pursue a strategy that will enable the company to compete with Google.

There are reports that Mr. Ballmer has resumed negotiations with Yahoo in regards to a potential search deal. Refer to: http://blogs.com/techtraderdaily/2009/04/10/report-yahoo-microsoft-in-talks-on-search-ad-deal/

Why is Mr. Ballmer in talks with Yahoo and at the same time releasing a new search engine?

According to Mr. Ballmer "Bing, is the first step in delivering innovation in search to enable consumers to find information quickly and make informed decisions". Refer to: http://www.cdrinfo.com/Sections/News/Details.aspx?NewsId=25414

The main dilemma with the above statement by Mr. Ballmer is the notion that it is the "first step in delivering innovation". Microsoft for several years has not been known for delivering innovation. It is a company that for several years has built a reputation on copying other innovative products but not to the same level of success. A not so popular "Zune" is a primary example of this hard reality facing Microsoft.

In an attempt to be optimistic, perhaps Microsoft has the capability to produce a truly innovative product. According to a report with CBS Marketwatch, the new search engine is designed to be a "decision making" product. Refer to: http://www.marketwatch.com/story/the-good-news-and-bad-news-on-bing

However, as pointed out in the above article, there is no reason why Google and Yahoo cannot produce a similar product. Therefore, does Microsoft have the capability to produce a truly innovative product that Google can not emulate?

Based on consumers response to Microsoft products in the past it is difficult to remain optimistic in regards to how consumers will respond. It has been mentioned on numerous occasions that Microsoft has a battered image. Therefore, with over 60% of the searches being conducted through Google, it is difficult to imagine consumers will migrate to a new Microsoft product.

In 2007, at an analyst meeting, Mr. Ballmer was confronted with a question concerning acquiring Yahoo. Mr. Ballmer indicated that Microsoft was "organic minded". Less than one year later Mr. Ballmer announces a bid for Yahoo.

In 2008, Mr. Ballmer pursues a 65% premium bid for Yahoo valued at $45 billion. This bid fails and Mr. Ballmer indicates that all negotiations with Yahoo are final.

In 2009, it is reported that Mr. Ballmer has entered negotiations with Yahoo in regards to a potential search deal.

In 2009, while in negotiations with Yahoo, Mr. Ballmer announces the release of a new search engine to compete with Google.

Perhaps the most important initiative for Microsoft would be to develop a platform that could enable the "decision making" ability of "Bing" be integrated into the SLT. It appears that the first step should be to develop a product that would enable Mr. Ballmer and the SLT to enter a query for how to compete with Google and then get the best answer. It seems evident that Mr. Ballmer is failing at finding information quickly and then making informed decisions.

It is without dispute that the most important search initiative for Microsoft is the "Search" for a New CEO.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Microsoft's Sun is Setting

2009-05-22T13:34:00.000-07:00

Throughout corporate history companies have come and gone. Once mighty titans of history eventually become yesterday's news. Over the ages there has been Rockefeller and Standard Oil. There has been Andrew Carnegie and U.S Steel. Included in this list is Sears Roebuck, Hudson Bay Company, IBM and General Motors. The question that arises is Microsoft going to join this list?

When this campaign was initiated it was indicated that numerous letters were forwarded to Mr. Ballmer. The letters indicated that the company had to adapt to the changing competitive environment and examine its business model.

Through the course of the campaign it has been indicated that OS is losing share. It has been stated that the company is required to evolve and create strategies that will alleviate the depletion or decrease of revenue from OS.

The campaign has referenced that Apple, SUN Microsoystems and other companies are creating a threat to Microsoft's coveted cash cows. The campaign has stated that the company has constantly protected the cash cows but neglected to insulate itself from emerging trends.

The campaign has indicated that there is a trend towards SaaS, handheld and the Internet. Microsoft is trailing within each of these sectors. The company has a battered image in regards to its coveted cash cow OS division. Through the Vista fiasco, the Apple ads and Microsoft's poor response, Microsoft has a battered image. Refer to http://www.networkworld.com/community/node/38350

This campaign has indicated for several months that Microsoft requires a "New Strategy". Over the past couple of months this strategy has evolved as current and former Microsoft employees provided additional insight and analysis.

Sadly, I feel myself compeled to say to Mr. Ballmer "Told You So".

There is a recent article with CBS Marketwatch. Refer to: http://www.marketwatch.com/story/tech-rally-may-find-solid-footing-with-windows-7

The article refers to Win 7 and its potential to save Microsoft. One interesting comment by the author is when he states " Microsoft has fumbled over and over again". There is no disputing this truth. Microsoft has fumbled on numerous occassions. Therefore, should one remain optimistic and believe that Win 7 and its release will prove different?

With the Crispin Porter generated ads Microsoft is failing to create a positive brand awareness and brand perception. Apple is considered cutting edge and subsequently this is refelected in the company stock price. Then there is Microsoft. Microsoft is required to create a excitement with the consumer. In a previous post this campaign referenced the Win 95 commercials. These commercials created excitement with the consumer. The recent campaign with Seinfeld, I am PC and Life without Walls are failing to create excitement with the consumer.

The next dilemma confronting Microsoft is its ability to deliver a desired product. Its track record for creating superior products has not been the company strength. It has rolled out products and left consumers frustrated and disappointed. Unless Win 7 offers compatibilty and superior user satisfaction all the advertising will not improve the company and enhance sales.

However, even if Microsoft is able to deliver a superior product with Win 7 it is still confronted with the original dilemma. It is still confronted with a business model that requires examination and modification.

There is a recent article with TechFlash. Refer to: http://www.techflash.com/microsoft/Can_Microsofts_business_adapt_to_the_new_economy_45846007.html

In the above article the author Mr. Todd Bishop makes reference to the facts this campaign has been arguing for several months. The article states that OS is no longer the dominant revenue generator for Microsoft. The article also references the various threats to the company business model.

Microsoft is threatened within the OS sector. It has increased competition and a depletion in market share. It is threatened with online services and handheld services. Microsoft is required to adopt a "New Strategy".

This campaign has compiled and revised information from actual Microsoft employees to create a "New Strategy" for Microsoft. The strategy focus is on insulating the company from a continued depletion of OS revenue. It focuses on increasing the company image. It addresses R&D spending and improving effeciency. The campaign also provides solutions to insulate the depletion in OS and position the company in emerging trends.

The campaign has through its "New Strategy" indicated that Microsoft is required to initiate a deal with Yahoo. This will increase its share in the online sector. It is also required to pursue an acquisition of handheld company RIM (Research In Motion). This will enable the company to become competitive in the handheld sector. An alliance with Verizon to create a Smartphone will prove to late and a failure. RIM already has brand awareness and a solid base.

It is without dispute that Microsoft is confronted with various threats to its previous business model. However, companies have to adapt to the constant changing competitive environment. If a company fails to adapt it becomes like General Motors. It becomes outpaced and a dinasour.

If Microsoft and primarily Mr. Ballmer, The Board and the SLT fail to adapt, analysts and the history books might as well add Microsoft to the list of "Has Beens". Mr. Ballmer is required to adopt a strategy that will enable the company to remain pertinent and competitive. Perhaps it requires a strategy that was revised by actual Microsoft employees.

In a previous post, this campaign created the analogy that Microsoft was the Titanic headed towards the iceberg and Mr. Ballmer is neglecting to listen to warnings and keeps stating "full speed ahead". Unless, Mr. Ballmer starts listening to analysts, EMPLOYEES, and reports, the company is going to sink and take many people down with it.

Unfortunately, in this case history will likely repeat itself. We are all aware of the fact that only the rich were saved as the mighty Titanic sank taking the lower class citizens into the deep. Sadly, Mr. Ballmer, Mr. Gates (who is selling millions of shares per quarter to invest in private investment firm Cascade), the SLT and the Board will save themselves with billions worth of shares and watch numerous others sink into the depths with the once mighty Microsoft.

How long will the shares have to remain in the stagnant mode and fail to create value before the SLT changes course?

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Will Ballmer End His "Search"

2009-05-20T03:59:00.000-07:00

There are certain circumstances when a person will try to remain optimistic. For example, you are leaving on vacation and the weather report states it will rain. Naturally, it is normal to attempt to remain optimistic and believe that the forecast is not correct and it will prove to be good weather.

In the past few weeks there have been various reports and announcements concerning Microsoft and its search initiative. With the various reports it is difficult to remain optimistic in regards to Microsoft.

In April it was announced that Mr. Ballmer was resuming talks with Yahoo. It was reported that Mr. Ballmer was in discussion with Ms. Bartz in regards to a possible search and advertising deal. Refer to: http://online.wsj.com/article/SB123937960877408815.html

The above report initially created some optimism. There was a glimmer of light as the campaign hoped that Microsoft was pursuing what was suggested in the "New Strategy". There was optimism that talks concerning a search deal would lead to Microsoft gaining additional market share in this sector.

This campaign has on numerous ocassion expressed disgust in regards to the Yahoo bid. Mr. Ballmer pursued a 65% premium bid for Yahoo. This bid was valued at approximately $45 billion.

This failed bid was Mr. Ballmer's attempt to increase Microsoft's market share within this sector. This attempt by Mr. Ballmer should come as no surprise. A recent report indicates that Microsoft still trails both Google and Yahoo in the search sector. Refer to : http://digitaldaily.allthingsd.com/20090518/google-has-search-market-share-microsoft-not-so-much/?reflink=ATD_mktw_quotes

However, Mr. Ballmer's desire to increase market share and compete with Google creates concern. This leads to the next report.

Microsoft recently announced it was issuing bonds. Refer to: http://online.wsj.com/article/SB124205546206507039.html

What is perplexing is the notion that a company that has never had debt and has $25 billion in cash is seeking to issue debt. Is Mr. Ballmer issuing debt to pursue a major acquisition?

Is Mr. Ballmer planning on pursuing Yahoo again?

Microsoft recently announced it will be releasing a New Search Engine called "Kumo". Refer to: http://digitaldaily.allthingsd.com/20090519/microsoft-to-debut-new-search-at-d-all-things-digital/

The above article references that Microsoft is attempting to compete with Google that increased its market share. According to the report Microsoft has lost market share from a year ago.

What is causing the greatest difficulty to remain optimistic?

Microsoft several years ago eliminated Netscape from the landscape. Netscape was once the leading search engine. Microsoft through an initiative dominated the sector. However, it then gets eliminated by Yahoo then annihilated by Google.

Mr. Ballmer realising that Google is dominating this important sector attempts to acquire Yahoo. Again, a 65% premium bid valued at $45 billion.

Now there are reports that Mr. Ballmer is resuming talks with Ms Bartz concerning a deal with Yahoo. There is reports that Microsoft despite having $25 billion in cash issued debt for a potential acquisition. There is a report that Microsoft is realising 'Kumo" in an attempt to compete with Google.

Here is the reason its hard to be optimistic. Based on the numerous reports it appears that Mr. Ballmer is "searching" for anything that will compete with Google. This campaign has mentioned that in 2007 at an analyst meeting when confronted with potentially acquiring Yahoo that Mr. Ballmer stated "Microsoft is organic minded". However, less then one year later Mr. Ballmer attempted to acquire Yahoo. This change in direction and almost sporadic strategy displays that Mr. Ballmer has no "Real" vision in regards to competing with Google.

Resuming talks with Yahoo, issuing debt for a possible acquisition, and releasing a "New Search Engine" displays characterisitics that Mr. Ballmer is simply doing everything but eventually it will prove to be nothing.

Perhaps eventually a company will challenge Google and maybe even remove Google from the Throne as undisputed King of Search. However, based on Mr. Ballmer's past record of poor decisions and the conflicting reports and direction it appears evident it will not be Microsoft that takes the Throne.

It appears that the forecast for Microsoft will continue to prove cloudy.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Microsoft Issues Debt

2009-05-11T11:20:00.000-07:00

Mr. Ballmer and the SLT have pursued various strategies that have left investors, and analysts confused and perplexed. Microsoft recently announced its first issue of debt. Refer to

http://www.marketwatch.com/news/story/Microsoft-files-first-ever-bond/story.aspx?guid=%7B74CF8D7F%2D3683%2D40AF%2DB3F7%2DBF056078F740%7D

This leads to one very simple question. Why?

According to Microsoft the company said "it plans to use the proceeds from the sale of the notes for "general corporate purposes," which may include working capital, share buybacks and acquisitions".

Microsoft has according to the report $25 billion in cash and short-term investments. This is a tremendous amount of capital. The company also generates over $60 billion in revenue and approximately $25 billion in Operating Income.

Is the company really required to issue debt to fund share buybacks and acquisitions?

It has been indicated on numerous occassions that this campaign is oppossed to share buybacks. The company previously deployed $40 billion towards buybacks in an attempt to elevate the share price. It is historically evident that this initiative failed to elevate the share price and create value. Therefore, issuing debt to buyback shares will prove to be a poor decision.

A strategy to buyback shares demonstrates that the SLT has no real strategy on how to utilize capital to propel growth. It is more prudent to deploy capital towards acquisition growth. But, the company still has $25 billion in cash. Therefore, why issue debt?

This campaign has explained its contention with previous Microsoft acquisitions. It seems evident that the company has deployed billions on various acquisitions that fail to increase market share and revenue. Its Online Service Division is a prime example of wasted capital on acquisitions. Regardless, to increase market share in various sectors the company is required to pursue a drastic growth strategy.

Last year Microsoft attempted to acquire Yahoo for $45 billion. If the company has $25 billion in cash and is seeking to raise $3.7 billion, is Mr. Ballmer planning a major acquisition?

This campaign has indicated that its "New Strategy" for Microsoft incorporates the acquisition of RIM. The Microsoft employee that provided the analysis indicated that this would enable Microsoft to have presence with Danger and RIM. This would capture significant share in the youth segment and business segment of the handheld sector.

This campaign would not be oppossed to Microsoft issuing debt to pursue a game changing strategy. Issuing debt to not fully deplete the cash reserve and acquire RIM would prove a viable strategy for the company. It would postion Microsoft in a competitive position in the handheld sector.

However, what is perplexing is the intention of Mr. Ballmer, The Board and the SLT. Now that the talks have started with Ms. Bartz is Mr. Ballmer intending to pursue another attempt at Yahoo?

Will the issue of the debt prove beneficial for the long-term stability and growth of the company?

Will it be used to increase market share?

Will the issue of debt and its utilization enhance the stagnant share price?

Will it prove to be yet another nail in the coffin?

Let's hope that Mr. Ballmer and The Board will finally make some viable decisions that will benfit the direction of the company.

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

A "Leading Company" Requires True Leaders

2009-05-10T06:25:00.000-07:00

Since launching this campaign towards Microsoft numerous topics have been examined within this blog. Typically, a news topic concerning Microsoft will foster a post or comment. However, this post was created from different circumstances.

In the past year I have been fortunate to have the opportunity to attend Leadership Summits. Last year, I attended a Leadership Summit which included Colin Powell as a guest speaker.

Recently, I had the opportunity to attend Maximum Impact. Refer to http://www.giantimpact.com/aftertheevent

This event included numerous guest speakers. It included a founder of the fastest growing advertising agency in the United States. It included the President of Disney Parks. It included former British Prime Minister Tony Blair.

While sitting listening to the various leaders it caused simple reflection and analysis into required practices for a leader. It also caused reflection concerning Microsoft.

One of the guest speakers presented a topic called Play at Work. Also refer to http://www.creativityatwork.com/articlesContent/playwork.htm

The guest speaker had the opportunity to meet with an executive at Google. The executive discussed how Google has created a culture of "Purposeful Play". It was discussed how fostering this environment within the workplace can improve quality of work, retention and attract new talent.

In contrast is Microsoft. Although the article is dated 2005 it is still pertinent. Refer to: http://minimsft.blogspot.com/2005/10/middle-managers-bureaucracy-and-no.html

It is still pertinent primarly because a reader can still view the same type of comments on the Mini blog. After four years since this article, employees are still commenting on layers of middle management and bureaucracy. Refer to http://minimsft.blogspot.com/

Perhaps, this is why employees indicated within the "New Strategy" that "middle management" needs to be streamlined.

During the Maximum Impact seminars or speeches there were numerous other important comments. Al Weiss the President of Disney Parks referred to "Servant Leadership". The company Chi-Fil-A ,the sponsor of the event, commented on pursuing "customer satisfaction".

Continental Airlines discussed the importance of teamwork, dignity and respect and how they are held in the same regard as profitability. The company also recognised that it had to reward and celebrate success with everyone. It was stated that no group takes credit for success or blame for failure. Everyone is considered a team and integral to the overall success of the company.

All these comments caused analysis and comparison of Microsoft. Microsoft is far removed from "Servant Leadership". The mentality of Microsoft is focus on yourself and your career, your success and when you advance up the levels "help yourself". This is a stark contrast from "Servant Leadership". What about empowering your employees?

What about advancing up the ranks and creating an environment where your subordinates can excel and become their best at the job?

This mentality subsequently creates an environment where employees are empowered to succeed at their role.

There is the issue of making customer satisfaction "top priority". Ford Motor Company recognised this importance when they launched "Ford. Quality is Job One." Then there is Microsoft. Enough said.

Microsoft has various divisions and teams. This campaign obtained a letter from a former employee that indicated a monetary reward for accomplishing a goal. Comments on Mini demonstrate that Microsoft rewards teams or groups for success. This creates dissention and animosity within the company. Microsoft is required to adopt a culture where the entire company celebrates success. This will create a team environment as oppossed to isulating a group for failure or success.

Mr. Ballmer's comment regarding "Developers, Developers" creates division. Everyone, celebrates the success and everyone is considered important. This is the corporate culture that fosters productivity and success.

There is also the issue of ensuring that dignity, respect and teamwork are valued with the same regard as profitability. It appears evident that at Microsoft there is no real dignity and respect and the only focus is "Profits". The primary example of this mentality is the recent layoffs. A company with $21 billion in cash announces layoffs. The only reason was profits and appease Wall Street. Secondly, announcing layoffs then forcing people to wait. This totally lacks respect towards employees.

There is a very simple lesson that can be drawn from the various leadership speeches. The better you treat employees, the more efficient your company will be. The more effecient your company becomes, it equates to innovation, increased productivity, customer satisfaction and more profitable.

This left one final question. The Maximum Impact Conference was viewed by 50,000 leaders in numerous countries. Was anybody from the Microsoft SLT in attendance?

If you want to be a "Leading Company" you are required to have "True Leaders".

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Ballmer is "Really Bad"

2009-05-07T08:58:00.000-07:00

There are numerous reports and comments concerning the credibility of Mr. Ballmer as CEO of Microsoft. In our last post we referenced a poll by Glassdoor and CNBC. Refer to http://www.glassdoor.com/blog/2009/01/cnbc-reports-on-ceo-ratings-the-future-of-glassdoor-and-whos-getting-a-bonus/

A simple review of the comments at Mini Microsoft would also quickly demonstrate the perception towards Mr. Ballmer as CEO. Refer to http://minimsft.blogspot.com/

Recently, Mr. Ballmer conducted a speech for students at Stanford University. A article with CBS Marketwatch called "Microsoft's Ballmer says economy is really bad" outlines this speech. Refer to http://www.marketwatch.com/news/story/microsofts-ballmer-says-economy-really/story.aspx?guid=%7BB93A5CA6%2D5F70%2D4D64%2D9459%2D132B37F41710%7D&dist=TQP_Mod_mktwN

The first problem with this situation is the university selection for a speaker. The speech is titled "Innovation & Entrepreneurship: Opportunities in Difficult Times" and they select Mr. Ballmer. Could the university not find a "Real Entrepeneur" to conduct the speech?

They select Mr. Ballmer. The only reason he is the CEO of the largest tech company is his friendship with the entrepeneur that founded Microsoft. Come on Stanford, if your providing a presentation on a topic perhaps try to get an expert on the topic. If Bill G is not available alteast get someone that has expereince in starting a company. Mr. Ballmer is better suited to conduct a speech concerning "How to Destroy the Start-Up Your Friend Has Founded".

It is ironic that Mr. Ballmer is presenting a speech on "Innovation and Opportunities in Difficult Times". Since Mr. Ballmer has failed to inject Microsoft with innovation it has lead the company to "difficult times".

In the CBS article is the reference to Mr. Ballmer indicating that the economy presents the opportunity to make better products. What products is he referring to?

Mr. Ballmer certainly cannot be referring to Microsoft products. Make the Zune better? Make MSN better? Make Longhorn...Vista (Win 7...8..9) better. Make a Smart Phone with Verizon better?

Mr. Ballmer then has the audacity to state " Microsoft's lower profile in the Internet search market gave it certain advantages. "The No. 1 player is a lot bigger than us in search," he said. "We're more like a start-up than a big guy in search."

Lets get serious. This is a statement from a CEO that has been obsessed with competing with Google. This is a CEO that has pursued billions of dollars worth of acquisitions in this sector. He is the same CEO that pursued a 65% premium bid for a floundering Yahoo to compete with Google. Then Mr. Ballmer has the nerve to state it provides "certain advantages".

Reality check Mr. Ballmer. Microsoft fails to resemble a start-up. Microsoft was engaged in Online Services long before the Start-Up Google. The only area that your statement is correct is this once obscure Start-Up called Google has become Number One.

Mr. Ballmer states " that gave the company the chance to try things that a market leader, like Google Inc. , might not be able to do". Please provide clarity Mr. Ballmer. It gave Microsoft opportunity to try what?

Blow through billions of dollars on acquisitions and R&D and fail to elevate the market share?

Google as a leader has introduced new services. It has expanded markets. It has gained more market share. It has increased revenue and earnings. Perhaps this is why the company is Number One.

If Microsoft Online Services was a start-up it would have gone bankrupt years ago. Its only survival is the cash generated by the OS division initially created by the Entrepeneur Mr. Gates.
If Microsoft Online was truly a start-up it should have experienced the fate of most start-ups and been acquired by a larger competitor, such as Google.

Mr. Ballmer then states that Microsoft will invest $9 billion on R&D. So, this $9 billion investment will be spent on improving existing products and making them better?

It will be spent to follow the "New Strategy" that was created by this campaign and revised by Microsoft employees?

Mr. Ballmer will spend capital to make Win 7 better. Mr. Ballmer will deploy capital to make Online Services better. But, lets not forget that Online is like a start-up with advantages and therefore can pursue things that Google cannot. Such as a deal with Yahoo to become more competitive in the Online sector.

It seems evident that its not the economy that is bad. Despite the poor economy, competitors have posted positive earnings. Mr. Ballmer failed to recognise the importance of Online and is busy trying to rectify this dilemma. However, Mr. Ballmer tries to down play the magnitude of this blunder and state that its better for the company.

Mr. Ballmer failed to recognise the importance of handheld and netbooks. Subsequently, this had a dramatic effect on the company revenue and earnings. The company is equally dependent on OS for revenue and subsequently the company experienced a double digit decline. Refer to http://money.cnn.com/2009/04/23/technology/microsoft_earnings/index.htm?postversion=2009042316

We will state "Mr. Ballmer we told you so".

When this campaign was launched the main argument for the necessity for a "New Strategy" was to insulate the company from a decline in OS revenue. It was stated there is a trend in SaaS, netbooks, and mobile. It was stated that OS was losing share.

It can be concluded that the only thing that is truly "really bad" is Mr. Ballmer as CEO of Microsoft. We have two suggestions for Mr. Ballmer. First suggestion to Mr. Ballmer. Leave Microsoft and become a public speaker. You can provide insight into how to destroy employee morale through layoffs and poor management. How to miss opportunities and blame other external factors. How to destory billions in shareholder value.

Second suggestion to Mr. Ballmer. Just leave Microsoft. Leave before you lead Microsoft from being "bad" to "really bad".

To offer support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Resignation Instead of Layoffs

2009-05-06T15:10:00.000-07:00

In January of this year Mr. Ballmer announced that the company was going to initiate a process of laying off 5,000 employees. This was announced by Mr. Ballmer in an attempt to please Wall Street. Recently Mr. Ballmer announced Phase 2 of the layoffs. Refer to: http://blog.seattletimes.nwsource.com/techtracks/2009/05/05/more_layoffs_at_microsoft_today_says_company_e-mai.html

Naturally, there are numerous sites that indicate the announcement. However, we choose Seattle since it is close to the Hallowed Gates to Microsoft.

Let's summarize.

During Mr. Ballmer's tenure as CEO he pursues billions in acquisitions. Despite this massive spending the company is equally reliant on its cash cows for revenue as it was a decade ago. The primary revenue is derived from OS and Server and Tools.

The acquisitions could also include the failed attempt to acquire Yahoo. It has been mentioned numerous times on this blog that it was a 65% premium bid valued at $45 billion. An analyst with Goldman Sachs stated it was the stupidest move in the company history. However, since the company Online Division had only 8% of the market it was necessary that Mr. Ballmer try to improve his previous failure in this division. The acquisition demonstrates that Mr. Ballmer was to late to gain dominance in this important sector.

The company has deployed billions towards R&D. Despite this massive spending the company has created the Zune, Microsoft Mobile and Vista. According to Mr. Ballmer the Zune was going to destroy Apple. Does anyone other than Mr. Ballmer even remember the Zune?

The success of Microsoft Mobile it evident with the recent announcement that Verizon and Microsoft are going to build a Smart phone. Once again, it will probably prove to be to late to gain any significant market share. Is Mr. Ballmer so dilussional that he believes that a Microsoft Smartphone at this stage in time will compete with iphone or Blackberry?

Suggestion to Mr. Ballmer. If you want a opportunity to compete with Apple and RIM, we suggest that you acquire the later.

There is also the reception of consumers with Vista. The company is losing share in OS and Mr. Ballmer has failed to insulate the company from its dependance on OS. This reality is demonstrated with the company recent earnings release.

Mr. Ballmer deployed $40 billion towards share buybacks. Despite deploying $40 billion the company shares remained flat and stagnant.

Mr. Ballmer has blamed numerous circumstances for the company perfomance and the stagnant share price. Reports indicate that the only real blame for the company performance and stagnant share price is Mr. Ballmer.

Mr. Ballmer has destroyed the company. Mr. Ballmer is leading the company towards a precipice. In a poll with GlassDoor and CNBC, Mr. Ballmer is voted one of the worst CEO's in the technology sector. Refer to http://www.glassdoor.com/blog/2009/01/cnbc-reports-on-ceo-ratings-the-future-of-glassdoor-and-whos-getting-a-bonus/

It could be argued that the company has experienced growth in revenue and earnings. This shouldn't be counted as a tremendous accomplishment based on emerging markets and controlling 80% of the OS market.

The company is losing share in OS, it's trailing in Online, its trailing in mobile. Mr. Ballmer has not only destroyed the company from a financial perspective but also the company image. With the release of Vista and Zune the company has a battered image. This is demonstrated by the Apple advertisements.

More importantely Mr. Ballmer has destroyed the company morale. For a view of company morale refer to Mini Microsoft at http://minimsft.blogspot.com/

If Mr. Ballmer truly wants to please Wall Street, analysts, employees and shareholders..instead of layoffs he should announce his resignation. The biggest favor Mr. Ballmer can do for the morale of the company and future of the company is resign.

To offer support in shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Will the Smartphone Alliance Prove to be SMART

2009-05-01T04:57:00.000-07:00

When this campaign was launched in mid-December 2008, it was indicated that Microsoft was required to pursue a game changing strategy within the mobile sector. It was stated that the alliances Microsoft was creating would fail to create the necessary revenue and market share. This was confirmed by a Citi analyst that Microsoft would probably not break even with its Verizon alliance. Refer to http://www.networkworld.com/community/node/38350

Initially, the campaign was seeking Microsoft to acquire Sprint. The logic was that Sprint had a fairly solid subscriber base that would provide Microsoft with a foundation for guaranteed revenue. Refer to http://www.networkworld.com/community/node/37991

The campaign indicated that it was seeking feedback and insight from Microsoft employees. Subsequently, an employee provided analysis of the benefits of Microsoft acquiring Research In Motion. The campaign adopted the strategy of Microsoft acquiring RIM based on this insightful analysis and argument.

Recently, Microsoft has announced an alliance with Verizon to create a Smartphone. Refer to http://www.marketwatch.com/news/story/Microsoft-Verizon-reportedly-making-smartphone/story.aspx?guid=%7B848ADF8A-444D-4A2F-BC73-78F9F4C9CB8B%7D

This leaves the campaign pondering one major question. Can Mr. Ballmer actually develop a Smartphone that would rival iPhone?

During Mr. Ballmer's tenure as CEO of Microsoft the company has spent billions on its Online Services. The company has deployed billions on R&D. Additionally, the company has deployed billions on acquisitions that according to Mr. Ballmer will make its online division more competitive. Despite this massive spending the company has failed to gain any market share. In 2005 the company controlled approximately 7%. Currently, the company controls approximately 8%. Refer to http://www.pcworld.com/article/161222/report_microsoft_us_search_share_hits_12month_low.html?tk=rss_news

We could also mention the attempt to capture Online share through the proposed 65% premium bid for Yahoo. We could mention it was valued at $45 billion. It could also be mentioned that an analyst with Goldman Sachs stated it was the stupidest move in the company history.

Mr. Ballmer announced the release of Zune. During the launch campaign Mr. Ballmer stated it was going to directly threaten Apple. The following spoof infommercial summarizes Mr. Ballmer's success. Refer to: http://www.iphonebuzz.com/zune-phone-infomercial-presented-by-steve-ballmer-27476.php

Through Mr. Ballmer's tenure there was also the failure of Vista. The company deployed billions. This resulted in failure. Mr. Ballmer's solution is simple. We will create a campaign called Mojave Experiment. If we cannot actually sell you our OS then hopefully we can trick you. This leads to Win 7 (Vista 2). Numerous reports are stating its only a updated version of Vista.

A recent interview with Mr. Ballmer by the editor-in-chief of McGraw Hill summarizes Mr. Ballmer's success or lack of. Refer to http://www.cbsnews.com/stories/2009/03/19/paidcontent/main4875846.shtml

This brings us back to the original question. Can Mr. Ballmer actually develop a Smartphone that will rival the iPhone?

Perhaps the following link will best demonstrate the probably of Mr. Ballmer threatening Apple. Refer to http://fakesteveballmer.blogspot.com/2009/01/invasion-that-wasnt.html

This campaigns prediction is simple. With Mr. Ballmer's previous record, the potential of threatening Apple will prove to be "THE INVASION THAT WASN'T"

But, what do we know?

We are not as smart as Mr. Ballmer. We could never conduct an analysis of the company, compile information from employees and create a viable "Strategy" for the company. Besides, Mr. Ballmer is the best candidate for CEO (sorry, best friend of the founder).

With Mr. Ballmer at the helm of Microsoft the company will likely continue with its outdated reactive approach. It will continue to try to copy competitors. It will continue to deploy capital and fail to gain market share, consumer loyalty.

It is time to rally support for change. This campaign has created a "New Strategy" for Microsoft. A strategy that will enable the company to gain focus and become competitive. It is time to START the REAL INVASION.

To rally support through shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Earnings Release " A WAKEUP CALL"

2009-04-27T15:50:00.000-07:00

In mid-December 2008 this campaign for a "New Strategy" was launched. It was indicated that Microsoft desperately required a "New Strategy". In the initial posts it was indicated that the trend was moving towards SaaS, handheld, cloud computing and netbooks. It was stated that Microsoft was to focused on the cash cows and had to re-examine its business model.

This campaign stated that within the OS market, Microsoft was losing share to competitors. It was stated a "New Strategy" was necessary to offset the potential depletion of revenue from the company cash cows. It was this campaign's contention that Microsoft was required to allocate capital towards initiatives that would supplement a potential decrease in revenue.

Microsoft has released its quarterly results. Refer to: http://money.cnn.com/2009/04/23/technology/microsoft_earnings/index.htm?postversion=2009042316

At this time it might be appropriate to say to Mr. Ballmer "told you so".

According to the release, net income for the company has declined a staggering 32%. This is a significant number.

A large portion of this decline can be attributed to the increased trend with netbooks. This trend caused tremendous impact on the company. The Client division experienced a 16% decline in revenue. The division revenue declined from $4.03 billion to $3.4 billion. Perhaps the most telling with this loss is referenced by Joe Wilcox at Microsoft Watch. Mr. Wilcox states:

"More than 80 percent of Windows revenue comes from OEM sales. Windows licenses then are more transactional. By comparison, about 65 percent of Server and Tools revenue comes from annuity licensing contracts. The difference is important. Annuity customers pay up front, on annual basis, under two- or three-year contracts. These commitments help insulate Microsoft earnings against the highs and lows of the economy or product release cycles. The protection is great for Server and Tools, not so good for Client. Economic conditions demonstrate how dramatic is the difference between transactional and annuity licensing sales".

Refer to: http://www.microsoft-watch.com/content/corporate/microsoft_q3_2009_by_the_numbers.html

This campaign stated that it forwarded letters to Mr. Ballmer prior to launching the "New Strategy". It has been indicated that Investor Relations fowarded a email stating that the company has experienced growth and was focused. However, this campaign has continued to state that Microsoft is required to impliment a "New Strategy" that would insulate the company revenue and earnings from a decrease in OS sales. The campaign has indicated that the company is largely dependent on its OS for the majority of the company revenue. This reality is confirmed with the recent quarter release.

Could this be the initial signs of the campaign's predictions?

If Microsoft fails to adopt a "New Strategy" it is probable that this is only the beginning for the company. This campaign has referred to the trend towards cloud computing and mobile. It is interesting to note that Microsoft experienced losses in Online Services and Entertainment and Devices. This indicates that the company is failing in the primary growth trend sectors. This demostrates that the company is failing to maintain its cash cow OS revenue and consumers are spending on services that deal with "cloud computing". This also reaffirms the arguement outlined in "Could Microsoft be the Next General Motors". GM failed to recognise trends and eventually competitors stole market share in new markets. Microsoft is losing in OS and is failing in the new trend sectors. This could prove detrimental to the company.

Its' failing to compete with Google in online services. Unless Mr. Ballmer creates a game changing strategy that will increase share in this sector the company will fail to have a solid revenue base within this domain.

The Entertainment and Devices division has deployed over $9 billion and Xbox trails Wii and Playstation. The Zune was a complete failure. Its Win Mobile is also a dramatic failure despite massive spending.

Another article that gained attention is titled "The Top Ten Stocks to Short Sell", which is located at CBS Marketwatch. The article references the best companies to short-sell. What is alarming is that Microsoft is within this list. Refer to: http://www.marketwatch.com/news/story/story.aspx?guid=%7Bc114b945-f1b4-419d-a029-2ebcf725aaed%7D&link=http://247wallst.com/2009/04/26/the-top-ten-stocks-for-short-sellers-msftintcsirifaigc/

Now, this campaign is not advocating short-selling Microsoft. This campaign is seeking to force Microsoft management to adopt a "New Strategy". This "New Strategy" is located within this blog titled Edited "New Strategy".

The company has experienced a 32% decline. It is failing in Client, Online and Entertainment. The company shares have been referenced as one of the best shares to short-sell. These facts should be a serious "wake-up call" to Mr. Ballmer and The Board.

Who is holding Mr. Ballmer and The Board accountable for these results and the company failing to create shareholder value. If the company fails to impliment a game changing strategy, it will continue to experience a decline in OS. It will continue to experience a revenue decline in Client and consumers move towards netbooks. It could be threatened by IBM, Apple, Linux. There is another threat on the horizon if Oracle acquires Sun.

The company will continue to experience a loss in Online as Google expands it share and product mix. Additionally, Win Mobile through its alliances will fail to generate adequate revenue to offset the decline in OS revenue.

It is time for a "New Strategy". It is time to rally support and effect change.

To offer support though shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

R&D SPENDING REQUIRES FOCUS

2009-04-19T09:54:00.001-07:00

In a recent article with InfoWorld this campaign is referenced. As with any activist campaign, it is understood that there will subsequently be opposition. There will naturally be groups, analysts and other parties that will fail to agree with an activist campaign.

With the Microsoft Subnet article, (refer to http://www.networkworld.com/community/node/38350 ),the campaign stated that Microsoft was required to pursue an acquisition of Sprint. Mr. McDonald stated that he preferred Research In Motion over Microsoft acquiring Sprint. Mr. Barnicle, an analyst with Pacific Crest Securities stated that he was oppossed to Microsoft pursuing a mobile acquisition.

The campaign conducted analysis and perceived that based on the trend towards handheld and the report by Citi analyst Mark Mahaney that Microsoft required an acquisition to better compete in this sector. In the same Microsoft Subnet article there are two oppossing views by both Mr. McDonald and Mr. Barnicle. However, as mentioned, this oppossition is natural. There is the old adage "You cannot please all the people all the time".

Where this campaign takes issue is when the premise of "The New Strategy" is not understood in its entirety and opinions are then expressed. The campaign was approached by an author seeking to conduct an interview concerning R&D spending with Microsoft. The interview was conducted and the article was published in the British magazine PC Plus.

The article states that Microsoft has increased its R&D spending. It also states that Microsoft is required to focus its R&D spending on creating products that secure consumer loyalty. The article refers to patent 7,296,946 which is a ring binder for containing pages. This is subsequently a waste of capital. The premise of the "New Strategy" was correctly and accurately communicated. (Since the article is not online it cannot be added to this post)

Recently, an article was posted on InfoWorld concerning this campaign and its "New Strategy" for Microsoft. Refer to http://www.infoworld.com/d/developer-world/increased-rd-spending-vital-software-industry-707

The article essentially is well written, well communicated, insightful, and worth reading. The issue is that it also fails to communicate the real intention of "The New Strategy".

Within the article Mr. McAllister makes reference to The Crandrea Group. However, with the article the author makes a couple of critical editorial mistakes. The author indicates:

"Up to this point it's hard to argue with Montgomery's findings. What bothers me, though, are the Crandrea Group's proposed solutions. "It is critical that Microsoft utilize its R&D budget and focus on improving its core products," reads the group's strategy statement. "Rather than deploying capital to create new products, it is crucial to direct capital to improving existing products to secure consumer confidence and loyalty."In other words, the problem isn't that Microsoft's attempts to innovate have failed. The problem is that Microsoft tried to innovate in the first place!Whither software innovation?See what I mean about investors focusing on short-term gain?"

The author fails to comprehend the core of the "New Strategy" for Microsoft. Throughout the activist campaign it has been communicated that a long-term shareholder value strategy was being pursued. The campaign indicated that it was seeking to obtain analysis from MSFT employees to edit and revise the "New Strategy".

It was indicated that MSFT employees could provide the greatest analysis to ensure a long-term strategy was pursued. Subsequently, the campaign is not seeking a short-term band-aid approach, but rather, it is seeking to pursue a long-term strategy. In the post the author is referring to, it is indicated that the "New Strategy" is seeking the following:

"It is critical that Microsoft utilize its R&D budget and focus on improving its core products," reads the group's strategy statement. "Rather than deploying capital to create new products, it is crucial to direct capital to improving existing products to secure consumer confidence and loyalty."

MSFT employees confirmed that MSFT currently and historically has produced poor products. Employees referred to MSN, Zune, Vista. MSFT employees indicated that MSFT is losing loyalty in OS and is failing to be competitive with MSN, and Zune.

Poor company image was confirmed by Mr. Barnicle in the Microsoft Subnet article. This is the primary reason that "The New Strategy" focuses on improving brand perception. This leads into the necessity for Microsoft to improve its brand perception not only through advertising and marketing, but, it is also required to adopt this mentality within its R&D spending.

The "New Strategy" which was edited and revised by MSFT employees specified that focusing on the core was essential. If the company is committing $9 billion on R&D, instead of pursuing new innovation it should concentrate capital towards improving existing products. It was communicated that it should not role out new products until it masters existing products. The campaign based on MSFT employee feedback is not oppossed to R&D spending. However, it is oppossed to deploying capital towards initiatives that will fail to secure revenue and consumer confidence.

Deploying capital towards improving core products is fundamental. This is demonstrated in the Apple ads. A pretend Bill Gates is dividing capital between advertising and improving products. Mac suggests "is that enough" at this point Bill places more money in the advertising pile. MSFT is perceived as creating poor products. Therefore, what employees have indicated is that if the company is going to improve its image, enhance revenue, secure consumers, it has to do what the Apple ad suggests and place capital towards improving existing products. Refer to : http://www.youtube.com/watch?v=MimCZikP8cY

Microsoft has to ensure that Win 7 delivers on its promises and is better than Vista. If it fails, then more consumers will abandon MSFT for other operating systems. Therefore, the campaign is stating "to improve the company, it must improve the "core". Subsequently, this is not a short-term goal, but, it is a long-term necessity. Microsoft is required to ensure that its OS is not "a" operating system but rather it needs to ensure that its "the" operating system.

Consumers have for several years complained about poor products. If the company is deploying $9 billion, a portion of that is required to be allocated to improve the "core" products, and not just seek new innovation. Therefore, if the company has committed to deploy $9 billion in R&D, instead of deploying the entire budget towards useless patents, it is imparative that a portion of that $9 billion be allocated towards ensuring WIN7 is not just a updated Vista.

It essentially reverts to the April 3 post on this blog "Microsoft Requires an Image Makeover". If the company image is battered then "Goal" Number One, the main directive needs to be "Improve the Image". However, as outlined in the April 3 post, Microsoft continues to fail.
Refer to http://www.marketwatch.com/news/story/microsofts-ad-counter-offensive-against-apple/story.aspx?guid=%7B95EC30F8%2DC0B7%2D4AF6%2DBD7E%2D3B0E27905B4C%7D&dist=TQP_Mod_mktwN Also refer to the link within the above post or follow:http://www.marketwatch.com/News/Story/microsoft-needs-help-mad-men/story.aspx?guid=%7B3F67FAE3%2D4733%2D4BC3%2DB30A%2D143EAA9399C6%7D

In the above report the author refers to the notion that through these commercials Microsoft is ultimately admitting that it is Number 2. This is not going to improve Microsoft. It is perhaps the worst move possible to further damage the company image. In essence it is Microsoft admitting defeat. To improve the company image it has to demonstrate through advertising that it is Number One. It has to demonstrate that it has the superior OS not Apple. However, this campaign also has stated that advertising this statement is not enough. To state it is "Number One" then not deliver on the promise is counter-productive. Microsoft is also required to have the "Number One" product.

Brand expert Rob Frankel states that the new commercials by Microsoft will prove detrimental to the company. Refer to: http://www.newsfactor.com/story.xhtml?story_id=65597&full_skip=1

It stands to reason that this focus is required to be translated into R&D spending. Microsoft employees, consumers and reporters have indicated that in various markets Microsoft is not "Number One". Reports also indicate that in OS, although its still "Number One" it is losing share. The long-term required "Goal" of Microsoft is to deliver on its promise, improve its image and produce superior products. This will improve the company image. As a result of improving the image marketshare will follow. Subsequently, this will increase revenue and the long-term health and stability of the company.

What the campaign is stating is simply "image focus" is required in advertising and R&D spending. If you commit $9 billion, a portion is required to be spent on improving the core. Microsoft has to spend capital on making the best OS available to consumers. This will gain consumer loyalty. It will prevent further erosion of share towards consumers switching to Mac OS. This is a long-term strategy that will improve the company image.

Microsoft is required to spend a portion of the $9 billion on improving its online platform. It has to improve this division. It is required to get focus and spend capital that threatens Google's marketshare. Historically, Microsoft has deployed capital and after several years has failed to increase its marketshare. Refer to http://www.pcworld.com/article/161222/report_microsoft_us_search_share_hits_12month_low.html?tk=rss_news

What this campaign is stating is "focus" and deploy capital that will finally cause Google executives to sweat as oppossed to laugh at Microsoft's efforts.

In Mr. McAllister's article it states "See what I mean about investors focusing on short-term gain?"

This campaign is focused on long-term gain. If Microsoft continues deploying tremendous capital towards R&D and continues to produce poor products the end result will be wasted capital. However, if it adopts focus on improving the core products and improve the company image it will ultimately result in long-term gain.

To offer support in the form of shares contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

"Edited" New Strategy

2009-04-13T10:27:00.000-07:00

Typically, after obtaining feedback in regards to the length of previous posts, this campaign is attempting to refrain from long posts. However, for the purpose of providing the "New Strategy" in its entirety, this post will be longer.

It has been indicated that this campaign was seeking to use a tactic similar to Ironfire Capital and its "Plan B" for Yahoo. Ironfire used wiki's to enable shareholders to edit and revise the "Plan B".

It has been mentioned in previous posts that this campaign was seeking to obtain insight and analysis from Microsoft employees to edit and revise the "New Strategy" for Microsoft. The "New Strategy" is edited. It has evolved modestly from when we launched the campaign. It fails to involve Microsoft acquiring Sprint. Instead in now involves Microsoft acquiring Research In Motion.

It also will focus on improving effeciencies with Research and Development spending. Below is the edited version of the "New Strategy".

NEW STRATEGY FOR MICROSOFT
1)Steve Ballmer is required to be replaced as CEO of Microsoft.
It has been communicated by reporters, analysts and Microsoft employees that Mr. Ballmer is required to resign. It is the fundamental responsibility of the Board to ensure that it acts within the best interest of shareholders.

a)During Mr. Ballmer’s tenure an acquisition of Yahoo was pursued. Mr. Ballmer pursued a 65%premium bid for Yahoo valued at $45 billion. An analyst with Goldman Sachs stated this was the stupidest move the company history. According to a recent report the company commands only 8% of the search sector. This is despite massive spending with acquisitions and R&D.

The largest dilemma with the Yahoo bid decision was the lack of strategy and correct communication. During a meeting with analysts Mr. Ballmer when confronted with acquiring Yahoo stated that Microsoft prefers organic growth. Less than one year after this statement Mr. Ballmer pursues a Board approved 65% premium bid for Yahoo.

In 2005, Microsoft generated online advertising revenue of $1.5 billion. In 2007, Microsoft reported revenue of $2 billion. In 2005, Microsoft controlled 8% of the market share. However, in 2007, it appears that it had declined to approximately 6% market share.

Currently, as indicated in a recent PC World report Microsoft controls only 8%. Therefore, despite various acquisitions within this sector there is minimal improvement. According to reports, the company in 2008 within Online services experienced a loss of $468 million. However, Google commands over 60% market share and generates in excess of $20 billion in revenue and $4 billion in net income.

b) Microsoft is failing within the Web 2.0 sector. Mr. Ballmer has tried to put Microsoft into the Web 2.0 game but his efforts-to-date haven't been very effective. Microsoft isn't a leader in Web 2.0.

c) Mr. Ballmer during his tenure deployed $40 billion towards share buybacks. Despite this massive expenditure the shares have remained flat. The most disconcerting event with this failed expenditure is the announcement by Mr. Ballmer that Microsoft intends to deploy an additional $40 billion through to 2013 on share buybacks.

d) During Mr. Ballmer’s tenure the company shares have remained flat and stagnant for a long-term period of approximately eight years. In 2004, at a shareholder meeting when confronted with a stagnant share price Mr. Ballmer indicated that the company had plans and subsequently the shares would take care of itself. Despite this statement and Mr. Ballmer’s plans, the shares have continued to remain flat and fail to create shareholder value. During Mr. Ballmer’s tenure Microsoft has lost $300 billion in shareholder value.

During Mr. Ballmer’s tenure he has presided over massive spending, poor decisions, poor execution of plans, failed to communicate strategy to shareholders and employees, has failed to create shareholder value and is responsible for Microsoft losing $300 billion in market value. This subsequently leads to a no-confidence with Mr. Ballmer.

2) Microsoft is required to improve its image and brand perception. Today more than ever before, it is essential to establish a powerful brand to enable a successful and profitable business, and position your company as a differentiated thought leader. It is important to consider your companies’ brand as a critical asset to your business. Your brand is more than a graphical mark. It is an investment that you make in your customer relationships. Brand equity is your return on that investment. Your brand is also a promise to your customers.

The primary role of your brand is to establish & enhance customer relationships to create attention, loyalty and drive business results. Building a unique brand identity is the key to acquiring and retaining this attention and loyalty. Successful branding sets your firm apart from the competition, and therefore, makes your company products and services more desirable and valuable to your target prospects and customers.

Over time, your brand image and brand reputation will lead to committed relationships with your customers. This is because a consistent image builds familiarity. Familiarity strengthens relationships, and relationships build revenue. Ultimately, branding builds your market place reputation and drives improved financial performance to the bottom line.

Microsoft has failed to establish a brand that attracts and maintains consumer loyalty. Through failures such as Vista, Microsoft Mobile, and Zune it has failed to deliver on its promises to consumers. Subsequently, the company has failed to enhance customer relationships. Ultimately, this will result in a negative impact with improving financial performance and building revenue.

Brand Expert Rob Frankel has indicated that "Microsoft has no brand strategy. Never did. They have an identity, but no brand strategy. As a result, Microsoft is never proactive, but always reactive to its competition." Therefore, it is imperative that Microsoft fire its current advertising agency Crispin.

Microsoft is required to allocate capital towards establishing a brand identity and positive brand perception that will secure consumer loyalty and propel revenue growth.

3) Microsoft is required to improve R&D spending. Microsoft's strategy (and, therefore, its technological developments) are directed only at extracting more and more money from the customer, and at continuing to do so in the future. The customers' needs are irrelevant.

Subsequently, this mentality has resulted in poor brand perception. This campaign obtained the following comment from a Microsoft employee “Microsoft responds to one thing: the painful pressure of market realities. If we can sell you garbage and get away with it, we will sell you garbage”.

One of the fundamental dilemmas with Microsoft is that consumers complain that the company roles out products that are satisfactory. As one MSFT employee stated “MSFT has its hand on everything BUT a grip on nothing”.

It is critical that Microsoft utilize its R&D budget and focus on improving its core products. Rather than deploying capital to create new products, it is crucial to direct capital to improving existing products to secure consumer confidence and loyalty. Without this as a “goal” Microsoft could deploy $9 billion on R&D and still fail to capture consumer loyalty.

OS X is built on a solid, high performance, secure BSD UNIX foundation. LINUX is based on a solid, high performance, secure kernel. MS Windows, immature technolgies and never properly modernized. Poor performance. NO security. Weak development tools.

By focusing on its current core products, the company will deploy capital to ensure that the core products are superior and therefore will capture consumer confidence and loyalty. This will unlock shareholder value through increasing brand perception and consumer loyalty.

Through focusing on the core and establishing the core products functionality, consumer friendly this will capture consumers. Subsequently, market share will increase in within the core product sectors.

b) First and foremost, get rid of the existing, dysfunctional senior management. Now. Unless the senior management people are engineers and have a patent or several to their name, they have no place managing engineers.

Microsoft was a software engineering company first, so they have to get management on board with that NOW! There is a fundamental difference in mindset between engineers and business/accounting types and until the senior management team at MS recognizes this again, the company is lost.

Therefore, Microsoft has committed to lay off employees to satisfy Wall Street. Rather than lay off developers, engineers, instead MSFT is required to lay off managers that are not engineers and promote engineers into managerial roles.

To put it succinctly, the people at the top are too far removed from both the people in the trenches and the customers who buy their products. With that many layers of “middle management”, the message either way gets lost and no one has a clear sense of what is going on. They even have exercises in that very issue and they don’t learn from it. What good does it do if you follow process to the letter while producing the wrong product?”

Therefore, although this campaign fails to approve layoffs, since Microsoft has committed to layoff employees, it is integral that it layoff managers that are “middle management “ and not engineers. This will produce respect within the R&D labs. It will create vision and direction. It will improve efficiencies and reduce spending on process. This will make R&D spending efficient and ensure innovation is pursued. Ultimately, this will reduce wasted capital on process, and create a greater return on investment through innovation.

4) Microsoft is required to abandon its share buyback plan. Microsoft has disclosed its plans to buy back stocks of worth $40 billion. The company will buy back its shares from investors and it will be the biggest single buy-back plan in history.

The analysts are claiming that this move is an attempt by the company to sustain its share price drop which has gone down almost 30% this year. According to reports, the plan will help company to renew its share price which has declined sharply due to its failed $47.5billion bid to buy the internet portal Yahoo.

The company has never been in debt since its establishment and at the end of June this year, currently the company has approximately $23.7billion. The company was following a buy back 2004 plan which started as a $30billion project and was later boosted by another $10 billion. The new buy-back, which will run until 2013, is the single biggest share buy-back in history. The new program will expire on September 30, 2013.

The original buyback plan resulted in the company deploying $40 billion in capital. Despite deploying $40 billion in capital the shares remained stagnant. In 2004, the company shares were trading at approximately $25 per share. During the next four years and deploying $40 billion the shares remained flat. In 2008, the shares were still trading at approximately $25 per share. Therefore, this strategy failed to prove beneficial for shareholders.

The $40B buyback over 5 years continues what they've done in the past. This averages $8B a year and over the last 12 months they've bought back $9B. It will prove to have a similar effect as the previous initiative. It will result in the company deploying $40 billion without having an effect on the share price.

The company is required to abandon its share buyback plan and allocate the deployment of capital to acquisition growth. This will prove a superior utilization of capital and create a greater long-term return to shareholders. It will prove to have a greater return on investment then the proposed share buyback plan.

5)Microsoft is required to increase market share in search and advertising. According to PC Plus Magazine Microsoft currently controls approximately 8% of this sector.

Microsoft is required to enter negotiations with Yahoo to complete a search deal. This will enable Microsoft to command approximately 30% of the market.

Microsoft is required to acquire Ask.com. This company has potentially better algorithms than Google. However, the company lacks market presence. Microsoft through acquiring a search deal with Yahoo and acquiring the technology from Ask would be able to integrate the two acquisitions to compliment its current platform.

These acquisitions would provide Microsoft with potentially better technology than Google and with the combined ‘search’ from Yahoo, would enable Microsoft to become a viable competitor within the search and advertising sector.

6) Microsoft is required to acquire Research In Motion. Wireless delivery definitely has to be examined. Citi analyst Mark Mahaney states Microsoft's recent deal to provide search to Verizon mobile users won't be a winner for Microsoft, as it will require each user to conduct 17 searches per month on their phones in the next five years just to break even.

Microsoft is required to acquire RIM. RIM is a company with a good degree of loyal "addict" mindshare, which provides a more profitable moat with less price elasticity than multiple alliances. It would boost the MS image, even if it requires a more significant investment. And MS' recent difficulties attracting new customers wouldn't hurt as much here, because of the loyal user base and the inherent attractiveness of the RIM platform to those who consider themselves more "business people" than "technologists".

Absent a telco willing to pay Microsoft for new customers (AT&T / Apple iphone), if Microsoft is intent on operating in the mobile space, it is necessary to be disruptive in the market. What Microsoft has done so far hasn't been resoundingly successful. RIM is viable because they've been running a successful service business -- along the lines of the cloud computing model -- for an extended time.

Another reason to avoid alliances with Sprint, and Verizon as well, is that those companies use CDMA cellular technology, as opposed to the GSM technology in use in most other countries.

Consider that Microsoft already owns Danger, maker of the Sidekick. Acquiring the Blackberry platform would mean that Microsoft would have presence in both the "youthful consumer" and "business" segments of the cellular communication device market.

We are seeking to rally support and effect change. We are seeking to establish a coalition of frustrated Microsoft shareholders to effect change.

To offer support through shares contact:

newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Refer to:

http://www.youtube.com/watch?v=JnJeJPsmOAk

or

http://www.youtube.com/watch?v=Sbo6bvl-7Sk&feature=channel

Final Note:

The youtube videos were recorded with a live webcam. The initial web cam file was visually fine. However,when downloaded onto youtube the streaming or timing is a couple of seconds off. I apoligise. Subsequently, this is the reason for the two links. Based on my discontent with the first link, a second attempt was completed. In the future, a video recorder will be utilized to hopefully improve the quality. Additionally, on the first youtube page (JNJEPsmOAK) is a link to Ironfire Capital titled "Yahoo!Shareholders in favor of Selling". This will provide information concerning the success of this campaign against Yahoo.

Letter to the Board

2009-04-06T12:31:00.000-07:00

In this post we are going to simply post a copy of the letter we have forwarded to Microsoft's Board of Directors.

Attention: Board Of Directors

Events have fatally undermined investor confidence in Microsoft (MSFT) CEO Steve Ballmer. With Microsoft share price now down in 5 months, and stagnant for a deacde, we call upon the MSFT Board of Directors to immediately seek the resignation of CEO Mr. Ballmer. Absent prompt action to remove Mr. Ballmer, we will have no choice but to call upon MSFT shareholders to join us at MSFT upcoming annual meeting in voting against Mr. Ballmer, and the Board of Directors which is responsible for CEO succession.

According to the Microsoft website the Board of Directors “oversees the company's business affairs and integrity, works with management to determine the company's mission and long-term strategy, performs the annual CEO evaluation, oversees CEO succession planning, oversees internal controls over financial reporting, and assesses company risks and strategies for risk mitigation”.

Based on the above definition the Board has failed to deliver on its mandate. The company has failed to display a long-term strategy and based on Mr. Ballmer’s decisions during his tenure the Board has failed in correctly evaluating the CEO and pursuing a succession plan.

It has been communicated by reporters, analysts and Microsoft employees that Mr. Ballmer is required to resign. It is the fundamental responsibility of the Board to ensure that it acts within the best interest of shareholders.

During Mr. Ballmer’s tenure an acquisition of Yahoo was pursued. Mr. Ballmer pursued a 65%premium bid for Yahoo valued at $45 billion. An analyst with Goldman Sachs stated this was the stupidest move in the company history. According to a recent report the company commands only 8% of the search sector. This is despite massive spending with acquisitions and R&D.

The largest dilemma with the Yahoo bid decision was the lack of strategy and correct communication. During a meeting with analysts Mr. Ballmer when confronted with acquiring Yahoo stated that Microsoft prefers organic growth. Less than one year after this statement Mr. Ballmer pursues a Board approved 65% premium bid for Yahoo.

Microsoft has engaged in massive R&D spending. Pacific Crest Securities analyst Mr. Barnicle states that Microsoft is required to examine its R&D spending. Despite the massive expenditure the company fails to be innovative. Microsoft mobile, and MSN are all failing within their respective sectors.

Mr. Ballmer during his tenure deployed $40 billion towards share buybacks. Despite this massive expenditure the shares have remained flat. The most disconcerting event with this failed expenditure is the announcement by Mr. Ballmer that Microsoft intends to deploy an additional $40 billion through to 2013 on share buybacks.

During Mr. Ballmer’s tenure the company shares have remained flat and stagnant for a long-term period of approximately eight years. In 2004, at a shareholder meeting when confronted with a stagnant share price Mr. Ballmer indicated that the company had plans and subsequently the shares would take care of itself. Despite this statement and Mr. Ballmer’s plans, the shares have continued to remain flat and fail to create shareholder value. During Mr. Ballmer’s tenure Microsoft has lost $300 billion in shareholder value.

During Mr. Ballmer’s tenure he has presided over massive spending, poor decisions, poor execution of plans, failed to communicate strategy to shareholders and employees, has failed to create shareholder value and is responsible for Microsoft losing $300 billion in market value. This subsequently leads to a no-confidence with Mr. Ballmer.

While we believe shareholders are entitled to a full explanation of what the board knew, when it knew it, and whether it approved of Mr. Ballmer’s disastrous decisions, it is more important in our view that the board do what is necessary to restore investor confidence. Removing Mr. Ballmer as CEO is necessary first step in this challenging process.

According to a recent poll of Microsoft employees conducted by GlassDoor, only 44% of the company employees approve of Mr. Ballmer. A review of the blogs Mini-Microsoft and MSFTextreme will aptly demonstrate the resignation of Mr. Ballmer is required for the future success of the company.

Corporate governance at Microsoft serves several purposes:

•To establish and preserve management accountability to Microsoft's owners by appropriately distributing rights and responsibilities among Microsoft Board members, managers, and shareholders.

•To provide a structure through which management and the Board set objectives and monitor performance.

•To strengthen and safeguard our culture of business integrity and responsible business practices.

•To encourage the efficient use of resources, and to require accountability for stewardship of those resources.

The campaign has obtained feedback from Microsoft employees. The primary consensus of employees is that Mr. Ballmer is required to resign. The campaign obtained this comment from a Microsoft employee.

"The elephant in the boardroom is Ballmer's relationship with Gates. Ballmer is the best friend and college buddy of the founder, chairman and biggest shareholder of the company. Ballmer probably can't be fired unless Gates wants him to be fired. And Gates is a loyal friend. Ballmer is also a board member and major shareholder, with 4 percent of the company (Bill Gates himself owns less than 10 percent). It's an unhealthy situation for Microsoft and its shareholders."

Regardless of the fact that Mr. Gates and Mr. Ballmer are friends, Microsoft is a business. Subsequently, the most significant word within the above statement is the word “Boardroom”. It is a boardroom that is required to act within the best interest of its shareholders. Numerous shareholders are demanding the resignation of Mr. Ballmer. During his tenure the shares have remained stagnant.

Based on the detailed duties of the Board of Directors it seems evident that it has failed to execute effectively in respect to its duties. Shareholders have witnessed a tremendous loss in value and the shares have remained stagnant. The current management has failed to set objectives, realistically monitor performance and engage in efficient use of its resources. Therefore, this results in the immediate and necessary resignation of Mr. Ballmer. Failure to encourage his resignation will therefore result in the current Board of Directors being held accountable for failing to act in the interest of Microsoft shareholders and its employees.

To offer support in the form of shares for voting contact

newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Elephant in the Boardroom

2009-04-06T06:03:00.001-07:00

In the comment section of "Who Will Lead Microsoft" is this anonymous comment:

"The elephant in the boardroom is Ballmer's relationship with Gates. Ballmer is the best friend and college buddy of the founder, chairman and biggest shareholder of the company. Ballmer probably can't be fired unless Gates wants him to be fired. And Gates is a loyal friend. Ballmer is also a board member and major shareholder, with 4 percent of the company (Bill Gates himself owns less than 10 percent). It's an unhealthy situation for Microsoft and its shareholders."

When this campaign was launched we were aware of Mr. Gates and Mr. Ballmer being significant shareholders. However, it is the final statement within the above comment that can provide tremendous discussion. Ultimately, there are numerous unhealthy situations for Microsoft and its shareholders.

This campaign has addressed some of the unhealthy situations for Microsoft. The campaign has provided analysis of the financial situations confronting the company. The loss of OS share, the growing popularity of the Internet (search and advertising) and the dominance of Google. The introduction of netbooks, SaaS and handhelds.

Microsoft is lost and floundering. The company lacks vision and direction. This campaign has referred to the ill-conceived Yahoo bid. Massive spending. This campaign has referred to the numerous acquisitions, massive R&D spending and the $40 billion deployed on share buybacks. Microsoft has for several decades controlled a massive amount of cash. However, it has failed to elevate the share price. Ultimately, capital without vision and direction fails to be an asset. In Microsoft's case it has become a liability.

There was a period when it was innovative and a darling of Wall Street. However, those days are long gone. Microsoft has been replaced by Apple and Google. Refer to:

In addition to this campaign's analysis there are numerous Wall Street analysts referring to Microsoft's loss of share. However, there are also numerous internal situations that confront Microsoft. This leads to the next point.

In the post "Could Microsoft Become the Next General Motors" this campaign provides a qualitative analysis of additional Microsoft dilemmas. A simple review of MSFTextreme or Mini-Microsoft and it becomes clear that numerous employees are frustrated with the company. The company is confronted with poor employee morale.

The company is also confronted with poor company image. Microsoft has lost consumer loyalty through poor products (such as Windows that freeze, Zune, MSN and the failure of Vista). It has also been the target of Apple through advertising. Microsoft's campaign has failed to improve the company image. Brand expert Rob Frankel states that the new commercials by Microsoft will prove detrimental to the company. Refer to: http://www.newsfactor.com/story.xhtml?story_id=65597&full_skip=1

There is still the elephant in the room. ( This is a term referring to a big problem that often fails to be addressed). Mr. Ballmer is a friend of founder and shareholder Mr. Gates. Granted they are friends. However, friendship aside, business is business. Reality check for Mr. Gates and Mr. Ballmer is simply--Microsoft is a business. Therefore, as a business there requires accountability. This leads to the next point.

Mr. Gates and Mr. Ballmer are substantial shareholders. However, as a business there are also numerous other shareholders. This includes both small shareholders and large institutions. For a decade shareholders have witnessed the shares remain stagnant. Refer to: http://seekingalpha.com/article/63975-lots-of-overlap-between-top-yahoo-microsoft-shareholders

Shareholders have every right to ask management tough questions. They also have every right as stakeholders in the company to demand change. This leads to the final point.

There is without a doubt a elephant in the room. However, the room we are referring to is not Mr. Gates livingroom. That is the place for friendship. The place we are referring to is the Boardroom. As mentioned, this is a place of business. Refer to: http://itmanagement.earthweb.com/columns/executive_tech/article.php/11282_3745546_2

According to the Microsoft website is the following:

Corporate governance at Microsoft serves several purposes:

1)To establish and preserve management accountability to Microsoft's owners by appropriately distributing rights and responsibilities among Microsoft Board members, managers, and shareholders.

2)To encourage the efficient use of resources, and to require accountability for stewardship of those resources.

Since Mr. Ballmer has failed in the effecient use of resources, the above states that it requires accountabilty for stewardship. Therefore, the Board is required to address its mandate and preserve management accoutability to Microsoft's owners.

Mr. Ballmer has failed in effecient use of resources. Massive spending on acquisitions that have failed to increase share. Massive spending on R&D that have failed to translate into innovation. Massive spending on share buybacks that have failed to elevate the share price. Massive spending on advertisements that have failed to improve the battered company image.

Perhaps the biggest resource Mr. Ballmer failed to utilize was Microsoft employees. Mr. Ballmer failed to use talented employees to propel innovation. Mr. Ballmer failed to listen to employees who have for years on blogs such as Mini-Microsoft indicated that Mr. Ballmer refuses to listen.

This campaign's belief is simple. A CEO who refuses to have a open door to their employees needs to be shown the door. Granted that typically CEO's are intelligent individuals, it is the employees that are in the trenches and failure by a CEO to listen to employees leads to the failure of the company.

The Board of Directors is required to act within the best interest of the company and its owner's. Numerous employees and shareholders have stated that Mr. Ballmer is required to resign. Despite that fact that there is a elephant in the room, it is still a Boardroom, and therefore the Board is required to act in the interest of shareholders. The Board is accountable to act in the interest of shareholders. Therefore, they are required to remove the elephant and ultimately remove Mr. Ballmer.

This campaign is seeking to rally support through shares. Through rallying votes, shareholders have the potential to force the Board to address the elephant in the room and remove Mr. Ballmer. Failure by the Board to comply and act in the interest of shareholders, places accountability on the Board. If they fail to remove Mr.Ballmer then subsequently the Board should be removed at the next shareholder meeting as shareholders exercise their vote against the Board.

To offer support through shares contact

newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Former Microsoft Employee Interview

2009-04-05T14:01:00.000-07:00

This campaign was previously interviewed for an article with Microsoft Subnet. The campaign was asked a series of questions which were used for the article. Refer to http://www.networkworld.com/community/node/38350

At the time of the report we decided to post the entire interview on this blog. This was to provide the reader with access to the entire interview as opposssed to a condensed version for the article. The entire interview was posted on this blog simply titled "Microsoft Subnet Interview".

The campaign has indicated that a former employee has agreed to provide an interview with Microsoft Subnet. This report is still forthcoming. In the interm we thought it would be interesting to direct the same questions to the former employee that Microsoft Subnet asked the campaign.

This will subsequently result in a series of posts consisting of the questions and answers presented to a former Microsoft employee.

1)Who are you and what is your relationship to Microsoft?(Do you work for the company, or used to work for the company?

Answer:Former employee, no longer work for MS.

2)In your opinion, besides Apple, what companies compare to Microsoft to indicate that Microsoft stock is underperforming in the same period? (Oracle? IBM? CA? Symantec? Google?)

Answer: IBM & Apple are the two that most closely match MS in breadth and depth of offerings. Google, while the lead competitor in search, is primarily focused in that one area and doesn't have the breadth of offerings to make it a fair comparison.

Refer to http://www.marketwatch.com/quotes/msft

for comparison refer to:

http://www.marketwatch.com/quotes/aapl

and

http://www.marketwatch.com/quotes/ibm

(Notice that Microsoft with $60 billion in revenue has a market cap of approximately $166 billion. However its nemesis Apple with half Microsoft's revenue at $32 billion has a market cap of $103 billion. Microsoft's P/E is 10 while Apple is 21)

3)You note Microsoft's failed attempt to buy Yahoo as a poor decision regarding how to spend its capital. That deal didn't actually go through, as we all know, but what are your thoughts on other Microsoft acquisitions over the past few years? Tellme (2007), for instance, seems particularly promising as does DATAllegro in 2008. What kinds of technologies would you like to see Microsoft buy?

Answer: It's not that the acquisitions don't make some degree of sense, it's just that they don't seem to make sense for MS. The bigger question is what does MS plan to do, and in that context do these acquisitions fit? The impression that MS leaves one with is that they're a kid in a candy store, not knowing what to buy and as a result, they buy anything and everything. They don't show purpose and direction in their acquisitions.
Refer to: http://en.wikipedia.org/wiki/List_of_companies_acquired_by_Microsoft_Corporation

What do you think the problem is between buying a promising technology and showing Wall Street how that buy indicates growth potential?

Answer: See my previous answer for the majority of this answer. To follow on, MS has a lousy track record of delivering on the promise of the technology acquired from an acquisition. If MS could deliver on that promise, the answers to Wall Street would be easy and obvious. Because MS has no sense of direction and purpose, Wall Street doesn't see where these acquisitions "fit" into some semblance of a plan (nor does anyone else for that matter) and that makes people anxious.

In the second post for this series the former employee will provide further insight. This will include if leadership should be replaced, if Microsoft should acquire RIM and also analysis of Microsoft's R&D spending.

To offer support though offering shares for vote contact:
newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Microsoft Requires Image Makeover

2009-04-03T07:12:00.000-07:00

In a Microsoft SubNet article Mr. Barnicle of Pacific Crest Securities states that the company biggest problem is its image. Refer to http://www.networkworld.com/community/node/38350

Microsoft’s image has been battered. The public’s perception is that the I’m a PC ads and the Seinfeld ads failed to capture the consumer and improve the company image. In the comment section of the previous post "Who Will Lead Microsoft" is this following link: http://www.pcmag.com/article2/0,2817,2344107,00.asp

Apple has through their advertising openly targeted Microsoft. Microsoft in a effort to improve its image hired the hot new agency Crispin. This firm has created a series of campaigns which have included comedian Jerry Seinfeld. However, the commercials have failed to capture consumers. Refer to http://www.marketwatch.com/news/story/microsofts-ad-counter-offensive-against-apple/story.aspx?guid=%7B95EC30F8%2DC0B7%2D4AF6%2DBD7E%2D3B0E27905B4C%7D&dist=TQP_Mod_mktwN

Also refer to the link within the above post or follow:http://www.marketwatch.com/News/Story/microsoft-needs-help-mad-men/story.aspx?guid=%7B3F67FAE3%2D4733%2D4BC3%2DB30A%2D143EAA9399C6%7D

In the above report the author refers to the notion that through these commercials Microsoft is ultimately admitting that it is Number 2. This is not going to improve Microsoft. It is perhaps the worst move possible to further damage the company image. In essence it is Microsoft admitting defeat.

Could someone have stepped into the ring with Mohamed Ali and said I am "cool" and you are a "nerd" therefore I am going to win?

Mohamed Ali would reply "I move like a butterfly and sting like a Bee". Let's get a reality check. Ali was the world champ, and unless you are strong enough the "cool" component is not relevent. Unless you were the strongest and biggest, Ali was going to punish you in the ring.

This campaign has mentioned that Microsoft is losing share to Apple. However, Microsoft still controls over 80% of the OS market share. It is still the champ. But, through these commercials the company is essentially saying "we are the chumps". It should be saying "we are bigger, we are stronger, and as the Queen song says "WE ARE THE CHAMPIONS OF THE WORLD".

Why should Microsoft concede its the "nerd" when in reality it's the "BIG" kid on the block?
Refer to: http://www.newsfactor.com/story.xhtml?story_id=65597&full_skip=1

Within the above CBS Marketwatch report the author refers to the former Win95 commercials. These commercials captured the consumers attention. It caused consumers to desire the product.

This campaign has created a series of commercials that will dramatically improve the company image.

Advertisements

1)The scene begins with Adam and Eve walking through the Garden of Eden. Eve is about to pick an Apple from the tree.

A voice then states “Resist the temptation. Resist the Apple”. The screen then shows the Microsoft logo with the words

Microsoft. The Better Choice. Always.

2)The scene begins with two kids sitting in a school cafeteria. Both the boys are opening their lunches. Boy 1 states “What do you have?”

Boy 2 replies “I have cake what do you have?”

Boy 1 states “I have an Apple, do you want to trade?”

A voice then states “Resist the temptation. Resist the Apple”.

The screen then appears showing the Microsoft logo with the following:

Microsoft. The Better Choice. Always.

3)It will open with a scene from the Walt Disney movie “Wild Hogs”. It will show the character Dudley displaying his Apple tattoo.

The dialogue continues as follows: Dudley- “I’m a biker, dude! I got a tat!”

Doug- “It’s an Apple…”

Dudley- “I know. Trademarked. But what are they gonna say?

A voice then states “Resist the temptation. Resist the Apple”. The screen then appears showing the Microsoft logo:

Microsoft. The Better Choice. Always

4) It will open with a scene from the Walt Disney movie “Wild Hogs”. Dudley is sitting in a restaurant and states “Mac, open Internet please”.

Computer responds: Command Unknown

Dudley: I think I have to search “alternative specs”.

Computer: Searching “alternative sex”.

Edit the clip to end with the Mac computer overheating with smoke coming out of it. Screen then appears showing:

Microsoft. The Better Choice. Always

Refer to http://movies.yahoo.com/movie/1809426511/trailer

Prior to the launch of Windows 7 Microsoft will present the following two advertisements.

1)It will present a commercial similar to Win95 commercial Refer to http://www.youtube.com/watch?v=5VPFKnBYOSI

This commercial has the song “Start Me Up”. It was a commercial that captured attention. It created consumer reaction. It created a positive image. Win95 was associated with the song and was for lack of better terminology “cool”. The commercial will follow a similar format. However, it will be filmed with New footage. The commercial will end with the screen showing:

Windows 7. Start it Up.

2)It will follow a format similar to Win95 and the above Windows 7 format. However, it will incorporate the Beatles song “Got to Get You Into My Life”. Refer to http://www.youtube.com/watch?v=22H1ciSvVm8

The format will follow the Win95 commercial format. It will involve the Beatles song. The screen will then appear showing the following:

Windows 7. Get It Into Your Life.

3)Following the same format as the above two commercials it will include the Queen song "We are the Champions". It will demonstrate the product and what it can do. However, in the song is the line "they are the losers". At that point of the song it will show a "Mac" on the screen. The commercial ends and the screen shows the Microsoft logo and states:

Windows 7. Be A Champion.

Microsoft is confronted with a battered image. Based on the response of consumers with Microsoft's previous commercials the company is failing desperately in its efforts to improve its image. The consensus is that Crispin is failing to improve Microsoft's already battered image. Joe Wilcox of Microsoft Watch states that the company is required to fire Crispin.

The company is required to get consumers excited about Microsoft products. Microsoft needs to approach presenting its brand similar to a movie premier. It needs to excite the consumer to the point they can no longer wait. This is what the company did with Win95. Consumers have stated that it has become a dinosour. It's time the company get back to its roots. Show the consumers that this is STILL THE NUMBER ONE software company in the world and we mean business.

One of the most powerful and most mandatory necessities for the company is to instill consumer confidence and improve brand image. Improving brand image will unlock a tremendous amount with shareholder value. A large pert of the low company share price is directly linked to brand perception. However, it is integral to ensure that the product delivers on the promises to ensure brand perception.

Prior to launching these commercials, based on Microsoft employee feedback, it is integral to ensure the product is revised and ready for consumers. Failure to deliver a superior product will prove counter-productive for the advertising commercials. Microsoft through advertising and proving its still "Number One" will improve the company image and brand perception.

Ultimately this will unlock shareholder value.

To demonstrate support through offering shares for vote contact: newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Who Will Lead Microsoft

2009-04-02T06:33:00.000-07:00

There have been various posts and articles refering to the notion that Mr. Ballmer needs to resign. Refer to: http://www.extremetech.com/article2/0,2845,2317347,00.asp

And refer to: http://itmanagement.earthweb.com/columns/executive_tech/article.php/11282_3745546_2/Why-Steve-Ballmer-Should-Resign.htm

Numerous comments on this blog refer to the fact that regardless the strategy the campaign creates "Mr. Ballmer is the wrong candidate to execute the strategy". It has been indicated on this blog that Mr. Ballmer needs to resign. Here is a comment extracted from this site:

"Until true leadership is shown at the highest levels of that company, I don't expect things to change. Until that change happens, morale will continue to sink and that more than anything else will be the undoing of Microsoft. Lots of discussion can be had about where the company should go and what they should do, but the single biggest step that needs to occur is replacing Steve Ballmer".

On the Mini Microsoft blog there is a recent comment refering to starting a poll to remove Mr. Ballmer. Numerous shareholders and Microsoft employees are advocating for Mr. Ballmer to resign.

This campaign obtained a comment refering to a survey conducted by GlassDoor. This survey indicated that 56% of MSFT employees failed to support Mr. Ballmer. Refer to: http://blogs.zdnet.com/BTL/?p=14121

The dilemma that occurs is if Mr. Ballmer resigns who will then lead Microsoft?

This campaign has obtained comments from employees of Microsoft stating that it requires a leader that will command respect. It has also been stated that it requires a leader that can foster communication. It has been communicated that employees fail to respect Mr. Ballmer and also to many are apt to simply "yes man" him when in reality it demands employees to have the ability to say "no". It has been stated that many employees are afraid of being the next Mark Lukovsky. Refer to: http://www.theregister.co.uk/2005/09/05/chair_chucking/

The campaign has obtained comments stating that a "fish rots from the head" and this is the demise of Microsoft. Based on comments on Mini Microsoft this statement appears true. There are also comments that the leader needs to be a team player. Willing to take a "bullet" or "go down with the ship". Comments from Microsoft employees state that through the layoffs Mr. Ballmer failed to display these characteristics. Its been stated that he is more like a King saying "let them eat cake".

Comments also indicate that the leader has to inject vision. Understand technology. Foster passion for Microsoft products with employees. Improve morale. Re-establish the core and focus on building a solid foundation. Enhance the share price. Improve performance reviews. Improve the company image better then the failed Crispin generated commercials.

Mr. Ballmer has obviously failed at accomplishing these desired goals. However, eventhough Mr. Ballmer failed to fill expectations, based on the above comments the replacement has "Big" shoes to fill.

This ultimately results in the same question. Who will lead Microsoft back to being a leading company?

In a 2008 CNet article Mary Jo Foley presents a list of potential candidates. Refer to http://news.cnet.com/8301-10784_3-9932237-7.html

This campaign has also obtained names such as Brian Valentine and Paul Maritz. There have also been comments regarding Kevin Johnson. Refer to: http://247wallst.com/2008/07/24/microsofts-msft/

It is without dispute that Mr. Ballmer is not the right candidate to lead Microsoft. However, if shareholders lead a no-confidence or if shareholders hold the Board accountable and force Mr. Ballmer to resign, who will lead Microsoft?

We would like suggestions.

We can be contacted at thecrandreagroup@hotmail.com

To demonstrate support through offering shares for votes:

newstrategy4msft@gmail.com

Microsoft-A Change of Mentality is Required

2009-03-27T11:36:00.000-07:00

In the last post we stated that General Motors failed because it became complacent. Microsoft is a company that for several decades commanded over 80% share in OS. Similar to General Motors it controlled a near monopoly within its sector of business. However, Microsoft became complacent. It rested on its laurels, it is losing share in OS. It fails to innovate. It is being outpaced by competitors. It has lost brand value.

Microsoft continues to have the mentality that everything is ok. It continued to believe that the cash cows would never be threatened. Microsoft allowed its size and success to believe that it was indestructible. However, there is competitors such as Apple and Linux. Google dominates the important search sector.

The lesson to be learned is, that if GM as one of the world's largest companies can be pushed into bankruptcy, a company must avoid the temptation of being misled by its own success (and size) into believing that it is indestructible. Management must cultivate a sense of vulnerability and the potential risk of mortality. That is part of the formula for the survival and growth of a company. However, this is the area were Microsoft is failing.

Someone should remind Ballmer that MS products are not like Proctor and Gamble. Microsoft makes software products, but this isn't a product where it is consumed and replaced on a monthly basis. That mentality has gotten Microsoft to where it is today, and to where their vision is run like a corporation not an innovated company. Refer to the following

http://www.informationweek.com/blog/main/archives/2008/06/microsoft_needs_1.html

Perhaps the most interesting comment in the above post is "The Internet group is the tail of Microsoft; every other part of the dog is more profitable and therefore more influential -- no matter the lip service to the Internet".

General Motors failed because it continued doing business in the same manner despite competitors recognizing consumer trends. Slowly competitors gained more share and eroded General Motors revenue, profits, and image. Microsoft seems to be conducting business in the same manner as a decage ago. Its survival is contingent upon the sale of its Client, and Server and Tools divisions.

The problem is the emergence of free software. The emergence of Apple and Mac OS. The emergence of netbooks, SaaS, mobile services and the Internet. Microsoft is trailing in all these arenas.

On the blog Mini-Microsoft is the following comment which we have extracted:

"I hate to be a naysayer because I support what Crandea wants to do, but I say "nay." "Nay," I say. MSFT will not change until the dagger is at the throat. Things will get much much worse before they will get any better".

A Microsoft employee has indicated that the company will continue to deteriate. President Obama released a bailout plan for General Motors. This once "Great Company" requires a government bailout. However, on CNBC it was stated that President Obama was demanding the resignation of CEO Rick Wagoner. It was indicated the government held the CEO accountable for the instability of the company.

Question. Who is holding Mr. Ballmer accountable?

During his tenure the company despite massive spending is still dependent on its same business model. Additionally, the same business model (cash cows) are failing to secure consumer loyalty and is losing share to competitors.

After a decade the company appears to have no real continguency plan and lacks vision. Its core business is losing share, it has failed in mobile, search, Zune. It is being battered by Apple in share and advertising brand perception (which even CBS Marketwatch is stating Microsoft requires a new ad company). It appears evident that Microsoft requires a drastic change in mentality.

However, after sites such as MSFTextreme, Mini-Microsoft, analysts, reporters, stagnant shares for eight years--Mr. Ballmer still refuses to listen. Therefore, it seems evident that Microsoft requires a dagger at its throat. Before it becomes the next General Motors, shareholders need to place the dagger at the Board and demand the removal of Mr. Ballmer.

The Board is responsible for overseeing strategy, perfomance and succession. After eight years of Mr. Ballmer displaying "no strategy" and "no performance" its time for a successor. It is time for a change of mentality.

We suggest that shareholders forward letters to the Board demanding the resignation of Mr. Ballmer and hold the Board accountable to act in the interest of the company and its shareholders.

We can be contacted at thecrandreagroup@hotmail.com

To demonstrate support through shares contact newstrategy4msft@gmail.com

Microsoft requires a change of mentality. However, it will never happen as long as Mr. Ballmer remains at the helm.

Could Microsoft become the Next General Motors

2009-03-26T16:11:00.001-07:00

There are numerous articles concerning quantitative analysis of Microsoft. There are articles referring to revenue decline, earnings decline, charts and graphs demonstrating analysis of Microsoft's problems. This campaign within this blog has also engaged in providing quantitative analysis of Microsoft.

In this post we wish to pursue a more qualitative analysis. In this post we will be examining its non-numeric characteristics, such as management, employee morale, customer loyalty, and brand value.

In the last few posts we have referred to the current management of Microsoft. Refer to the posts "Microsoft, With or Without Ballmer", or "Is it Steve Ballmer or Steve Yang". Since launching this campaign, the consensus with the feedback that has been obtained from Microsoft employees, is that the company requires new leadership. This subsequently leads to the next issue.

There are numerous sites created by frustrated Microsoft employees. The sites MSFTextrememakeover and Mini-Microsoft were created by anonymous Microsoft employees. They have become a forum for Microsoft employees to post anonymous comments. The site Mini-Microsoft has become a place where Microsoft employees and others engage in an open discussion about all aspects of the company and what it is like to work there. The site is credited with providing some of the impetus for internal changes at the company in 2006, specifically concerning how employee reviews are done. This site has numerous comments concerning the company morale. Refer to http://minimsft.blogspot.com/

There are also numerous articles referring to consumer loyalty and company brand value. There are articles referring to loss of market share in OS. There are articles referring to the commercials with Seinfeld and the failure to improve the company brand and image. Therefore, in this segment we will not create an exhaustive list of articles and links. However, we will simply refer to an article concerning this campaign. A leading Microsoft analyst Mr. Barnicle of Pacific Crest Securities states that the company biggest problem is image. Refer to www.networkworld.com/community/node/38350

Perhaps one of the biggest problems facing Microsoft is the General Motors mentality. General Motors in the past was Number One of the Big Three. It was a company that dominated auto sales and commanded a large market share. In these circumstances it is easy for a company to become complacent. A company can rest on its laurels and fail to be cutting edge. Such was the demise with General Motors. The once number one auto company is headed towards bankruptcy.

General Motors failed because it became complacent. GM continued to manufacture its range of gas-guzzling models, its Japanese competitors had designed and launched fuel-efficient vehicles. The second mistake was while GM concentrated on upgrading sports utility vehicles, its competitors upgraded their range of normal cars and increased their market share in this premium segment.

Microsoft is a company that for several decades commanded over 80% share in OS. Similar to General Motors it controlled a near monopoly within its sector of business. However, Microsoft became complacent. It rested on its laurels, it is losing share in OS. It fails to innovate. It is being outpaced by competitors. It has lost brand value.

Microsoft continued to have the mentality that everything is ok. It continued to believe that the cash cows would never be threatened, additionally they had the mentality of protecting the cash cows. Microsoft after a decade of acquisitions and R&D spending is as equally dependent on its cash cows for revenue as it was a decade ago. Microsoft allowed its size and success to believe that it was indestructible. However, there are competitors such as Apple and Linux.

Microsoft continued with its operating system and missed the Internet. In essence, Google has become to Microsoft similar as what Toyota was to General Motors. Google has increased share in a premium segment. Meanwhile, Microsoft is left with minimal share. Google has a market valuation that is comparable in size to Microsoft. This demonstrates how the market perceives the respective companies.

The final analysis is simply that Microsoft is quickly becoming the General Motors of the tech sector. Unless the company changes its mentality, similar to General Motors it will be eventually seeking bankruptcy protection. We will affirm this analysis from a recent comment in an article with CBS Marketwatch. Refer to http://www.marketwatch.com/news/story/microsoft-pokes-hole-cloud-computing/story.aspx?guid=%7BFE589532%2D894D%2D44AE%2D8FB3%2D14C11DF54892%7D&dist=TQP_Mod_mktwN

It states:

"Microsoft is obviously reacting to what it deems as a big threat to it's backwards retarded mentality, and I do mean that literally as in try to slow down the progress through it's twisted negative spin on what is to be an inevitable future of progression in technology and shifting of infrastructure led by Google, IBM and Amazon. Microsoft has long had a delusions of grandeur superiority complex of invincibility attitude because it doesn't want to do anything to upset its height advantage of 1) proprietary software and code and 2) tethering OS and software to PC. For Microsoft, power blinded and handicapped their ability to truly innovate years ago and this will ultimately be The Great Fall of the Microsoft Empire".

This ultimately leads into our next post "Microsoft-A Change of Mentality"

It is time to rally support. It is time to effect change. After nearly a decade of stagnant share price, it is time for shareholders to demand change before Microsoft becomes the next General Motors.

We can be contacted at thecrandreagroup@hotmail.com

To offer support through shares contact newstrategy4msft@gmail.com

Is it "Steve Ballmer or Steve Yang"

2009-03-24T14:49:00.000-07:00

Mr. Ballmer while speaking to analysts stated ""I don't want to be known as the Jerry Yang of this market." Refer to:

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BDC4F7AC2-7B75-4B75-BD0C-CA1C6CA795E4%7D#comments

Mr. Ballmer was referring to Jerry Yang the former CEO of Yahoo. Jerry Yang was eventually forced to resign. Mr. Ballmer in his statement was referring to the fact that Mr. Yang invested heavily in the search business and still failed to remain competitive with Google.

In the last post on this blog we cited the fact that "search" for Microsoft has reached a record low with 8% of the market. However, rival Google commands over 60% share. Refer to http://www.pcworld.com/article/161222/report_microsoft_us_search_share_hits_12month_low.html?tk=rss_news

Microsoft has pursued numerous acquisitions to remain competitive with Google and Yahoo. Refer to http://en.wikipedia.org/wiki/List_of_companies_acquired_by_Microsoft_Corporation

Within the Wikipedia post there are references to numerous acquisitions by Microsoft. The article refers to acquisitions such as Medstory, Jellyfish, Farecast, Fast Search and Transfer, Greenfield Online and Powerset. These acquisitions alone total approximately $2 billion.

It also acquired Onfolio which was integrated into the Windows Live tollbar. However, by 2008 Microsoft announced that this was discontinued.

The number of acquisitions in this sector, such as search technology, the company has displayed very minimal revenue growth.

In 2005, Microsoft generated online advertising revenue of $1.5 billion. In 2007, Microsoft reported revenue of $2 billion. In 2005, Microsoft controlled 8% of the market share. In 2007, it appears that it had declined to approximately 6% market share. Currently, as indicated by the PC World report Microsoft controls only 8%. Therefore, despite various acquisitions within this sector there is minimal improvement. According to Microsoft Watch, the company in 2008 within Online services experienced a loss of $468 million. Refer to http://www.microsoft-watch.com/content/corporate/microsoft_q4_2008_by_the_numbers.html

Yahoo in the period of 2005-2007 was able to increase advertising revenue from $4.5 billion to $6.5 billion in 2007. However, it has lost minor market share to Google, and currently controls approximately 20%. In 2008, Yahoo posted revenue of $7.2 billion.

According to the data, Microsoft pursued numerous acquisitions from 2005 to 2008. The company has failed to increase market share and has experienced minor increase in revenue. Yahoo within the same period has created marginal increase in share and increased advertising revenue by approximately $2.7 billion.

Mr. Ballmer stated "he didn't want to be the Jerry Yang of the sector". One major dilemma. It appears as though he is.

To add further to Mr. Ballmer, he also failed the Yahoo bid. During his tenure shareholders have lost over $300 billion in market value. The stock has been stagnant for eight years. He has presided over poor decisions, massive spending, and poor company image (products, layoffs, Vista, Lawsuits).

The conclusion. Mr. Ballmer might as well legally change his name to Steve Yang.

Ironfire Capital through shareholder activism was instrumental in forcing Terry Semel to resign from Yahoo. Additionally, if shareholders rallied and forced the resignation of Jerry Yang, why haven't Microsoft shareholders forced the resignation of Mr. Ballmer?

This leads to one final reference. Although the article was posted in 2006, it still pertains to current issues because it appears that nothing has changed . The author states "If shareholders ever want to make decent money on their MSFT stock, they are going to have to fire Steve Ballmer". Refer to http://seekingalpha.com/article/11960-microsoft-s-steve-ballmer-should-be-fired-msft

This campaign is seeking to rally support to effect change. Microsoft employees have stated if Mr. Ballmer remains at the helm Microsoft will eventually become a penny stock.

To offer shares for support contact newstrategy4msft@gmail.com

We can be contacted at thecrandreagroup@hotmail.com

Microsoft and Yahoo

2009-03-21T05:44:00.000-07:00

Microsoft CEO Mr. Ballmer recently announced there is still interest to create a deal with Yahoo concerning its search business. Refer to http://www.marketwatch.com/news/story/ballmer-says-microsoft-still-interested/story.aspx?guid=%7BF259440D%2D5988%2D4F69%2DA265%2D2Eb1533207E8%7D&dist=TQP_Mod_mktwN

Last year Microsoft through Mr. Ballmer's leadership pursued a 65% premium bid for Yahoo valued $45 billion. Despite Carl Icahn of the hedge fund Icahn Partners numerous converstations with Mr. Ballmer to finalize the deal it eventually collapsed. Yahoo founder and then CEO Jerry Yang rejected the deal. This rejection lead to his eventual demise at Yahoo.

Numerous analysts had stated that the actual acquisition of the company was not necassary. Microsoft could have acheived the same results as a full acquisition through a "search" only deal.

What is of interest is an article at http://www.businessinsider.com/2008/5/hey-yahoo-please-explain-again-why-you-passed-on-microsoft-search-deal

According to a recent report through PC world Microsoft U.S search has fallen to a level of a all time low. However, Google commands 63% of all search queries compared to Microsoft's 8% of all queries. Refer to http://www.pcworld.com/article/161222/report_microsoft_us_search_share_hits_12month_low.html?tk=rss_news

This campaign has indicated the necessity for Microsoft to pursue a "search" deal with Yahoo. Based on the numbers released through the PC World article, it appears evident the reason Mr. Ballmer announced intentions to pursue a deal with Yahoo. However, the combined assests will still only command approximately 30% of all "search" compared to Google's 63%. Although it makes Microsoft more competitive there is still a 30% share margin.

During the high of the tech boom AOL CEO Steven Case orchestrated a merger with media giant Time Warner. This deal eventually evaporated. Refer to http://news.zdnet.com/2100-9588_22-140716.html

In 2003, according to a New York Times article Microsoft was pursuing a deal with Google. Refer to http://www.nytimes.com/2003/10/31/technology/31net.html?ex=1068181200&en=9611591c74179e13&ei=5062&partner=GOOGLE

Analysts and even Microsoft employees indicate the Microsoft is required to initiate a game changing move. However, this reality still presents a couple of questions.

First, after losing the original Yahoo bid will Mr. Ballmer finally succeed the second time around?

Perhaps this comment extracted from the CBS Marketwatch article best captures the potential of Ballmer succeeding:

"Can someone shut Ballmer's mouth? He needs to resign! The worst CEO"

This leads to the next question. If Jerry Yang was forced to resign for the Microsoft and Yahoo blunder why is Mr. Ballmer still at the helm of Microsoft and why was he not forced to resign for his part in the blunder?

Lastly, were would Microsoft stock price be if in 2003 Google and Microsoft made a deal.

Microsoft is required to make a game changing move to compete in the "search" sector. This campaign is advocating a acquisition of Yahoo's search business. However, with Mr. Ballmer as the CEO will Microsoft ever get it right?

We can be contacted at thecrandreagroup@hotmail.com

To demonstrate support through shares contact newstrategy4msft@gmail.com

Microsoft "With or Without Ballmer"

2009-03-04T05:57:00.000-08:00

Prior to launching the campaign "New Strategy" for Microsoft several letters were forwarded to the attention of Mr.Ballmer. This resulted in a letter from Investors Relations stating management was confident in the direction of the company.

In a interview with Microsoft SubNet this campaign was asked if "Do you advocate the restructuring of Microsoft's top offices such as getting rid of Steve Ballmer or Kevin Turner? Why or why not?"

The initial response was "Typically, I believe that activists prefer to work in conjunction with management to enhance shareholder value. However, there has been occasions when the activist campaign has sought the resignation of management". The campaign also stated "Based on the history of Microsoft and its inability through current management to create shareholder value, we certainly have concerns with current management and Mr. Ballmer".

Since launching the campaign numerous comments and reports have been reviewed concerning Mr. Ballmer and his departure.

We will begin by reviewing a comment on this blog:

"MS needs new management, not new ventures. And they'll probably start by consolidating rather than expanding".
February 23, 2009 7:16 PM

This campaign has on multiple occassions referenced reviewing the blog Mini Microsoft. This is the name of a blog maintained by an anonymous author who appears to be a Microsoft employee. However, other Microsoft employees have the opportunity to post comments anonymously without fear of retribution from the company.

Recently, we obtained an email from a former Microsoft employee. (The former employee has agreed to conduct an interview with Microsoft SubNet concerning the problems with Microsoft).

The former employee in their email referenced a recent post on Mini by Anonymous 5:48 located at https://www.blogger.com/comment.g?postID=4262039798147598032&blogID=31558551&isPopup=false&page=3

We suggest reading Anonymous 5:48 and then the response by Anonymous 6:34. Perhaps what is of greater interest to this campaign is the comment within the email we obtained from the former Microsoft employee:

"The more I read about leadership and as I observe leaders in organisations I’ve come to believe the Russian proverb that “A fish rots from the head..” as true and found that it applies equally to organisations. An organisation is the shadow of the top leader. An organisation and a team is only as successful as it’s leader. John Maxwell calls this “The Law of the Lid".

The blog Boycott Novell recently posted a article concerning the campaign located at http://boycottnovell.com/2009/03/03/microsoft-investor-backlash/

Within The Boycott Novell blog there is a link to sites concerning Ballmer being replaced.

Another interesting read is "Ten Reasons Ballmer Should be Replaced". You can also imagine David Letterman reading out the Top Ten. It can be accessed through a link at msftextrememakeover or can be accessed at http://www.extremetech.com/article2/0,1558,2317347,00.asp

A April 2008 CNet article refers to potential internal employess to replace Ballmer. This article is located at http://news.cnet.com/8301-10784_3-9932237-7.html?part=rss&subj=news&tag=2547-1_3-0-20

It appears that other companies have competent CEO's guiding the company, injecting vision and creating shareholder value. However, Microsoft has Mr. Ballmer. Refer to http://www.youtube.com/watch?v=wvsboPUjrGc

This leaves us with three questions:

1) Does Mr. Ballmer act like a monkey to hype the employees to believe what probably only Mr. Ballmer believes "I love this company"...as he states in the youtube post.

2) Does Ballmer act like a monkey to create hype because the products and company vision won't?

3) Should Microsoft hire a real Monkey to replace Mr. Ballmer and be its mascot?

Atleast a real monkey is cute and probably doesn't scream near as often. More importantly, atleast a real monkey will listen to its trainer and is teachable. Don't think that the same can be said about Mr. Ballmer. With Mr. Ballmer throwing chairs, ranting and screaming, failing to listen to employees (ie. Mini Microsoft and msftextreme.,), failing to listen to shareholders..it seems evident that its time for "Monkey Boy to Go Home".

We can be contacted at thecrandreagroup@hotmail.com

Microsoft Shares Fall Lower

2009-02-26T16:56:00.000-08:00

During a 2004 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".

In 2004 the CFO recognizes that the shares have been stagnant and in the narrow range for a while. (Shares had been stagnant since 2000). Refer to chart at Microsoft SubNet located at http://www.networkworld.com/community/node/37634

Despite the shares being stagnant and in the narrow range Mr. Ballmer states "if things go according to plan the stock will take care of itself".

The company has deployed $40 billion on share buybacks, it has engaged in massive R&D, it has pursued numerous acquisitions including the proposed 65% premium bid for Yahoo and have in total returned $115 billion in share buybacks and dividends.

For a period of eight years the company shares have been stagnant and within the narrow range. Despite management and Mr. Ballmers statement "if things go according to plan the share will take care of itself”, the shares have failed to create value.

The Yahoo bid failed to display any real rational planning. According to reports, in an annual analysts meeting during mid 2007, Mr. Liddell and Mr. Ballmer inform analysts there is no intention of Microsoft acquiring Yahoo. Microsoft management state they are “organic-minded”. Management during this meeting with analysts indicated that there wouldn’t be a large acquisition within the online sector. However, less than one year after the announcement at the analyst meeting ,Microsoft introduces a bid for Yahoo. The company offers a 65% premium valued at $45 billion.

Spending your capital to buy back shares indicate that a company has no "Plan" to use that capital to build the business. If Microsoft had any implementable ideas, it would be using that $40 billion to make more money, just like Apple has used its capital to rapidly expand its business while earning more cash on hand.

Apple isn’t buying back its stock because it thinks it can make more for investors building new business than it can by simply giving the money back. As a result that has translated into a 1,200% return to investors within four years.Typically, companies engage in share buybacks when no compelling growth opportunities can be recognized. Therefore, the only strategy that Microsoft management can perceive is to use tremendous amounts of capital to penalize long-term shareholders instead of deploying capital to increase business services, product mix, revenue growth, market share and ultimately shareholder value.

In 2004, Mr. Ballmer states that given the company’s growth prospect we will increase share buybacks. Since 2004, the company has spent $115 billion on this strategy. In 2008 the shares continued to trade at the same 2004 level of $25 per share.

The company P/E is currently at 10. This reflects Wall Streets lack of confidence in Microsoft’s growth prospects. Analysts have for several years referred to Microsoft as reflecting a utility company, its well suited to generate steady cash flows and dividends, BUT NOT GROWTH.Therefore, were is the growth that Mr. Ballmer was refering to?
Perhaps this is why Wall Street refers to the company as a utility.

In a Microsoft SubNet article located at http://www.networkworld.com/community/node/38350 Pacific Crest Securities analyst Mr. Barnicle states that the shares are stagnant for two reasons. Mr. Barnicle states that the main problem is the company image damaged by products such as Vista. The second problem according to Mr. Barnicle is ""It was a huge growth stock in the 1990s and it has experienced multiple compressions year over year. …Yeah a lot of people are frustrated … the stock should have grown".

Since launching this campaign for a "New Strategy" Microsoft has lost approximately $80 billion in market valuation. To be kind to Mr. Ballmer it can be argued that numerous companies have recently experienced a decline in market value. However, this doesn't negate the fact that from 2000 to 2008 the company shares have been "stagnant and in the narrow range".

BUT, according to Mr. Ballmer "if things go according to plan the shares will take care of itself".

In a Microsoft SubNet article titled "Angry shareholders say Microsoft squanders billions", long-term shareholder Mr. McDonald states " By now it should have been $100+ per share. We've seen Apple rise and I remember when MS was handing out Apple oxygen because we didn't know if it would survive". Based on this comment perhaps Apple should be handing out oxygen for Microsoft.

It is time for a "New Strategy". If Mr. Ballmer continues with his "Plans" for the company the shares "will take care of itself" and in four years be a single digit share price.

It's time to rally support and effect change.

We can be contacted at thecrandreagroup@hotmail.com

"New Strategy" Revised

2009-02-25T14:24:00.000-08:00

Activists have used various tactics to effect change. Icahn Partners have used full page ads in newspapers as with its campaign against Motorola to effect change. Third Point is notorious for letters to CEO's of target companies. Pershing Square used a PowerPoint presentation to effect change at McDonalds.

Ironfire Capital used the Internet to rally support for it's "Plan B" for Yahoo. Ironfire Capital used blogs, wiki's and youtube to rally support from frustrated shareholders. View its wiki at http://shareowneractivism.wikia.com/wiki/Main_Page

Ironfire Capital used the wiki as a tool to enable shareholders to modify the "Plan B" or make edits and revisions. The campaign for a "New Strategy" for Microsoft intended to emulate this strategy and utilize the Internet to rally support.

Prior to launching the campaign various mobile carriers were analyzed. Numerous analysts indicated that Microsoft pursuing alliances was a attempt to acquire marketshare but would fail to provide adequate revenue.

With consumer transitioning to netbooks, SaaS and cloud computing it is imparative that Microsoft examine its current business model. Analysis indicated that Microsoft is required to enter new markets to offset revenue loss in current divisions of operation.

The premise for the "New Strategy" was to primarily divert the $40 billion that was committed to share buybacks. Historically this tactic has failed to elevate the share price. Wall Street is a foward looking mechanism and recognizes that Microsoft fails to have a positive future outlook, therefore despite previously deploying $40 billion the shares still remain flat.

During initial analysis RIM appeared to be a premium and would exhaust the majority of the $40 billion. There were also two primary concerns. First, Microsoft has lost consumer and brand coinfidence as outlined by shareholder Mr. McDonald in the Microsoft SubNet article located at http://www.networkworld.com/community/node/38899

The second dilemna is Microsoft's inability to acquire assets and integrate those assets into current operations to prove viable. This argument was outlined in a Microsoft Subnet article located at http://www.networkworld.com/community/node/38350

Based on these concerns the campaign focused on Microsoft acquiring Sprint. It offered a cheaper acquisition cost and also provided guaranteed monthly subscribers and therefore a constant revenue base.

This acquisition has been abandoned. A Microsoft employee has stated " A Sprint acquisition doesn't strike me as particularly prudent, because that brand's reputation is not something MS needs right now. If they think Vista has damaged the MS brand, they really won't like what being associated with Sprint will do to the brand".

Another problem that confronts the Sprint premise was brought to this campaign's attention via Mini Microsoft and can be viewed at http://consumerist/5156740/sprint-loses-another-1.1-million-customers

The "New Strategy" involves the following:

1) Abandon share buybacks. This tactic has failed to elevate the share price.

2) Divert the $40 billion allocated to share buybacks towards acquisition growth.

3) Acquire RIM. This provides Microsoft with a popular brand and instant dominance within the handheld sector.

4) Pursue a 'search' only deal with Yahoo. This will increase Microsoft online 'search' marketshare. It will provide a stronger base for cloud computing.

Microsoft is losing share. It has for the long-term failed to create value for shareholders.

It is time for frustrated shareholders to rally support and effect change. It is time to inject the company with vision and long-term lasting value.

We can be contacted at thecrandreagroup@hotmail.com

Microsoft Requires Sprint

2009-02-10T15:01:00.000-08:00

We have mentioned in previous posts that part of this activist campaign involves the acquisition of Sprint. In the recent article by Microsoft SubNet titled "Angry shareholders say Microsoft is squandering billions on R&D" it mentions the campaigns intention for Microsoft to acquire Sprint. This article can be accessed at http://www.networkworld.com/community/node/38350

In this post we wish to further examine and explain the rationale for this acquisition.

Microsoft based its current business model on software and hardware. It has dominated OS, Server and Tools and Business Software. However, each of these divisions account for the majority of the company annual revenue.

Client (28% of revenue and 45% of income): The client segment, accounting for approximately 28% of total revenue, includes sales and marketing expenses for the Windows operating system. 80% of this revenue is from the sale of products with pre-install versions of Windows operating systems.

Server and Tools - Products for IT Professionals (22% of revenue and 16% of income): The Server and Tools segment, which accounts for approximately 22% of Microsoft’s revenue, develops and markets software server products, services, and solutions such as Windows Server 2008 and Visual Studio 2008. Approximately 45% of Server and Tools revenue comes from multi-year licensing agreements, 25% through fully packaged product and transactional volume licensing programs, and 10% from licenses sold to original equipment manufacturers (OEMs).

Business (32% of revenue and 42% of income): Microsoft Business Division (“MBD”), accounting for approximately 32% of Microsoft’s revenue, includes the Microsoft Office system (about 90% of MBD revenue) and Microsoft Dynamics business solutions. Approximately 80% of MBD revenue is generated from sales to businesses, the rest being derived from sales to consumers.

Therefore, these three company divisions equate to approximately 80% of the company revenue. Subsequently, over 3/4 of the company annual revenue is contingent upon three divisions. However, if the company continues to lose share in OS and consumers move towards SaaS both Client and Business divisions will potentially lose substantial revenue. This will prove detrimental to the company stability and ultimately shareholders.

In a previous post we referred to the potential failure of Windows 7. We outlined an article by Mitchell Ashley located at http://www.networkworld.com/community/node/37956

What is of greater interest and potential concern for Microsoft is the article by Joseph Tartakoff located at http://blog.seattlepi.nwsource.com/microsoft/archives/161740.asp
The most interesting portion of this article is the following comment from an analyst:

In an interview, IDC Analyst Al Gillen said that Microsoft's advice was unsurprising.
"What they're warning is: Don't look at (Windows) 7 as a silver bullet that makes (the) challenges of going from XP to Vista go away," he said. "Windows 7 may have a new product name but it's really Vista Release 2. That's how a customer needs to think about it."

In our last post "Apple Vs Microsoft" we stated that consumers are moving towards netbooks, cloud computing and handheld devices. Each of these trends threaten Microsoft's current business model. The company is required to transition into these sectors to remain competitive. As outlined within the Microsoft Subnet article located at http://www.networkworld.com/community/node/38350

The attempted Yahoo bid was perhaps Microsoft's bloundered attempt to secure a position within this environment. However, as argued in past posts, an affirmed by analysts, Microsoft can achieve this required strategy through a "search" only deal.

The company is also confronted with the transition to netbooks and handhelds. As mentioned within a previous post and also the Microsoft SubNet article, Citi analyst Mark Mahaney indicates that through the Verizon deal that each consumer is required to conduct 17 searches for five years for Microsoft to break even on the alliance. This fails to translate into steller revenue growth for the company. Numerous analysts predict that the multiple alliances are an attempt to secure marketshare. However, the marketshare will fail to translate into revenue which the company requires for survival. As mentioned in a previous post "Interview with Microsoft SubNet" we argue that alliances fail to provide the company with complete control of the asset. Analysts and shareholders recognise that the company cannot continue to substantially grow OS and Business. Therefore, it is critical that Microsoft seek to capture a competitive share of cloud computing, SaaS and handheld devices.

In the most recent Microsoft Subnet article Mr. Barnicle argues that the acquisition of Sprint is similar to the Comcast investment. However, we will refer to a recent article in the Wall Street Journal.

The article references that this investment was intended to be strategic. However, it failed primarily for two reasons. First, the video delivery never materialized. Secondly, the programming only occured within the Seattle area. Microsoft despite the investment failed to have complete control of the investment.

Microsoft created an alliance with Verizon and other carriers. The fundamental dilemna is similar to the Comcast investment. Although Microsoft has invested in Verizon, there is the potential that there will be a similar outcome to the Comcast investment. Despite Verizon being a strategic investment, there is a probability that it will fail to have a significant return.

It is more beneficial for Microsoft to control the investment. Therefore it is more beneficial for Microsoft to acquire Sprint than create strategic investments in other companies. If Microsoft acquires Sprint, it has complete control of the strategic investment. Therefore, if Microsoft intends to place MSN in all mobile phones it has the potential as oppossed to Verizon eventually not completing the alliance terms.

When preparing this campaign and conducting research we considered other mobile companies. We considered Microsoft pursuing RIM. However, upon further consideration we perceived this acquisition to be similar to some of the problems with the Yahoo bid.

It seems without speculating that the Yahoo bid was Microsoft's attempt to capture a larger share of advertising/search/cloud computing. The acquisition of Yahoo would have provided Microsoft with an increase in marketshare. It would have enabled Microsoft to increase marketshare from approximately 6-8% of the market to approximately 30%. This would have made the company more competitive with Google that controls over 50%. Regardless the acquisition would have reduced the margin between competitors.

The main dilemna with the acquisition was the astronomical cost to achieve marginal gain. The bid was valued at $45 billion. It would have increased the company marketshare. However, the deployment of $45 billion would have added only $7 billion in revenue. This revenue estimate is based on Yahoo annual report.

RIM, similar to numerous companies has expereinced a decline with its share price. In 2008, at the time of research prior to this campaign, the share price was trading at approximately $40 per share. This equated to a market valuation of approximately $20 billion. The company according to its annual report generated approximately $6 billion in annual revenue.

During the same period of examining RIM we reviewed Sprint. In 2008, Sprint was trading at approximately $3 per share. This provided the company with a market valuation of approximately $7 billion. However, the company generates approximately $40 billion in annual revenue. It proved more prudent to acquire Sprint than RIM. If RIM shares remained flat at the November 2008 level Microsoft would be required to spend approximately $25 billion (this equates a modest premium). The acquisition would provide Microsoft with $6 billion in revenue.

The second fundamental dilemna is the lack of consumer confidence with Microsoft. The company fails to have the same brand recognition as Apple or RIM. Therefore, if Microsoft acquired RIM, there is the potential that the investment would flounder based on consumer perception. Additionally, would RIM be able to survive and remain innovative under the ownership of Microsoft?

The acquisition of Sprint ensures that Microsoft captures 40 million existing Sprint consumers.

Based on this analysis that is confirmed through other investors interviewed for the Microsoft Subnet article, Microsoft is required to trim its R&D spending. It is still fundamental to invest in SaaS, cloud computing and handheld services. However, if the company trims its $8 billion in R&D and directs a portion towards reducing Sprint debt it would improve the value of the acquisition.

Through alliances Microsoft lacks the ability to cross-promote products. As mentioned in previous posts imagine Microsoft being able to offer the corporate client OS and Business software but also be able to offer mobile services for the consumer company executives. Therefore, current OS, Server and Tools, and Business consumers could be offered a valuable cross-promotion of mobile services for its employees. This would provide Microsoft with a powerful competitive advantage over companies such as Google.

The acquisition of Sprint provides the company with 40 million subscribers. It provides Microsoft with $40 billion in revenue. It can be acquired through current market valuations for approximately $7 billion. Microsoft can utilize cash flow to improve Sprint's balance sheet and make the company more financially stable. Additionally, it provides Microsoft with complete control of the asset.

This acquisition would enable Microsoft to accelerate its presence into the handheld sector. It would enable Microsoft to own the third largest carrier providing the company with substantial marketshare.

Acquiring Sprint is necassary for Microsoft to transition into the handheld sector. Without the acquisition there is the potential that Microsoft will fail in transitioning into this sector and securing the required marketshare and revenue to remain competitive.

We may be contacted at thecrandreagroup@hotmail.com

Recent addition:

It has been an effort and strategy to attract Microsoft employees to provide insight and analysis into the dilemna's confronting the company.

This following comment is from a Microsoft employee. It provides tremendous insight and analysis into which mobile company would prove more advantageous for Microsoft to acquire.

I visited they-who-shall-not-be-namedr's site, and it seems like they've put some thought into their analysis.

A Sprint acquisition doesn't strike me as particularly prudent, because that brand's reputation is not something MS needs right now. If they think Vista has damaged the MS brand, they really won't like what being associated with Sprint will do to the brand. Talk about a pile of customers who dislike their vendor but stick with them because they're the low-price solution... I believe Sprint has the lowest CSAT and worst reputation of any major carrier in the cellular provider industry, and tremendous subscriber churn, which would mean MS would have to get good - fast - at acquiring new customers without spending an arm and a leg (Live Search Cashback anyone?) in SAC (subscriber acquisition cost). This isn't something MS has shown themselves to be very adept at recently, in niches other than Xbox.

In contrast, RIM is a much sexier company with a good degree of loyal "addict" mindshare, which provides a more profitable moat with less price elasticity than Sprint's low-cost-provider-based moat. It would boost the MS image, even if it requires a more significant investment. And MS' recent difficulties attracting new customers wouldn't hurt as much here, because of the loyal user base and the inherent attractiveness of the RIM platform to those who consider themselves more "business people" than "technologists". Absent a telco willing to pay MS for new customers (AT&T / Apple iphone), if MS is intent on playing in the mobile space, it might be worth trying something disruptive in the market. After all, what MS has done so far hasn't been resoundingly successful.I also like RIM because they've been running a successful service business -- along the lines of the cloud computing model -- for an extended time. MS might be able to learn something from studying what they've done right.

Another reason to avoid Sprint, and Verizon as well, is that those companies use CDMA cellular technology, as opposed to the GSM technology in use in most other countries. I think MS would get more bang for the buck in an investment that is so focused on the largely-US-specific CDMA world.

And now to get this back somewhat on topic (mini msft, lean and mean). Brief web research nets that Sprint has over 50,000 employees and RIM has less than 10,000. If you had to select a sinkhole to throw cash into, with some hope of ROI, would you rather it be a sinkhole requiring 10,000 additional paychecks, or 50,000?

Consider that MS already owns Danger, maker of the Sidekick. Acquiring the Blackberry platform would mean that MS would have presence in both the "youthful consumer" and "business" segments of the cellular communication device market. This has the potential of annoying the OEMs, but consider that MS has had Danger for a while so far and has not to my knowledge lost any OEMs because of it. And RIM is far more than just the phone hardware -- it's the Blackberry service as well.

While I don't necessarily agree with everything the activists propose, I'm also not on the side of doing nothing. If these people are willing to do the work to try to get something to happen, I'm not going to stand in their way. And if they do get something to a vote, I might even vote their way, although the chances of that are much greater if Sprint is not the acquisition target.
By Anonymous, at 1:15 PM

In this post it is argued the logic of preferring Sprint in comparison to RIM. In the Microsoft SubNet article Mr.McDonald ( a shareholder since 2000..when the shares were worth approximately $36 per share) agrees that Microsoft is required to acquire a mobile company. However, Mr. McDonald prefers RIM instead of Sprint. This opinion is greatly respected and appreciated with this campaign.

The author of the above extracted comment also prefers RIM. Does RIM provide greater value to Microsoft?

Here are a couple more comments from Microsoft employees extracted from Mini:

In contrast, RIM is a much sexier company with a good degree of loyal "addict" mindshare, which provides a more profitable moat with less price elasticity than Sprint's low-cost-provider-based moat. It would boost the MS image, even if it requires a more significant investment. And MS' recent difficulties attracting new customers wouldn't hurt as much here, because of the loyal user base and the inherent attractiveness of the RIM platform to those who consider themselves more "business people" than "technologists". Your supposition regarding the possible acquisition of RIM is fascinating and I think the potential for strong synergy is obvious. In addition, considering the recent and planned layoffs at Microsoft, I can think of many Microsoft employees, present and former, who, if this acquisition successfully occurred, would probably enjoy having a RIM job, as opposed to having no job.
By Anonymous, at 4:40 PM

Another comment concerning RIM:

Anonymous at 4:40 said:I can think of many Microsoft employees, present and former, who, if this acquisition successfully occurred, would probably enjoy having a RIM job, as opposed to having no job.This member of the 1400 would enjoy having a RIM job, period. To work for a company with rabid fans as customers is an energizing, exciting career experience. Most such companies recognize the value of this rabid fan base, and actively work to not disappoint or alienate it. Yeah, there's real-world customer focus based on units sold and the word of mouth vibe, not the type where customer sat is calculated by vendor-initiated polls. Been there, done that, had fun building products that customers couldn't wait to get their hands on, and would do it again.

And to the Crandea (spelling?) people, buying RIM is not analogous to buying Yahoo. To many engineers, YHOO is a company that peaked ages ago, like Sprint is well past its prime, and is full of many people who rather actively dislike (hate) MSFT. RIM is still riding its wave, and that's why it commands a premium. It's WORTH more. The more I think about that RIM analysis posted earlier this week, the more I get where the guy is coming from.A simple metric. I'm an engineer. I would not go out of my way to apply for YHOO, even though since I'm one of the RIFfed 1400, it may eventually come to that. In contrast, RIM makes my short list and I have already made inquiries there. RIM is likely to get MSFT more raw, engineering talent as well as SaaS business savvy. The company needs more agile people who are used to working in a "make or break your P&L on your own, we're not your personal VC" way, and fewer politicians, in order to turn around.
By Anonymous, at 1:17 AM

Will it remain competitive and innovative through Microsoft ownership?

RIM has a popular brand, however, would that become instantly diminished or tarnished with a acquisition by Microsoft?

Microsoft is required to pursue a mobile company to remain competitive within the handheld sector. As mentioned, Citi analysts Mark Mahaney and other analysts agree that alliances will fail to prove advantageous and beneficial for Microsoft.

Should Microsoft pursue Sprint based on capital required for the acquisition, potential revenue and solid subscriber base or should it pursue RIM with a strong consumer base, lower revenue but high brand recognition?

Based on some of the insight from Microsoft employees, perhaps RIM is more advantageous.

Microsoft SubNet "New Strategy" Interview

2009-01-27T14:13:00.001-08:00

In our last December 2008 post, we stated that there was a development that had the potential to accelerate the 'New Strategy' campaign. In mid-December we initiated conversations with a editor of media asset to conduct a interview. We recently concluded an interview and have subsequently posted the interview within this post.

We want to thank the hard work and dedication of Microsoft SubNet. We also want to thank Julie Bort for conducting this interview.

Microsoft SubNet (question):

Who are you and what is your relationship to Microsoft?
(Do you work for the company, or used to work for the company? Do you own shares? Would you reveal how many -- or even right around how many?)

The Crandrea Group (answer):

Currently, there is no direct relationship to Microsoft. We began analyzing and researching the company shortly after Mr. Gates announcing resignation. We began researching historical share data and began writing letters to Mr. Gates. Eventually, those letters were directed to Mr. Ballmer ultimately leading to this “New Strategy” campaign.

In essence the number of shares owned is inconsequential. Management of companies have a obligation or duty to listen to shareholders but also maximize shareholder value. Historically, the misconception by numerous companies and their management is that they are only accountable to large institutional shareholders with substantial equity stakes. Management would typically ignore smaller shareholders. However, the reality, management is equally accountable to the small shareholder with $100 invested as they are to large firms with millions of shares. Perhaps this is the reason shareholder activism has increased in popularity.

Until recently, the investor of a poor performing company would stir up tension or pressure on management at an annual meeting, or led a no-confidence vote. Typically, the small investor and their concerns would go unrecognized by management.

Shareholder activism is becoming more prevalent and influential. Previously, frustrated shareholders felt the only recourse was to sell shares in a poor performing company. However, shareholder activism has gained support primarily based on small shareholders recognizing that selling shares, often at a loss, to protest or as a result of years of frustration, does nothing to effect strategy and influence management. It simply creates pressure on another investors portfolio as the company continues to underperform.

Activism is providing small investors with confidence that the only recourse is not selling shares, but, activism enables shareholders the opportunity to remind managers or executives to account for shareholders interest regardless of the number of shares owned.

Activists have engaged in various tactics to effect change. Daniel Loeb of Third Point is notorious for letters to CEO’s of poor performing companies. Carl Icahn of Icahn Partners has taken out full page ads in national newspapers to rally support. William Ackman of Pershing Square created a PowerPoint presentation and invited analysts, shareholders and reporters to the conference.

Ironfire Capital created a “Plan B” for Yahoo. Despite owning less than 100 shares, Ironfire Capital created a blog, wiki’s and a youtube campaign. The company through using the Internet was able to rally support from numerous frustrated Yahoo shareholders. This campaign demonstrated that shareholders of a poor performing company will rally support towards a valid credible idea for the company regardless of the number of shares owned by the originator of the “PlanB” or “New Strategy”

We have essentially created a tactic for activism that will integrate components from Pershing Square and its campaign for McDonalds and also Ironfire Capital with its campaign for Yahoo. We in mid-December after forwarding letters to Mr. Ballmer created a blog to rally support. We intend to utilize the Internet and rally support for an alternative strategy. We will also be creating a youtube post to attract additional attention to the campaign. Lastly, we are considering establishing a PowerPoint presentation that allows shareholders, analysts and reporters to attend.

Microsoft SubNet (question):

How long have you been a shareholder?

The Crandrea Group (answer):

I think that this seems to allude to the previous question. At this juncture we will briefly reiterate the notion that the amount of shares is not relevant. Regardless of whether it is a hedge fund with 10 million shares or a individual firm such as Ironfire Capital with 100 shares, frustrated shareholders should have the opportunity to shareholder activism and a resource to effect change at a poor performing company.

The number of shares does not certify or negate the idea. Subsequently, a large firm with substantial holdings has the ability to present a idea or plan that will fail to create value for the shareholder. Conversely, as demonstrated by Ironfire Capital a firm with a minimal holding can rally support if the idea presents an alternative from current management strategies, and the idea has the capacity to create true shareholder value.

Microsoft SubNet (question):

Why did you buy Microsoft stock?

The Crandrea Group (answer):

While conducting research, we discovered a activist hedge fund that we have previously mentioned in the interview, in May 2008, lists owning 6 million shares of Microsoft. In August 2008, the hedge fund lists owning 6 million shares of Microsoft valued at approximately $180 million. However, by November 2008 the fund fails to list any holdings. Therefore, it appears the fund acquired shares in Microsoft during the bid for Yahoo. However, after the failure of the bid, the fund sold its entire Microsoft holding. This is a multi-billion dollar hedge fund selling its shares in Microsoft. Perhaps it sold because it failed to have confidence that Microsoft management would have created shareholder value.

During a 2004 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".

Without fully evading the question I will mention an article, according to a report within the New York Times, in 2005 Mr. Ballmer stated that he had trouble selling the long term value of Microsoft even to the company’s own employees. The article indicates that he stated “ Are you buying our stock?” to a team of Microsoft executives, “All the hands were down”.

Since 2004 and the annual shareholder meeting the shares have remained relatively flat with minimal variation. There has been no real evident historical increase in share price during 2004 to 2008. Therefore, we are confident that if Mr. Ballmer asked a current team of Microsoft executives if they are buying shares, it would receive a similar response as to 2005. We are certain that all executive hands would be down, and therefore, Microsoft executives are most likely not confident to acquire shares in the company.

These facts are which have caused the creation of a “New Strategy” for Microsoft. The company has deployed $40 billion on share buybacks, it has engaged in massive R&D, it has pursued numerous acquisitions including the proposed 65% premium bid for Yahoo and have in total returned $115 billion in share buybacks and dividends.

For a period of eight years the company shares have been stagnant and within the narrow range. Despite management and its “strategy”, the shares have failed to create value. Perhaps this is why Wall Street refers to the company as a utility.

These former strategies presented characteristics that required activism and a “New Strategy” to create share holder value.

Microsoft SubNet (question):

In your opinion, besides Apple, what companies compare to Microsoft to indicate that Microsoft stock is underperforming in the same period? (Oracle? IBM? CA? Symantec? Google?)

The Crandrea Group (answer):

You ask besides Apple what companies compare to Microsoft to indicate that its underperforming. It is necessary however to briefly discuss Apple. In 2004, the company shares were trading at approximately $7 per share. By the end of 2007 the shares were trading at approximately $210 per share. Despite the current market volatility it still trades at $90 per share. This subsequently equates to an increase over four years of 1,200%. Therefore, this is a tremendous return to investors. This return is based on the current market and the shares trading at $90 per share instead of comparing returns when the shares were trading at $210.

However, based on the question we will examine other companies and there share performance within the same period. Oracle in 2004 was trading at approximately $14 per share. Prior to the market volatility of 2008 the shares where trading at $24 per share. Within that period the shares primarily display an upward momentum. Therefore prior to the downward trend of the market, Oracle increased shareholder value by 58%.

You mention Symantec, it has demonstrated a decline, however, you also reference IBM. This particular company in 2004 was trading at $100 per share. Prior to 2008 the shares where trading at approximately $135 per share.

The software company SAP AG during 2004 was trading at $40 per share. It has displayed more movement than Oracle, however, prior to the market volatility it was trading at $60 per share. This reflects a return of 66% within the four year period.

However, Microsoft in 2004 was trading at approximately $25 per share. During the four year period there is minimal variation. There is a minor rally during the start of 2008 during the initial announcement of the Yahoo bid, however, there is then a exodus of shares being sold and a subsequent downward trend. Since the Yahoo bid, the shares have remained in a downward trend. The rally occurs for approximately 3 months and increases to approximately $40 per share. Despite this minor rally, the shares for a four year period remained at approximately the same level of $25 per share.

To further examine Microsoft, after the dot-com melt down Microsoft shares went from a high of $60 per share to a level of $25 per share. The company grew revenue and earnings, we will not argue this reality, however, despite the growth the shares remain flat. Typically, if a company was experiencing double-digit growth it would be reflected in the stock price. However, Wall Street and the typical investor has not witnessed the price moving towards $60 per share. This is the level that the shares should be trading, however, despite growth, despite dividends, despite buybacks, it has failed to elevate the share price.

Microsoft SubNet(question):

You note Microsoft's failed attempt to buy Yahoo as a poor decision regarding how to spend its capital. That deal didn't actually go through, as we all know, but what are your thoughts on other Microsoft acquisitions over the past few years? Tellme (2007), for instance, seems particularly promising as does DATAllegro in 2008.
What kinds of technologies would you like to see Microsoft buy?What do you think the problem is between buying a promising technology and showing Wall Street how that buy indicates growth potential?

The Crandrea Group(answer):

The Yahoo bid failed to display any real rational planning. According to reports, in an annual analysts meeting during mid 2007, Mr. Liddell and Mr. Ballmer inform analysts there is no intention of Microsoft acquiring Yahoo. Microsoft management state they are “organic-minded”. Management during this meeting with analysts indicated that there wouldn’t be a large acquisition within the online sector. However, less than one year after the announcement at the analyst meeting ,Microsoft introduces a bid for Yahoo.

Perhaps the most perplexing issue, regardless of the rapid change in strategy, the company offered a 65% premium bid for Yahoo valued at $45 billion. First it demonstrates a company uncertain of its own strategy. To change direction and pursue a strategy that you initially stated wouldn’t happen, displays characteristics of a company uncertain of its own long-term strategy. Secondly, it offers a 65% premium for a company that it previously stated it would not acquire. The bid equated to $45 billion for a floundering company. This is perhaps the reason that charts display a massive sell-off with Microsoft shares after this announcement. Numerous shareholders felt it was a massive expenditure that would fail to create shareholder value.

In regards to other acquisitions it’s difficult to forecast the value of the acquisition and how that will translate into revenue growth for the company. You mention the acquisition TellMe. According to reports, Microsoft acquired this particular company in 2007 for $800 million. It is interesting to note that prior to the acquisition there were rumors that in 2006 Google was seeking to acquire TellMe.

With TellMe, perhaps Microsoft intends to use it for competing with Google. There is the potential that Microsoft intends to use TellMe mobile search ability, with voice recognition mobile users may have the ability for speech queries. Maybe Microsoft intends to use it to create a competitive SaaS communications service. The difficulty is determining, if Microsoft will be successful in using that $800 million acquisition to create market share and revenue growth.

In 2001, Microsoft spent approximately $1 billion to acquire Great Plains Software. This acquisition was to compliment the Microsoft Business Solution division. According to Microsoft Annual Reports, in 2002 this division had revenue of $300 million.

In 2002, Microsoft spends $1.4 billion to acquire Navision. According to Annual Reports this translates into annual revenue in 2003 amounting to $567 million. By 2004 this division included Microsoft Great Plains, Microsoft Navision, Microsoft CRM, Microsoft Axapta and Microsoft Solomon. The entire division generated annual revenue in 2004 amounting to $667 million. This revenue growth is based on Microsoft spending over $2 billion to acquire both Great Plains and Navision. It also incorporates Microsoft spending $5.2 billion on R&D in 2001.

It spent in 2002 $5.8 billion on R&D. In 2003 the company spent $6.4 billion on R&D. Despite this massive spending it translates into increasing revenue in this division by $300 million.
Perhaps this is the underlying dilemma with Microsoft. Historically it is engaged in numerous acquisitions within each fiscal period. However, it is difficult to ascertain how each acquisition compliments current Microsoft operations, increases market share and creates revenue growth. Microsoft engages in numerous acquisitions annually to acquire companies to enhance each Microsoft division. It acquires companies for Microsoft Business, Online Services, and mobile services.

Since 2002, Microsoft has deployed approximately $12 billion on numerous acquisitions for each division of operation. In 2002 the company had annual revenue of $28 billion. In 2007 Microsoft generated $51 billion in revenue. One could argue that the company within this period experienced double-digit growth. However, from 2002 to 2008 revenue grew by $23 billion. We could argue that the company almost doubled revenue. However, in this period it spent a minimum of $12 billion on acquisitions. That means the acquisitions combined only added $11 billion in revenue. This fails to equate the massive R&D expenditures within the same period.

Therefore, its difficult to interpret how much each acquisition will benefit Microsoft. Based on the deployment of capital it fails to translate into stellar growth.

We are not opposed to Microsoft acquiring technology. However, the historical dilemma with this strategy is the inability to translate the technology into market share, revenue growth and shareholder value. If we look at the amount of R&D deployed to improving online services and the number of acquisitions in this sector, such as search technology, the company has displayed very minimal revenue growth.

It is common knowledge that Mr. Gates is friends with Warren Buffet, The Sage of Omaha. During a annual meeting Mr. Buffet once commented that Berkshire’s $30 billion in cash was a inefficient utilization of capital. Microsoft currently has $25 billion in cash. It also generates $20 billion in net income. Microsoft in 2004 stated that it was going to engage in share buybacks. It has recently announced a similar strategy of deploying $40 billion through to 2013 on share buybacks. We believe that this is waste of capital.

Instead of acquiring technology that will provide incremental growth or instead of pursuing share buybacks, our “New Strategy” involves acquiring companies that will enhance revenue. We don’t feel that Microsoft should be content with pursuing acquisition of technology companies within the mobile services sector that might enhance revenue, and might increase market share , when the company has the ability to acquire a mobile company.

Within our blog we make reference to an article that refers to Google acquiring Sprint. This would have the capacity to enable Google to rapidly secure a substantial market share with mobile services. Microsoft has historically pursued various alliances including Sprint. Microsoft has the capital resources to acquire the company. Rather than being content with alliances it should acquire a major mobile services company. This would create tremendous revenue growth. It would create cross-promotion synergies and increase the company brand. Therefore our strategy involves diverting capital from technology acquisitions and acquiring companies that enable Microsoft to use existing technology and products to enhance brand awareness.

Microsoft SubNet (questions):

Do you advocate the restructuring of Microsoft's top offices such as getting rid of Steve Ballmer or Kevin Turner? Why or why not?

The Crandrea Group (answer):

Typically, I believe that activists prefer to work in conjunction with management to enhance shareholder value. However, there has been occasions when the activist campaign has sought the resignation of management.

We are aware that Relational Investors influenced the resignation of the CEO of Home Depot. We are also aware that Ironfire Capital was seeking the resignation of Terry Semel.

As mentioned, we initially began forwarding letters to Mr. Gates stating that as company founder and Chairman it was imperative to ensure that shareholder value was created before his final resignation. We stated that the company required a “New Strategy” before his retirement. However, each letter was dismissed.

This resulted in letters being forwarded to Mr. Ballmer. We were in essence following a tactic similar to Daniel Loeb of Third Point and were forwarding letters to the CEO. However, each of these letters where dismissed leading eventually to our email from Investor Relations.

Now we understand that Mr. Ballmer as with many CEO’s is busy. However, hypothetically, if a fund manager of a company such as Fidelity forwarded a letter to Mr. Ballmer and cited certain issues, there is a high probability that it would translate into a phone discussion. We appreciate; that CEO’s cannot respond to every shareholder concern, however, as mentioned this is perhaps the reason activism is gaining in popularity. CEO’s seem to only respond to concerns from large institutional shareholders. However, the individual that has taken their retirement and invested into a company is disregarded and they are forced to watch their nest egg diminish in value.

Based on the history of Microsoft and its inability through current management to create shareholder value, we certainly have concerns with current management and Mr. Ballmer. We have to agree with a former article by NetworkWorld concerning Mr. McDonald. He notes that a company with 90% of the operating system market share should be able to enhance shareholder value.

As acknowledged by Mr. Connors and Mr. Ballmer the shares have for long-term been stagnant. The company management has failed to create any long-term shareholder value. Based on this fact, we have to state that Mr. Ballmer should be replaced by a CEO that will create value.

We have to concur with Mr.McDonald when he states that Microsoft requires new leadership that will inject strategy and increase brand awareness. Based on reports and data, Mr. Ballmer has failed to accomplish this task. Mr. Ballmer has failed to articulate strategy to shareholders and analysts. He has also failed to elevate shareholder value. During his tenure he has presided over massive spending, poor decisions and ineffective execution of plans to create shareholder value. Despite stating at a 2004 annual meeting that the success of the company strategy will ensure the shares will take care of itself, shareholders have failed to witness a return. Therefore, after eight years of poor share performance, it is time for a new CEO.

Microsoft SubNet (question):

Microsoft committed to spend $7.5 billion in R&D overall in 2006 (not sure the 2008/2009 numbers) with Windows Live (its cloud computing initiative) being a major target for those funds and MSN another target. Microsoft has unveiled lots of online services, many of them competitors to other services that exist, and a few original ones. But without a strong advertising base, or without being able to convert its software buyers into service subscription buyers, it has limited avenues to profit from these new services. Wouldn't it make sense, then to directly try and build out an ad base? Where is Microsoft failing in this strategy and what would you suggest it do to fix that?
(You say, based on input from your MS developer source that Microsoft is squandering its R&D funds mostly on ineffective management of people/salaries.)

The Crandrea Group (answer):

During 2007, Apple spent $782 million on R&D, Oracle spent $85 million while Microsoft spent $8 billion. In 2007, Apple annual revenue amounted to $24 billion and net income totaled $3.5 billion. According to 2008 Annual Report, Apple increased revenue to $32 billion and net income to $4.8 billion. During the same period Microsoft spent $8 billion on R&D and increased revenue from $51 billion to $60 billion. Therefore, Apple has a R&D budget that equates to approximately 10% of Microsoft’s, however, during this period Apple increases revenue by $8 billion and Microsoft increases revenue by $9 billion.

However, if we look at the online sector, Google in 2005 and 2006 spent approximately $1 billion annually on R&D. In 2007, the company increased R&D to approximately $2 billion.
In 2005, Google had online advertising revenue of approximately $6 billion. In 2007, advertising revenue has increased to $16 billion. In the same period, market share has increased from approximately 30% to exceed 50% currently.

As you mentioned, in 2007 Microsoft spent $7.5 billion on R&D. In both 2005 and 2006 the company spent approximately $6.5 billion in each period.

In 2005, Microsoft generated online advertising revenue of $1.5 billion. In 2007, Microsoft reported revenue of $2 billion.

In 2005, Microsoft controlled 8% of the market share. In 2007, it appears that it had declined to approximately 6% market share.

Despite a larger R&D budget, Microsoft has failed at increasing annual revenue and obtaining market share. Google within this period has increased revenue by $10 billion and increased market share by 20%. However, within the same period, Microsoft has increased revenue by $500 million and potentially has lost 2% market share.

Yahoo within the same period has been able to increase advertising revenue from $4.5 billion to $6.5 billion in 2007. However, it has lost minor market share to Google, and currently controls approximately 20%.

Online advertising amounted to approximately 5% of Microsoft’s 2007 annual revenue. Therefore, compared to operating systems it is still a small contributor to overall company revenue generation.

Google according to reports controls approximately 60% of the search market. Therefore, currently Microsoft is failing to compete within this category.

As we mentioned earlier, Microsoft has deployed billion towards R&D in this sector. It has pursued numerous acquisitions including Motionbridge, Medstory and jellyfish. Most recently it acquired Fast Search and Transfer for over $1 billion.

It also acquired Onfolio which was integrated into the Windows Live tollbar. However, by 2008 Microsoft announced that this was discontinued.

Perhaps the solution is very simplistic yet the most logical. For several years the Detroit Big experienced the luxury of revenue growth and everyone in North America and globally wanted their products. However, eventually they began to experience this decline in consumer demand and revenue. The Big 3 were losing market share to companies such as Honda and Toyota. I believe that it was Ford that discovered the solution. They created an initiative of asking customers what they wanted. They compiled information and began to make products the way consumers suggested. Rather than taking the approach of introducing a product and forcing the customer to accept it or go to a competitor, the company started a strategy of “here is what the customer requested” and here is the product.

When we began our research we found comments on blogs from Microsoft employees. They stated that money is wasted on R&D through process but also that the company is essentially having a mentality of telling the customer the products and services the company has created in its R&D labs.

Microsoft has pursued R&D and acquisitions in an attempt to remain competitive. However, as mentioned, despite these initiatives Google has increased advertising revenue and obtained more search market share. Metaphorically, Google is to Microsoft what Toyota was to Ford.
Microsoft needs to stop telling the company what it wants and start asking what the customer wants. It is very ironic and yet a very sad commentary that Microsoft is a company that sells CRM software to clients. CRM software is designed to build lasting customer relationships and translate satisfaction into customer loyalty. Therefore, Microsoft offers Microsoft Dynamics CRM to clients, however, Microsoft’s largest detrimental dilemma is its lack of ability to create relationships with its consumers and translate customer relationships into satisfaction and ultimately into customer loyalty.

It is common knowledge that Microsoft is failing at creating customer satisfaction and customer loyalty. It is losing consumers in operating systems based on a failure to create satisfaction which leads to lack of customer loyalty. Reports indicate that Vista despite five years of development and billions in R&D was a failure. It is losing customer satisfaction with MSN to Google and therefore losing loyalty.

The simple solution to a large portion of the company dilemma is begin to examine CRM. The question we would present to Microsoft is although you are selling CRM software to clients are you taking a portion of that revenue and using it to purchase your own CRM software?

Based on its failure to maintain customer satisfaction and loyalty it appears evident that the answer to the question is “NO”. Microsoft’s number one priority at this critical time should be focus and concentration on CRM. If it continues to fail at this task despite its efforts at R&D and acquisitions shareholders will witness the same historical results. The company will continue to fail at securing customer satisfaction and loyalty without taking the required attitude of “what do consumers want”.

The company should start asking its corporate clients that perhaps use its operating system “what would it require for you to advertize on MSN?”

It should begin asking consumers “what would you want to see product and service wise to have you use MSN for search”?

By becoming more focused on the consumer and becoming CRM minded and efficient, Microsoft would obtain the ability to respond to the consumer, it would develop relationships with clients that would ultimately translate into consumer satisfaction and consumer loyalty.

Despite that being said, we are also advocating a “search” deal with Yahoo. We don’t advocate a full acquisition of the company. Numerous analysts have argued that a “search” only deal could accomplish what an entire acquisition was going to achieve.

With a search only deal Microsoft has the ability to enhance market share and become more competitive with Google. The combined “search” would provide MSN with approximately 30% of the market share. This will substantially narrow margin between Google and MSN.

However, we want to revert to the CRM dilemma. This ‘search’ deal will fail to have the same results if Microsoft pursues the deal without focusing on CRM. If it fails at the CRM approach it simply equates to another deployment of capital that may still result in losing market share to Google. The most integral component to any pursuit to enhance share and revenue is to become CRM focused. Failure to adopt this approach will result in the company potentially losing additional share to Google.

Microsoft SubNet (question):

You have issues with the Verizon deal, indicating it would require each user to conduct 17 searches on their phones in the next five years. And it also seems that you are advocating that Microsoft acquire Sprint (with concern that Google would acquire it instead) instead of make partnership deals with Verizon. Sprint is a mess ... if this a core concept of your new strategies agenda, can you explain how such an investment would be good in 2009, when other large scale investments in the tech industry have not panned out?

The Crandrea Group (answer):

Microsoft has spent tremendous capital to enhance its mobile division. However, despite this spending it still struggles to remain competitive with iphone and RIM.

According to Citi analyst Mark Mahaney, Microsoft is required to have each Verizon customer conduct 17 searches per month to break even on the deal. Additionally, Microsoft is required to pay Verizon approximately $600 million over a five year period. Based on this alliance we are uncertain if the capital deployed will translate into sufficient market share and revenue growth.
Forming an alliance or partnership is more problematic than acquiring a company. When you acquire a company you are aware who is in charge of the overall strategy. You are also aware of who owns the asset. However, with alliances, it’s influence not authority that governs the partnership.

Alliances also require both companies to posses the same vision and long-term strategy for the market. It requires sharing information and process. For example, one partner selling process may need to link to another partner service process.

However, as mentioned, the dominant issue is control. Through alliances, a partnering company fails to have overall control of the alliance. It lacks control over strategy, deployment of finances, and other integral issues.

Therefore, with the Verizon deal, Microsoft fails to control the overall direction, strategy, financial stability of Verizon. However, through acquisition the company has full influence and command of these elements.

Microsoft has the financial capacity to pursue a acquisition of a mobile service company. Partnerships or alliances potentially lack the same ability to create revenue as acquisition growth. The argument, does the multiple alliances have the same capacity for revenue growth as a full acquisition?

Sprint is a company that according to 2007 Annual Reports generated $40 billion in revenue. As mentioned, do alliances with multiple companies provide Microsoft the potential to generate $40 billion in additional revenue?

Sprint currently has approximately 40 million mobile subscribers. This would provide Microsoft with direct access to these subscribers.

We believe that current market conditions create the optimal opportunity to pursue acquisition growth. During the dot-com meltdown, numerous viable companies lost tremendous market value. There where obviously several companies that evaporated based on poor business models, however, there where still numerous viable companies trading at record lows. This created premier opportunity for companies such as Microsoft to pursue growth through acquisition.

Numerous analysts and other company executives have indicated that with the market at record lows it creates tremendous opportunity for companies with strong financial positions to utilize the market and accelerate growth. Sir Richard Branson stated during a CNBC interview that Virgin Group will pursue acquisition growth and emerge from the market volatility stronger financially.

Sprint based on current market volatility is trading at approximately $3 per share. The company has a market valuation of approximately $7 billion. However, in June of 2007, the company shares were trading at $24 providing the company with a market valuation exceeding $50 billion. This provides Microsoft the optimal opportunity to acquire a viable operating company at an extreme discount.

Microsoft has announced its intention to deploy $40 billion in share buybacks. Historically, this strategy has failed to create shareholder value. Our “New Strategy” involves Microsoft spending capital to accelerate revenue growth through acquisition. Through its current strategy of deploying $40 billion on share buybacks, there is the potential that the capital will fail to create shareholder value. It will also fail to create revenue growth. However, through the “New Strategy” Microsoft can acquire a major mobile services company. It can add $40 billion in annual revenue. It can divert the $40 billion in share buybacks to eliminate Sprint company debt.

If Google proceeds into this acquisition, the potential impact on Microsoft and its revenue growth and market share is beyond measure. Therefore, it is more effective for Microsoft to acquire a valuable asset at a discount that will directly enhance revenue and help propel market share within the mobile sector.

The acquisition provides Microsoft with complete control of the asset. It also provides Microsoft the opportunity for synergies with existing Microsoft technology and current Sprint technology. As mentioned, it also provides Microsoft with direct access to 40 million subscribers.

The Sprint acquisition creates opportunity for greater potential. Through the current strategy, in 2013 the company will have spent $40 billion on share buybacks. It will have spent an additional approximately $40 billion on R&D. At that time what will mobile services market share be?

The other question is how much will annual revenue equate to?

However, through the “New Strategy” and the acquisition of Sprint, Microsoft spends $7 billion to acquire a company that was previously valued at over $50 billion. It secures control of the asset. In 2013 it has combined revenue of at least $100 billion based on annual reports.

Microsoft SubNet (question):

What do you think of Microsoft's first-ever issue of commercial paper? Good or bad for the company's growth prospects?

The Crandrea Group (answer):

Although the commercial paper has obtained a triple A rating from Standard and Poor’s, the concern is the statement within the Microsoft website. The company within its website contains an article referring to the 2008 announcement. However, it states that the paper might be used for the repurchase of shares.

As you have probably realized we are not supporters of the share buyback strategy. The company in 2004 announced this initiative. It through the period of four years spent $40 billion on share buybacks. Despite, strong economic growth prior to the market volatility of 2008, the company initiative failed to create any shareholder value.

Therefore, despite deploying $40 billion in capital for share buybacks, the shares remain stagnant at the same level as in 2004 when it began the program. This was obviously a failed plan and therefore shouldn’t be pursued again. This strategy will simply prove to be detrimental to long-term shareholder value.

The company is required to abandon this strategy of share buybacks and divert the capital towards plans or initiatives that create true long-term value. We understand that buying back shares reduces the shares outstanding and therefore increase earnings per share. However, both Warren Buffet and a 2007 Standard and Poor’s study are opposed to share buybacks. Mr. Buffet states that it penalizes the long-term shareholder when repurchases are above the intrinsic value. He states that its poor business to buy a dollar for a dollar and ten cents.

However, spending your capital to buy back stock also indicates that you have no ideas for using that capital to build your business, and are instead converting it into value for shareholders, including executives and employees holding options (the opposite of diluting your stock by creating new shares).

Essentially, Microsoft is doing what Dell thought Apple should have done ten years ago: shut things down and give the money back to shareholders.

If Microsoft had any implementable ideas, it would be using that $40 billion to make more money, just like Apple has used its capital to rapidly expand its business while earning more cash on hand. Apple isn’t buying back its stock because it thinks it can make more for investors building new business than it can by simply giving the money back. As a result that has translated into a 1,200% return to investors within four years.

Typically, companies engage in share buybacks when no compelling growth opportunities can be recognized. Therefore, the only strategy that Microsoft management can perceive is to use tremendous amounts of capital to penalize long-term shareholders instead of deploying capital to increase business services, product mix, revenue growth, market share and ultimately shareholder value.

If Microsoft however uses debt to pursue growth then we certainly support the strategy. Microsoft currently generates approximately $20 billion in net income. Therefore, financially it is secure to use debt to pursue business growth. Instead of pursuing share buybacks the company should use the debt to accelerate growth and create shareholder value.

Since the Yahoo bid failed, we are uncertain as to how the deal would have been structured. However, if Microsoft was seeking to spend $45 billion for Yahoo, it should be willing to utilize some debt and accelerate revenue growth through acquisition when companies are trading at record lows.

Microsoft SubNet (question):

The company has been growing top line revenue -- it hit $60 billion last year and profits have also been inching up. Is it fear that Windows is dying that is keeping Wall Street from seeing Microsoft as a good long-term bet?

The Crandrea Group (answer):

Microsoft has been often referred to by Wall Street as a utility. Wall Street has stated that it displays characteristics reflective of a utility, it can provide dividends, however, it lacks growth potential.

In 1999 Microsoft reorganized and defined its operations into five main categories. According to its Annual Reports, these consist of Client, Server and Tools, Microsoft Business Solutions, Online Services and Entertainment and Devices.

Of these divisions, the greatest revenue generators are Client, Business, and Server and Tools. However, the strongest rates of growth are in are Entertainment and Devices, with Server and Tools placing a distant second.

80% of Microsoft's revenues come from sales of Windows, Office, and Server & Tools (used by IT professionals to manage groups of users), but while revenue from these products is steady, it is slow-growing, at a 15% percentage change in revenue year over year. In contrast, Microsoft's Online Services and Entertainment divisions had over 30% year over year growth in 2007, and the company has sought to emphasize these divisions in its future plans even while these groups are not yet the major source of the company's profitability.

The client segment, accounting for approximately 28% of total revenue, includes sales and marketing expenses for the Windows operating system. 80% of this revenue is from the sale of products with pre-install versions of Windows operating systems.

In 2008, revenue growth was primarily contributed by an increase of licensing Microsoft Office, increased sales of Xbox, and increased sales of Windows Server and SQL Server.

80% of Microsoft's revenue comes from software sales, primarily MS Office and MS Windows - both of which are packaged with a PC. A slow-down in PC purchases in most developed countries means a decrease in profit growth for Microsoft as well.

Another trend is the increase in popularity of netbooks. This innovation has replaced laptops, and many corporations are acquiring netbooks as opposed to desktop computers. This equates to a reduction in licensing revenue for Microsoft. These computers are more targeted towards web-based applications or “cloud computing”. The growth of SaaS means there is more competition for traditional Microsoft products like Microsoft Office. Browser-based software represented approximately 5 percent of business software revenue in 2005 and, by 2011, 25 percent of new business software will be delivered as SaaS.

Although shareware, open-source, or low-cost alternative software (like Google Spreadsheet), and Open Office by Sun Microsystems, are still several years away from the security and functionality most businesses need, analysts agree that software will continue to move towards these browser-based models in the long term. Microsoft is taking steps to benefit from this trend itself, starting with the release of a new version of its Microsoft Exchange Server that is available on demand. Furthermore, the next Office suite will be available as On Demand on the Internet.
Microsoft also experienced a dramatic negative response with its 2007 release of Vista.

Numerous reports indicate that the majority of consumers have remained with earlier versions of Windows, such as, XP and 98. This has caused a decline in revenue for the company, and an exodus of Windows users to other platforms.

Therefore, Microsoft is confronted with competition within its operating systems revenue generation. Oracle is a threat based on its support of Lintel. Google is poised to offer a threat based on its expanding into browser based applications.

Windows market share, while still above 90%, has fallen . And others, particularly Apple, have been steadily gaining share. Consumers have voiced dissatisfaction with Microsoft and subsequently an exodus to competitors has impacted Microsoft. More importantly, Microsoft has begun to relinquish undisputed technical leadership in desktop Operating Systems , the core of what the company does, to Apple.

The reality is the market sees Microsoft losing its grip on computer users and having nothing to take its place when those users start leaving. Wall Street and analysts are looking forward and sense that at Microsoft there's a greater chance of losing market share than gaining market share. Subsequently, the market reflects this fundamental truth in the value that investors are willing to pay for the stock.

Microsoft SubNet (question):

Given what we know about the current financial crises, are you still advocating that Microsoft acquire a large bank? Isn't banking a bit outside the core compentencies of a software maker?

The Crandrea Group (answer):

Yes, we are still advocating that Microsoft acquire a large bank. Numerous companies have expanded into offering financial services. We mentioned earlier Sir Richard Branson and the Virgin Group of Companies. This is a company that has continued to expand its product mix and services. As a subsequent result, the company has continued to propel revenue growth and value.

The Virgin Group offers within its product mix, Virgin Airlines, Virgin Mobile and Virgin Money. Through Virgin Money, which is its financial division, the company offers services primarily through alliances with other banks. Through this initiative it offers credit cards, loans, mortgages, insurance and savings accounts. Although Virgin Group is a private company and therefore financial data is not available, the company has introduced various services that have been utilized by consumers and increased revenue for the company.

In Canada, both Loblaws and Canadian Tire have launched financial services to the consumer. The company Loblaws is a chain of grocery stores and Canadian Tire is a retailer. Both of these companies have experienced an increase in revenue and profits based on the introduction of these services.

One could argue, isn’t financial services outside the core competency of a grocery chain? However, the company has created revenue growth and manages a credit card receivables portfolio worth billions of dollars. The primary benefit of Loblaws is its ability to offer “rewards” above conventional banks. Consumers that utilize the financial services obtain “rewards” that can be redeemed towards free groceries. This “reward” system has resulted in numerous consumers switching from conventional Canadian banks such as RBC or TD to utilize Loblaws and its PC Financial.

Canadian Tire offer consumers a similar service. However, the primary difference between Canadian Tire and Loblaws is that Canadian Tire has established a actual bank while Loblaws has an alliance with CIBC. The bottom line is that consumers utilize financial services from both companies that are operating outside their original core competency. Additionally, it has enabled both companies to expand the product mix and propel revenue growth.

Within our website we make reference to Jack Welch and GE. During Mr. Welch’s tenure the company expanded beyond its core competency and entered financial services. As a result, this division equates to generating more than half the company annual revenue. The company has evolved from primarily a technology company to a conglomerate that provides financial services. This transition enabled the creation of tremendous shareholder value. Additionally, this division still experiences growth and an increase in annual revenue.

As previously discussed, Wall Street perceives Microsoft losing revenue and market share within its operating system division. It recognizes that currently Microsoft has nothing to replace the potential decline in revenue and growth potential. Therefore, Microsoft is required to re-examine its business model. In today’s rapidly changing environment its imperative that companies constantly examine their business model. Microsoft once had a powerful business model and was demonstrating growth. However, its confronted with free software, web-applications, and competition from Oracle and Apple.

Microsoft was seeking to spend $45 billion to acquire Yahoo. This expenditure was a strategy to enhance its online business and create additional revenue.

The company is also seeking to deploy $40 billion on share buybacks. As mentioned, this is a strategy that is a tremendous waste of capital and fails to create any true shareholder value.

Our “New Strategy” involves acquiring a major bank. As mentioned within our website, we initially considered the probability of this strategy and discovered that it has proven viable for other companies.

Microsoft could potentially enter financial services in a strategy similar to Virgin Group, or Loblaws, and partner with a major bank. However, as mentioned, the company was seeking to deploy $45 billion to acquire Yahoo. Our “New Strategy” involves deploying less than the Yahoo bid to secure an acquisition of a major bank.

We present the same argument for acquiring a major bank as with the argument for acquiring a mobile company. The current market volatility presents companies trading at record lows. This enables strong financial companies to maximize this market condition and acquire assets at a extreme discount.

Although the market is displaying volatility and companies are trading at record lows, similar to the dot-com crash, there are still viable companies trading below their true value. Therefore, this creates opportunity for acquisition.

Although the market is displaying volatility, numerous analysts have stated that since banks have reduced their lending and have become more cautious is lending that during this period numerous banks will actually have substantial earnings. Several analysts based on this reality are stating that during the current market conditions that banks still present opportunity for a investment and possible increase or return on the investment.

Our “New Strategy” involves Microsoft deploying capital that is less than the proposed Yahoo bid. With current conditions it can deploy less than $45 billion to acquire a major bank, a mobile company and potentially a “search” deal with Yahoo. Therefore, instead of spending $45 billion to acquire just Yahoo, it can spend $45 billion to acquire a major bank, mobile company and increase its online division with a deal with Yahoo.

Our “New Strategy” involves examining other companies that have introduced financial services and the benefits it provided for the company. As mentioned, it increases product mix and revenue growth.

Our “New Strategy” ultimately creates long-term vision for the company. Wall Street sees Microsoft losing its revenue and market share in operating systems with nothing to replace this depletion. Microsoft currently has numerous commercial clients. Suppose Microsoft could offer that company operating systems for its computers. However, since Microsoft owns Sprint, it can offer the same client mobile services for its employees. Microsoft also owns a major bank, therefore it can offer the same commercial client loans to acquisitions or restructuring, it can offer mortgages for acquisition of property, it can offer company credit cards, it can offer fleet car insurance for the client, it can offer medical insurance for the client’s company employees. Subsequently, Microsoft becomes the clients software provider, mobile services provider, financial provider, and insurance provider.

As a client, would you choose a conventional bank or Microsoft with the additional services. Or as a client would you choose a competitor of operating systems, or would you utilize Microsoft to obtain access to financial services and mobile services. This cross-promotion has proven beneficial for Loblaws, Canadian Tire and Virgin Group.

Although we are in a financial crisis, the economy will emerge. Depending on the economists we wish to believe that will occur in 2009. Therefore, it is logical for Microsoft to utilize its cash and the current market and increase its product mix, and subsequently potentially offset the decline in operating systems, and enhance revenue growth.

Microsoft SubNet (question):

Phone carriers like Sprint/Nextel face issues because of market saturation and the decreasing value per minute that they can bill. Carriers are in a declining industry, which means their consolidation is a natural function of the market, so it is hard to see why buying one is better than partnering with several. What kinds of mobile services would you like to see Microsoft create and why does controlling the carrier matter?

The Crandrea Group (answer):

Without reiterating to a large degree, acquisition is better than creating multiple alliances. As previously discussed, alliances restrict direct control and create more difficulty than direct acquisition. As mentioned, with an alliance it is influence and not authority that governs the partnership.

You mentioned consolidation. We make reference to consolidation within our website and discuss that consolidation would benefit Microsoft. It enables Microsoft through the Sprint acquisition the opportunity to acquire additional mobile companies to increase market share.

Suppose that Microsoft creates multiple alliances. It creates alliances with both Company A and also Company B. Both of these alliances are created by Microsoft to increase its brand awareness and propel revenue growth and market share. However, after years of negotiations,(reports indicate the Verizon deal required two years), Company B is acquired and consolidated into Company A. What type of effect does that have on the alliance?

As previously mentioned, acquiring Sprint enables Microsoft to have complete control and authority of the asset. Without complete ownership an alliance company can make a decision that will directly impact Microsoft. Perhaps Company A seeks to consolidate with Company B. However, that acquisition creates financial pressure on Company A since its utilized to much debt. Microsoft through an alliance has no direct authority over this alliance based decision.

Since our “New Strategy” involves acquiring Sprint, it enables Microsoft to utilize its cash flow and improve Sprint’s balance sheet. Since Microsoft would own Sprint it can use its profits and net income to be injected into Sprint.

With direct ownership of Sprint, it can also utilize its cash to eventually pursue consolidation within the telecom sector. Sprint is currently the third largest behind Verizon and AT&T. There is the potential for Microsoft to increase revenue growth potential and through Sprint acquire smaller mobile companies.

As mentioned in our website, Microsoft should not be content with alliances that will create incremental revenue growth when it has the capacity for acquisition growth. Sprint according to its annual report generated $40 billion in revenue. This revenue would subsequently be added to Microsoft’s annual revenue.

Therefore our primary argument against alliances is the amount of value that will actually be created. The Verizon deal involves a five year alliance. However, in 2014 what will be Microsoft’s annual revenue through this alliance and how much market share will be achieved. We have to agree with analysts and predict that the actual impact of this alliance will be minimal.

Our argument that through acquisition of Sprint, in 2014 what will Microsoft be generating in annual revenue. It has the capacity to acquire Sprint, a $40 billion a year revenue generating company. It has the capacity to pursue additional acquisitions within this sector. Therefore, in 2014, through the acquisition of Sprint, and potential consolidation will revenue growth exceed the current $40 billion.

The acquisition provides the company opportunity to enhance it mobile services. It enables the company to offer consumers, web based application on handheld devices. It enables the company to add $40 billion in revenue. It also provides the company with opportunity for additional acquisition.

The main reason for the campaign and “New Strategy” is as mentioned we observed the historical company share performance. We reviewed and researched the company plan and strategy. We analyzed the results of the “strategy”. We reviewed reports from consumers, shareholders, analysts and reporters. We recognized that the company requires a “New Strategy”.

The dilemma is that Microsoft has committed to continue with its “Old Strategy” that has proven to have no real success. It is losing market share, losing consumers and failing to create shareholder value.

The “New Strategy” abandons share buybacks. This has failed to elevate the share value. It capitalizes on current market conditions and accelerates growth through acquisition.

The reality, Microsoft can continue with its current “Strategy” and it is difficult to predict the effect this will have on the company. Based on passed performance it will fail to obtain market share, will loss more consumers, and fail to elevate the share price.

With the “New Strategy” it leverages its cash position and debt rating, exploits the current market conditions and pursues growth. It acquires valuable assets at a discount. The company has the potential to create initiative that will provide it with revenue growth that will create a company with $300 billion in annual revenue and $30 billion in net income. This fails to factor the value that cross-promotion and consumer loyalty will create overall for the company.

The complete article by Microsoft SubNet can be accessed via http://www.networkworld.com/community/node/37991

In our last post we included various comments from Microsoft employees extracted from other blogs. We want to briefly follow a similar pattern.

Listed below are some comments from Microsoft employees taken from the comments section of the Mini-Microsoft blog dated January 22, 2009 and titled "Microsoft Layoff-Now What?".

It is located at http://minimsft.blogspot.com/2009/01/microsoft-layoff-2009-now-what.html

This post obtained over 600 comments. Obviously we will not post every comment. However, below are a few of interest.

A Microsoft employee states:

5000 is laughable. Wall St. was expecting to see more as a buffer to the poor earnings. And now the street is reacting. I should have shorted MSFT. I left 8 months ago and am so glad. Frankly, I can't imagine working there with the spectre of more layoffs coming. You have to know that it won't stop at 5000. And then with no raises, effectively a pay cut for everyone. Just amazing, but I'm just stunned at MSFT leadership short sightedness. IBM released great earnings, Apple as well. Microsoft leaders just haven't stepped up to think strategically. More that should have been done...- Eliminate MCS...gone. Take 1/2 the money saved from that and fund large numbers of RSI and NSI companies.- WW EPG and WW SMSP...gone. They just fly around to justify their existence anyway. - Deeper layoffs...as many have said, cut once and cut deep.Sheesh, Ballmer et al...you suck.
Thursday, January 22, 2009 8:03:00 AM

Another employee states:

As a former employee but still in the channel and with a lot of stock at risk here, I view this as a cleaning house effort. What concerns me is that only 1400 lay offs occur today and the other 3,600 could take over 18 months. This will only increase the trends I saw of management spending an inordinate amount of time on stack ranking and reviews as well as employees justifying their positions. Management and employees need to focus 90% of their time on customers and partner and 10% on internal versus what I saw which was 90% internal focus and 10% external focus! I believe the products and technology offer an incredible opportunity for consumers to benefit but Microsoft needs to adjust to an external focus immediately and abandon the extreme internal focus. Perhaps new execs would help.
Thursday, January 22, 2009 8:07:00 AM

Another employee states:

I left two years ago, as it had become a really awful environment place to try to do good work. In that time, I'm sometimes struggled and questioned my decision.Today I feel sad for my friends, and very much at peace. This just demonstrates, yet again, how amazingly inept the upper and mid-level management is over there. All of the information employees are getting via Mini should have been communicated internally first. There's absolutely no respect flowing FROM management to employees, so why should there be any back?The next rounds will be less generous and the mood will be worse as the company circles the toilet.Exactly correct. Head for those lifeboats. The correction for seven (ten?) years of stock stagnation is just beginning...
Thursday, January 22, 2009 8:50:00 AM

Another comment:

This is an extremely bad day for Microsoft. Management gives wall street no warning they will miss earnings targets, hence investors assume if they stick to traditional earnings release date they must have made their numbers. The company then misses the numbers but has results largely in line with what buy side investors forecasted.The company holds a call with investors and manages to drive the stock down further. It is clear the company has reacted more slowly to the downturn than other leading companies such as HP, CSCO, IBM. Management also releases a confusing attrition plan, and seems to minimize to investors the net reduction in headcount. So the company has achieved the following in about three hours :Decreased it's market cap by $20BReduced credibility with investorsConfused employees with a long tail plan of attritionThis is a bad day and was managed almost as poorly as could be scripted.
Thursday, January 22, 2009 9:15:00 AM

Another comment:

"This is a bad day and was managed almost as poorly as could be scripted."Agree, but the poor handling goes all the way back to last quarter. First with the overly optimistic forecast, despite the guidance reduction, that most didn't believe at the time. Then not jumping on the Intel warning during the quarter and using it to temper expectations. And finally with the failure to issue a pre-warning weeks ago despite having full knowledge that the company was going to badly miss guidance and consensus. Steve's "the fact that we're growing at all" falls flat given IBM's and Apple's result. And the "we acted quickly" is negated by analysts who are on record last quarter asking MS why they weren't being more defensive given the deteriorating economy. The truth is that management simply procrastinated until it was too late. The stock is now at a new ten-year low, and with no forward guidance other than a decrease from last year, $15 or less is likely in the weeks ahead. The 5000 layoffs over 18 months doesn't make sense. It's too few to make a difference and the extended period would hurt morale. In all likelihood, the town meeting tomorrow will assure employees that this was just for Wall St. and that most of it will be taken care of by normal attrition. The street already sees through this sham.The only question left is does Ballmer survive this? He's been second-guessed and criticized for most of his term, but until now the company by and large made their numbers and that kept him safe. This result ends that, and not just now but for the rest of the year and maybe even several years. This really feels like a crossroads for MS, one where the company can either change and prosper or not change and wither.
Thursday, January 22, 2009 11:00:00 AM "

Another comment:

Stocks now at 17.50, 50% what it was this time last year.Good thing management switched their bonus structure to cash vs. stock for this year. Anyone going to call them on it tomorrow?
Thursday, January 22, 2009 8:28:00 AM

As mentioned, there are over 600 comments from this one post on Mini-Microsoft. Above are only a few comments.

Since 2002, Microsoft shares have remained relatively flat and stagnant

In 2004, at an annual meeting Mr. Ballmer stated that based on the success of the company plans, the shares will take care of itself. However, in 2008 the shares were still stagnant and flat with minimal variation. For a period of approximately eight years the shares have remained flat.

Refer to chart at http://www.networkworld.com/community/node/37634

Prior to 2003, Mr. Ballmer stated that Microsoft being a technology company with tremendous growth potential doesn't engage in dividends. It was stated that companies with minimal growth provide shareholders with dividends. However, in 2003 Microsoft initiated providing shareholders with a dividend.

In 2004, Microsoft announced it was going to initiate a share buyback strategy. Since 2004 the company has deployed $40 billion on share buybacks. This effort has failed to elevate the share price. However, despite this failed strategy the company has announced that it will deploy an additional $40 billion in share buybacks.

According to a email we obtained from Microsoft Investor Relations the company has deployed $115 billion in share buybacks and dividends since 2004. Despite this massive expenditure the shares have remained flat for four years. Therefore, despite Mr. Ballmer stating "the shares will take care of itself", the company shares have remained flat. The greater concern to long-term shareholders is the notion that the company has announced it will deploy an addiitonal $40 billion in a historically proven failed strategy.

Another comment from mini-microsoft

I think that being more competitive in the browser market is a must for our future. The web browser has been taking over the OS in importance for a while now and the future is devices like cell phones not full PCs. The fact that winmo is looking a bit long in the tooth and ie is slow and clunky compared to most competitors does not bode well for the future. The only bright spot is that we are investing in server infrastructure for "cloud" computing. That is where the future growth is, not in a mostly saturated PC market. I am hoping to hear a more cohesive strategy around future technologies or else the street will continue to pan the stock price if we keep sounding like we are just going to do what we always do.
Monday, January 19, 2009 10:36:00 PM

Although Microsoft still controls over 90% of the OS market share, data indicates that the company is losing share to competitors such as Apple. In previous posts we have provided reference to NetApplications and charts concerning OS market share. Reports indicate that competitors such as Apple are securing market share.

Based on the poor performance of Vista and consumers dismal response to the operating system, Microsoft is required to ensure Windows 7 is the success Vista failed to acheive. For a review and insight into this dilemna refer to article by Mitchell Ashley at http://www.networkworld.com/community/node/37956

This atricle outlines the probability that Windows 7 will fail to capture consumer interest and will subsequently fail to have consumers upgrade from older OS versions. This will subsequently have a dramatic impact on the company and its revenue growth potential.

There has been increased popularity with "netbooks" which will also threaten potential growth and revenue generation for Microsoft. The final dilemna is that which is mentioned and referenced above within the comment from mini-microsoft. There appears to be a drastic change from PC to handheld devices.

These trends and changes threaten Microsoft and its ability to propel revenue growth. Therefore, it is mandatory that the company pursue initiatives that will provide the company revenue growth potential.

Wall Street has already referred to Microsoft as a utility. If the company fails to capture consumers through Windows 7 it will continue to expereince a exodus of consumers to other competitiors and their OS.

Microsoft is required to adopt a "strategy" that will enable the company to maintain revenue and propel growth. While reviewing comments in blogs we observed a comment that Microsoft should abandon MSN and its attempt to acheive advertising revenue. The argument was total

advertising spending is approximately a $30 billion market. It was stated that software is a $300 billion consumer market. Therefore, the author of the comment stated Microsoft should dismiss a $30 billion market and focus on its core traditional market of software.

However, the dilemna with this argument is that Microsoft has already deployed billions into R&D and acquisiitons within this market. It is displaying minimal growth. It is a large market at $300 billion. As mentioned, based on trends that market is changing towards "netbooks" and "handhelds". Additionally, the company should not be content in an attempt to capture a $300 billion market when it can capture a percentage of a multi-trillion consumer market.

In previous posts we refer to GE and other companies that have expanded into financial services. Microsoft has a capacity to acquire a major bank. We have referenced acquiring ING. This acquisition provides Microsoft with a global presence and also provides the company with online service through ING Direct.

Microsoft has the capacity to acquire ING which according to Annual Reports generated over $200 billion in annual revenue. Therefore, why should Microsoft pursue obtaining a portion of a $300 billion market when through a acquisition can obtain an asset that generates in annual revenue 2/3 the entire software market?

We have outlined the premise for the bank acquisition in previous posts. Therefore, we will at this time refer to prior posts. It enables Microsoft to offset the potential decline in revenue through OS. It provides the company with additional annual revenue and earnings. It provides the company with cross-promotion advantages.

Numerous analysts state that Microsoft's announcment of the Verizon deal was the company attempt to secure market share. However, as mentioned in previous posts, this deal will potentially fail to provide the company with substantial revenue growth.

Handheld devices are increasing in popularity. There is also the increase in "cloud-computing". Microsoft is required to direct its attention towards this trend. Therefore, Microsoft should aggressively pursue this market.

As argued in previous posts, it is more advantageous to acquire a company than to create alliances. It is more strategic to acquire a company than pursue multiple alliances.

Microsoft failed to recognize the significance of the Internet and subsequently has lost market share to Google. It is critical the company recognize the trend towards "handheld" devices and pursue a strategy that provides market share and revenue.

The acquisition of Sprint will provide Microsoft with market share and also an additional $40 billion in annual revenue. Therefore, a complete acquisition will provide greater value to shareholders.

Microsoft is required to secure a "search" only deal with Yahoo. This will enable the company to secure additonal market share and potentially advertising revenue.

In the interview and previous posts we refer to the fact that historically Microsoft has deployed $40 billion on share buybacks. It has recently commited to spend an additional $40 billion over a four year term. This "strategy" will fail to create shareholder value.

The company is losing market share and consumer loyalty within OS. Therefore, it is mandatory to replace this depletion in revenue and growth potential.

The company has forged alliances with numerous telecom companies to increase market share within mobile services. It has the financial capacity to acquire a telecom company and dramtatically increase revenue.

The company has deployed billions on R&D in an attempt to secure market share within existing areas of operation. Refer to chart at http://www.networkworld.com/community/node/37634

Microsoft since 2004 has deployed enormous capital towards "strategies" in an attempt to increase revenue and market share. According to Mr. Ballmer "the strategies success will ensure that share price takes care of itself". However, after four years of massive spending and strategies, the shares remain flat.

Microsoft was seeking to deploy $45 billion to acquire Yahoo. Our 'New Strategy' involves deploying a similar amount of capital.

Our "New Strategy" involves:

1) Abandon the failed share buybacks. Divert capital to creating additional revenue and subsequently shareholder value.

2)Utilize current market conditions and pursue revenue growth through acquistions.

3) Acquire a major bank. This will enhance product mix offerings to consumers of current Microsoft products and services.

4) Acquire a major mobile services company. This will enhance annual revenue.

5) Pursue a 'search deal' with Yahoo. This will enhance market share and revenue.

Old Strategy

1) $40 billion to be spent on share buybacks. Massive spending with minimal or no result in creating value.

2) Massive R&D spending. Failure to translate into new "innovative" products and subsequently additional revenue.

3) Alliances with numerous mobile companies. Limited revenue growth and potential loss of market share to competitors.

Through the "Old Strategy" in 2013 Microsoft will have deployed $40 billion in share buybacks. It will have deployed aproximately $40 billion on R&D. It will have released its new OS Windows 7.

In 2013, based on this "Strategy" what will be reflected in the share price and the creation of shareholder value?

Through the "New Strategy" Microsoft uses current market conditions and acquires ING, Sprint and a 'search' deal with Yahoo. The company deploys $40 billion to acheive these "strategies" based on current market valuations and also offering a premium.

The combined company generates $300 billion in annual revenue. This is based on revenue generated according to company annual reports. Currently, Microsoft generates $60 billion, ING generates $211 billion, Sprint generates $40 billion. The $300 billion factors in the Yahoo deal but fails to factor potential growth through cross-promotion.

The combined company generates $30 billion in net income. The combined company through net income generation has the ability to pay down debt from acquisition. Therefore, both ING and Sprint have improved balance sheets.

In 2013 Microsoft is a $300 billion in revenue, $30 billion in net income company. It offers consumers its five business platforms plus financial services. It has $30 billion in net income to provide dividends and pursue additional growth in financial services and telecom.

Microsoft can pursue "Old Strategies" to the detriment of shareholders or it can emerge from current market conditions more financially stable. It can enhance its product mix and dramatically increase revenue and shareholder value.

Our question is SIMPLE...AS A SHAREHOLDER WHICH "STRATEGY" WOULD YOU CHOOSE?

BASED ON THE COMPANY PAST PERFORMANCE, THE OLD STRATEGY WILL ONLY CONTINUE TO CAUSE A DECREASE IN SHARE HOLDER VALUE.

IT IS TIME FOR SHAREHOLDERS TO RALLY SUPPORT AND EFFECT CHANGE BEFORE SHAREOLDERS WITNESS CONTINUED LOSS TO SHAREHOLDER VALUE.

We can be contacted at thecrandreagroup@hotmail.com

Microsoft, Will it Survive without a "New Strategy"?

2009-01-12T16:59:00.000-08:00

Prior to creating this blog, we engaged in research of numerous articles, data, analyst reports and shareholder blogs to conduct a analysis to create the "New Strategy". After reviewing the information, which included the blog http://msftextrememakeover.blogspot.com/ (which has disbanded posts based on subsequent frustration). The creator of extreme makeover spent tremendous efforts analyzing Microsoft. The blog also included numerous comments from shareholders and Microsoft employees.

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, Microsoft Microsoft has a $7.5 billion budget for R&D in 2007by Chris Gilmer Oct 18th 2006 Microsoft 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

"Old Strategy " VS "New Strategy"

2009-01-04T15:28:00.000-08:00

“OLD PLAN” VS. “NEW PLAN”
BY THE NUMBERS

Numerous various companies accelerate growth through acquisition. With current market volatility certain CEO’s of companies have indicated that it presents the perfect opportunity for growth through acquisition. Sir. Branson of Virgin Group states “ current conditions enable companies with strong balance sheets to accelerate growth and emerge stronger and healthier than prior to the market down turn”.

The CEO of Broadcom announced that the current market provided the company with the potential to pursue acquisition growth. Current market conditions present the premier opportunity for companies to pursue acquisition.

Microsoft has the potential to utilize the current market and accelerate growth. Currently, companies are trading at record lows. This presents the potential for companies with cash and cash reserves, such as Microsoft, to take advantage of the market and acquire valuable assets at record low valuations.

In our previous posts we have stated that current Microsoft management has engaged in massive overspending and poor execution of strategies. We have referenced that the company has according to Investor Relations, has since 2004 deployed over $115 billion. This expenditure is primarily for stock buybacks, which has demonstrated by the historical stock chart failed to create value.

Despite Microsoft spending $115 billion in capital, the share price continues to trade at approximately the same level as 2004. In four years the company has spent $115 billion to guarantee that the stock price still trades at the same level as when they started the “strategy” of buybacks to enhance shareholder value. The result of this strategy equates to four years of deploying $115 billion to enable the share price to remain flat at the same level for four years at $25 per share.

In an effort to satisfy consumers and increase shareholder value the company has deployed enormous amounts of capital for Research and Development. In 2000, when Mr. Ballmer essentially assumed control of Microsoft the company was generating approximately $40 billion in revenue and $8 billion in profits.

In Mr. Ballmer’s defense we will kindly acknowledge that revenue has increased to a current level of $60 billion annually. We will also acknowledge that net income has grown to $17 billion annually. We could essentially agree with Microsoft and the email that we obtained from Investor Relations, we could agree that management has created revenue and earnings growth for the company. However, the question that arises is fundamentally at what EXPENSE?

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 Initiative
Microsoft plans to increase R&D spending by 10% and focus on PC Initiative.
By Aaron Ricadela InformationWeek July 26, 2001 12:00 AM
Microsoft (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 budget
Microsoft to add up to 5,000 jobs in new investment
Carrie Kirby, Chronicle Staff Writer
Friday, 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.

Our commentary:

Perhaps the concern for Microsoft investors is that Ballmer stated “plenty of opportunities exist in newer areas such as handheld devices and business software”.

Despite massive spending on Research and Development, Microsoft is outpaced by competitors in handheld devices and other sectors of operation. In our previous post, we provide graphs and details from media sources that outline Microsoft is losing market share in operating systems. It is losing market share in mobile services. It is also losing market share in gaming. Therefore, despite this massive spending, Microsoft is failing to remain competitive. Despite the massive spending Microsoft is failing to keep a "wide distance between competitors" in a positive manner. Its Research and Development budget appears to be creating a "wide distance between competitors", however, based on information it's to the competitors advantage the distance is getting wider. Therefore, if Microsoft continues with massive Research and Development budgets, Apple, Google, RIM and other competitors will expereince a greater competitive advantage over Microsoft.

Gates: Microsoft's Upping Security R&D BudgetJanuary 28, 2004 • by Scott BekkerMore 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, Microsoft
Microsoft has a $7.5 billion budget for R&D in 2007
by Chris Gilmer Oct 18th 2006

Microsoft 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. It has spent billions on an attempt to improve online operations. This includes its failed ill-conceived plan to acquire Yahoo for a 65% premium valued at $45 billion.

It has spent in the past decade approximately $20 billion on gaming “innovation”. Despite this expenditure it fails to propel innovation and will loss valuable market share to Wii and Playstation.

This creates the question why should not Microsoft be more innovative?

The company was once the leader in operating systems. It is watching that market share erode. It has virtually watched as competitors capture the online market, which has proven one of the largest technology sectors in the past decade. It has watched as companies such as Wii create new innovative products.

Microsoft despite its massive Research and Development budget has watched while other companies have created every innovative and technical product within the past decade. Microsoft in 2000, was almost twice as more efficient than GE, it was also twice as more profitable as IBM.

However, GE has propelled growth in different sectors of operation with organic and acquisition growth. According to GE 2007 Annual Reports, the finance division experienced an increase of revenue by 26% and earnings grew by 31%.

Microsoft despite a massive Research and Development budget lacks to create products. However, its also failing to create entirely new products areas. Despite this massive expenditure it appears evident that the company follows as opposed to lead. This demonstrates it loss in the PC market share, its failure to command a higher market share online, losing market share in mobile service and losing to competitors in the gaming sector.

This comparison between Microsoft’s Research and Development budget and competitors reflects a harsh reality. It illustrates Microsoft’s lack of innovation. It illustrates that Microsoft has never been the source of real innovation. It’s research labs despite enormous budgets are inefficient and lack innovation.

However, this lack of innovation should be expected from Microsoft. According to reports, DOS was acquired from a third party. Therefore, the system according to reports wasn’t even created by Microsoft. This explains the reality that the company despite a massive Research and Development budget fails to create anything that is “innovative”. Reports indicate that the only real “innovation” of Microsoft was separating the operating system from hardware and making personal computing a reality.

Microsoft in attempt to remain competitive has also deployed enormous amounts of capital towards acquisition. This could conceivably be linked to the company inability to create “innovation”, therefore, it is required to acquire companies that are innovative to in attempt secure market share (the subsequent 65% premium bid for Yahoo valued at $45 billion).

Since 2000, the company has averaged approximately 6 acquisitions per year. It has deployed billions to acquire various companies.

For a list of Microsoft's acquisitions refer to the link at http://en.wikipedia.org/wiki/List_of_companies_acquired_by_Microsoft_Corporation

According to the chart, Microsoft has within the past decade deployed a minimum of $12 billion on various acquisitions. In 2000, it acquired 7 companies, it included sectors such as Internet service, cable television and software.

In 2001, it acquired 6 companies. This included companies within industry sectors such as, Internet service and various software companies.

In 2002, Microsoft acquired 8 companies. This includes telecomunications, consulting, software and a travel agency. It incorporates spending $500 million for Korea Telecom and $1.3 billion for Navision.

In 2003, Microsoft acquired 5 companies. The acquisitions were primarily in the software sector.

In 2004, it acquired 4 companies, mainly within the software sector.

In 2005, Microsoft acquired 10 companies. Areas of acquisition included messaging, mobile and software.

In 2006, Microsoft acquired 18 companies. It included search, mobile and software.

In 2007, Microsoft acquired 14 companies, including the $6.3 billion acquisition of aQuantive. It included areas of acquisition, such as, search, mobile and software.

In 2008, Microsoft acquired 15 companies.This includes in 2008, spending in April $500 million to acquire Danger to secure mobile Internet software. It includes spending $1 billion to acquire Fast Search and Transfer to obtain enterprise search. It also includes spending approximately $500 million to acquire Greenfield Online related to search and e-commerce services.

Although the company withdrew its massive $45 billion bid for Yahoo to help secure a larger online market share, it spent $500 million to acquire Greenfield Online. In 2008, the company has deployed a minimum of $2 billion in various acquisitions.

Perhaps one of the most confusing strategies is the proposed $45 billion bid for Yahoo. During the July 2007 annual analyst meeting Mr. Ballmer and Mr. Liddell stated the following to analysts:

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

During the 2007 meeting, Mr. Ballmer states to analysts that "we will not pursue a large acquisition and are "organic minded". However, less then one year after this comment to analysts, Mr. Ballmer announces that Microsoft is proceeding with a 65% premium bid for Yahoo valued at $45 billion. It appears apparent that Mr. Ballmer and the management are not even certain in their future plans for Microsoft and are uncertain of their own convictions and beliefs concerning the company.

Why would a CEO of a company tell analysts in July 2007 there is no possibility for an acquisition of Yahoo, then less than a year later announce the bid?

According to reports and documentation, Microsoft has since 2000, deployed approximately $40 billion on Research and Development. It has spent approximately $12 billion on acquisitions. In 2008, it will spend approximately $7 billion on Research and Development and has spent at least $2 billion on acquisitions.

This fails to consider the additional capital spent on dividends and share buybacks. In 2000, Mr. Ballmer stated or conceded that :

“Microsoft couldn’t find enough opportunities to spend its enormous cash reserve, announcing a plan to pay shareholders a $32 billion dividend”.

Since that time Microsoft has continued to deploy tremendous amounts of capital towards dividends and most significantly share buybacks.

In 2004, Mr. Ballmer stated:

“As we looked at our cash management choices, our priorities were to increase our regular payments to shareholders, increase our stock buyback efforts given our confidence in the company’s growth prospects, and distribute additional resources in a special one time dividend”.

The result, according to the email we obtained from Investor Relations, Microsoft has deployed $115 billion in capital since 2004 towards share buybacks and dividends. Despite this tremendous expenditure the shares continue to trade at the same five year level of $25 per share.

Therefore, according to the numbers, since 2000, Microsoft through Research and Development, acquisition growth, and share buybacks, has deployed approximately $200 billion. This fails to incorporate the $32 billion one time dividend, and the other acquisitions on the chart that fail to provide acquisition costs. The final result, despite spending $200 billion in capital the shares remain at the same level of approximately $25 per share.

Now, we have the dilemma of trying to understand this “strategy”. In 2000, Mr. Ballmer states we cannot find any opportunity for investment. This was stated basically after the dotcom crash. Current market conditions are reflective of this time in 2000 and potentially worse. Current CEO’s are stating the market presents opportunity to acquire companies at record lows.

In 2000 when the market was experiencing a low with technology shares, Microsoft states we cannot find any opportunity. Then eight years later it tries to spend $45 billion to acquire Yahoo. This is considered logical deployment and execution of the shareholders capital?

Mr. Ballmer in 2000 should have pursued acquiring companies that would have enhanced Microsoft’s strategic position in areas that it is currently trying to capture.

In 2004, Mr. Ballmer states that given the company’s growth prospect we will increase share buybacks. Since 2004, the company has spent $115 billion on this strategy. The shares continue to trade at $25 per share.

The company P/E is currently at 10. This reflects Wall Streets lack of confidence in Microsoft’s growth prospects. Analysts have for several years referred to Microsoft as reflecting a utility company, its well suited to generate steady cash flows and dividends, BUT NOT GROWTH.
Therefore, were is the growth that Mr. Ballmer was refering to?

This presents the question of why Microsoft stated “as we considered our confidence in the company growth prospects we have decided to increase share buybacks”.

If Microsoft had the ability for growth this would be reflected in Wall Street offering a higher P/E ratio and share price. If Microsoft according to investors presented growth then its shares will have increased higher than its five year average of $25 per share.

The market fails to possess the similar confidence as Microsoft management in regards to the potential growth prospects. It perceives Microsoft as a company that lacks the ability to create growth, therefore, this reflects the comparison by analysts to a utility. This fails to reflect confidence in Microsoft by Wall Street.

Therefore, since 2000, Microsoft has deployed a minimum of $40 billion on Research and Development and a minimum of $12 billion on acquisition growth. This has resulted in company revenue growing from approximately $40 billion to $60 billion. This fails to reflect stellar growth based on the capital deployed.

Perhaps the most alarming number is the total expenditure if Mr. Ballmer and management maintain this “Old Strategy”. The reality, Mr. Ballmer has indicated the intention to continue to pursue share buybacks. In five years will the number have increased from $115 to exceed $200 billion with the shares still trading at $25 per share?

Will it include Microsoft spending in five years another $40 billion on Research and Development with similar results as Vista, xBox, MSN and Microsoft Mobile?

Will Microsoft continue to spend enormous amounts of capital to fail to create “innovation” and continue to lose market share to competitors?

For additional insight into Microsoft and its Research and Development success, we suggest reading Carleen Hawn’s article located at http://www.fastcompany.com/magazine/89/microsoft.html

This article confirms our analysis and provides additional examples of Microsoft and its Research and Development expenditures and the subsequent results. It refers to the digital toilet and SPOT watch.

Our “New Strategy” recommends using current conditions to accelerate revenue and earnings growth through acquisition. We suggest acquiring a major bank. We suggest acquiring a mobile service company. We also suggest acquiring a “search” only deal with Yahoo.

This “New Strategy” with current conditions involves spending approximately $40 billion. Since starting this campaign the bank ING has experienced a $7 billion increase in its market valuation. However, the market still presents opportunity to secure valuable assets at a discount.

In five years will reports indicate that in 2009, Mr. Ballmer stated “as we looked at growth prospects and our cash we decided to deploy $30 billion to acquire all of Yahoo and deploy $115 billion more in share buybacks”.

Our “New Strategy” involves deploying approximately $20 billion to acquire ING. This enables Microsoft to expand its product mix and emulate GE. General Electric has created a profitable finance division. Based on 2007 annual reports, the company division continues to experience double digit growth. This division was established on the company offering financing to customers for heavy equipment purchases. It has evolved to account for more than half the company annual revenue. Subsequently, GE is more a finance company than the technology company it was originally.

Microsoft can acquire ING for approximately $20 billion. Based on ING 2007 Annual Reports, the company generated $211 billion in revenue and $14 billion in income. This will enable Microsoft to increase combined operational revenue to exceed $300 billion. It will create combined income of $30 billion.

Microsoft can emulate GE. It can offer consumers financing. It can offer companies both financing for purchases but can also cross-promote. A corporate client can secure financing an also obtain “rewards” towards its entire work force using Microsoft mobile services.

According to reports the American consumer-finance sector is a $7 trillion industry. It enables Microsoft through ING and ING Direct which compliment MSN online services, to capture a portion of the finance sector. It provides consumers with a cross-promotion incentive. The consumer would utilize Microsoft finances services as it provided benefits towards other services. The consumer could obtain “rewards” towards MSN, xBox, or mobile services.

Conventional companies lack the ability to compete. This includes conventional banks and also competitors in other sectors. Conventional banks lack the ability to offer consumers the same “rewards” as other companies or Microsoft. This is the primary reason Canadian retailer Loblaws hs experienced tremendous success with PC Financial. Consumers will use PC Financial as opposed to conventional banks, such as, TD, Royal Bank or Scotia Bank, because the consumer obtain “rewards” with PC Financial.

Additionally, competitors of Microsoft in other sectors fail to have the ability to offer financial services to consumers. Verizon or AT&T lack the ability to offer individual and corporate clients financial services and cross-promotion. AT&T lacks the ability to offer “rewards” that can be used for online search or gaming. This enables Microsoft to enhance its dominance in current sectors of operation as consumers utilize cross-promotion advantages and rewards.

The increase in revenue and earnings provides Microsoft with an increase in income to provide an attractive dividend and pursue additional acquisition growth.

Our “New Strategy” involves Microsoft acquiring the company Sprint. This company can be acquired for approximately $7 billion. This provides Microsoft with an additional $40 billion in annual revenue. It enables Microsoft to progress from an alliance with Sprint to complete ownership of the asset. This will enable Microsoft to aggressively accelerate its presence in mobile services. The combined company could have revenue of over $300 billion. This would enable Microsoft to pursue additional acquisitions within the telecom sector. With Sprint and additional $40 billion in annual revenue in conjunction with current Microsoft revenue and income, the company could pursue increasing Sprints market share through acquisition.

Our “New Strategy” involves Microsoft pursuing a “search” only deal with Yahoo. This could be obtained for approximately $3-5 billion according to many analysts. This would increase Microsoft’s presence and market share within the online sector.

Our “New Strategy” involves deploying approximately $40 billion, which is less than the proposed Yahoo bid in the beginning of 2008. It involves spending $40 billion to acquire three assets that will create combined operational revenue of $320 billion and net income of over $30 billion annually.

This “New Strategy” will enable Microsoft to experience a increase in revenue and earnings. It provides the company with additional revenue and cash flow to pursue additional growth.

With the “Old Strategy”, Microsoft will continue to spend billions annually that have marginal or minimum effect on increasing revenue and earnings. The company in 2009 will pursue another five to six acquisitions at a cost of approximately $2 billion based on 2008 expenditures. This will have minimum effect on enhancing revenue and earnings.

Our “New Strategy” involves spending $40 billion to increase revenue to $320 billion. It will increase earnings to $30 billion. It will provide the company with growth opportunity with ING, and Sprint. For example, Microsoft through ownership of Sprint could aggressively pursue acquiring more market share from Verizon and AT&T. It could pursue to acquire Telus, Vonage, RIM or other mobile companies to enhance market share. Microsoft will have the potential to accelerate growth within this sector and financial services.

Our “New Strategy” creates greater value for shareholders than the “Old Strategy”. It provides a greater potential for revenue growth based on the deployment of capital. If Microsoft continues with the “Old Strategy” in five years it will have spent $10 billion on acquisitions and potentially increased revenue to $80 billion. This is based on if Microsoft can continue growth on the same level as past periods. However, mentioned in previous posts, there is the potential for earnings to decrease as competitors capture additional market share.

Our “New Strategy” enables Microsoft to initially spend $40 billion to acquire ING, Sprint and a ‘Search” deal with Yahoo. It provides the company with $320 billion in revenue. It provides $30 billion in net income. Through the period of the next five years it enables Microsoft to use these acquisitions and earnings to pursue further growth. Therefore, in five years through the acquisitions, there is the potential for ING and Sprint to experience growth. ING could acquire additional banks, insurance companies or other assets. Sprint could acquire other companies to increase market share. The “New strategy” provides Microsoft with increased opportunity and growth.

The company GE, through entering financial services, and growth through acquisition accelerated revenue growth to surpass $100 billion annually. Through entering financial services, half of the company annual revenue is derived from this division and still maintains growth. The company was through this strategy able to create hundreds of billions of dollars in shareholder value. Although the company stock is currently trading at $18 per share in the beginning of 2008 they were trading at $38 per share. Based on current market volatility it has lost approximately half of its market valuation. However, for a five year period at has remained at approximately $40 per share. This provided the company with a market valuation of approximately $300 billion.

Our “New Strategy” recommends that Microsoft emulate GE. We recommend that the company enter financial services, acquire Sprint, and pursue a “search” deal with Yahoo. The entrance into finance enables Microsoft to emulate GE. It enables the company to derive the majority of revenue from finance services and provide opportunity for continued growth.

Our “New Strategy” presents the opportunity to create hundreds of billions of dollars in shareholder value. As the markets correct, Microsoft through these acquisitions has the capacity to realize substantial gains in value. ING has continued to increase, and Sprint will eventually also increase in value. Both of these companies can be currently acquired for a extreme discount from valuations in early 2008 before the market volatility.

Additionally, the combined companies will create greater value than as independent stand alone companies. ING, and Sprint have the ability to use cross-promotion with Microsoft and its services to offer consumers an enhanced product mix and greater value. Sprint, for example, has greater appeal to consumers based on the acquisition that if it remained independent. Sprint consumers can obtain “rewards” for Microsoft products such as software or gaming. Commercial consumers that use Sprint for long-distance voice, Internet, and data network services secure access to Microsoft products. Current Sprint users would have cross-promotion “rewards” with Microsoft. This cross-promotion and added value would also attract additional corporate clients to use Sprint. Therefore, it would have the capacity to increase revenue and earning’s growth for Sprint.

Microsoft, secures greater value with the addition of both ING and Sprint. It enables the company to attract consumers through cross-promotion advantages. It therefore enhances the value of current divisions or services. For example, through owning Sprint, corporate clients that acquire mobile services which also have Internet ability are established with MSN as the homepage or search engine.

OLD STRATEGY

Product Division

Windows

MSN

Hotmail

Business Division

Word

Excel

Outlook

PowerPoint

Entertainment Division

xBox

Mobile

$60 billion in Annual Revenue
$17 billion in Annual Net Income
$7 billion in Annual Research and Development

NEW STRATEGY

Product Division

Windows

MSN

Hotmail

Yahoo(search)

Business Division

Word

Excel

Outlook

PowerPoint

Business software

ING

Insurance

Commercial:

loans

lease

credit

Consumers:

credit

mortgages

Entertainment Division

xBox

Sprint

$320 billion in Annual Revenue
$30 billion in Net Income

The "Old Strategy" includes Microsoft deploying an average of $7 billion annually on Research and Development. It includes deploying billions annually on acquisitions that fail to create a dramatic increase in revenue and earnings. It includes spending billions annually on share buybacks. The end result of this "Old Strategy", Microsoft is losing to competitors in search, mobile and gaming. It is also losing its grip on the operating system market. Unless Windows 7 accomplishes were Vista failed, this will add to the subsequent decline in market share within this sector.

The "New Strategy" involves spending approximately $40 billion based on current valuations of acquisition companies. It involves Microsoft aggressively entering the financial services sector, a "strategy" suggested by Parish and Company in an article "Closer Look At Microsoft".

The "New Strategy" involves acquiring a major mobile company. This enables Microsoft to acquire Sprint for $6 billion, which is less than it spent on aQuantive in 2007. It enables Microsoft to acquire a company that will create synergy with current operations. Currently, Microsoft has an alliance with Sprint. Current conditions enable Microsoft to acquire that company and add $40 billion in annual revenue. This revenue and earnings can then be utilized to acquire additional mobile companies or mobile software companies.

The "New Strategy" enables Microsoft to spend less than its $45 billion bid for Yahoo. The "New Strategy" involves spending $3-5 billion to complete a "search" only deal with Yahoo. It enables Microsoft to remain competitive with Google.

As mentioned, in our previous post, in the end of 2008 we obtained news that has the potential to dramatically accelerate the campaign. We will within the the near future provide information concering this development.

NOW IS THE TIME TO RALLY SUPPORT. WE HAVE PROVIDED THE NUMBERS CONCERNING THE "OLD STRATEGY" VS "NEW STRATEGY". MR.BALLMER AND MANAGEMENT ARE FAILING TO DEPLOY CAPITAL THAT WILL BENEFIT SHAREHOLDERS.

WE HAVE CREATED A "NEW STRATEGY", THAT THROUGH THE DEPLOYMENT OF CAPITAL WILL CREATE TRUE LONG TERM SHAREHOLDER VALUE.

We can be contacted via email at thecrandreagroup@hotmail.com

Microsoft Is Fooling Itself

2008-12-19T06:30:00.000-08:00

We want to thank everyone that has taken the opportunity to review this blog and respond. The “New Strategy” for Microsoft is gaining momentum. Recent developments have the potential to tremendously accelerate this “New Strategy” campaign. We will keep you posted through this blog as the campaign and this new development continues to unfold.

When we created this blog it was our tactic to emulate the strategy of Eric Jackson and “Plan B” for Yahoo. We intend to use the Internet through blogs to rally support from frustrated shareholders to effect change and implement a “New Strategy”.

In 2000, after the dotcom meltdown, companies such as Microsoft had the opportunity to propel growth through acquisition. Numerous dotcoms and other technology companies had lost tremendous value. Current market volatility has produced a market were companies have record lows. However, record lows create the optimal opportunity for companies such as Microsoft with large amounts of cash to acquire companies at a extreme discount. Based on the concepts within the “New Strategy” it utilizes current market conditions to accelerate growth for Microsoft. Subsequently, time is critical. Therefore, we have pursued a relatively aggressive tactic to rally support expediently.

Based on the reality of market conditions and the optimal opportunity for Microsoft to execute the “New Strategy”, we proceeded to immediately post the “New Strategy” on the blog. There was no real prelude or introduction to reasons that prompted this campaign. However, we currently intend to provide information that prompted this campaign.

In the previous posts we have referenced an email that we received from Microsoft Investor Relations. We also reference Microsoft spending $115 billion in buybacks. We intend to post the origins of this information. Within this post we will provide a copy of the email that we received from Microsoft. We will also provide the majority of the responding letter that we forwarded to Mr. Ballmer.

Microsoft emailed us the following letter:

Dear Mr. Montgomery,

Thank you for your letter to Steve Ballmer regarding your concerns.

Microsoft's primary financial goal is driving long-term shareholder value. We aim to grow operating income faster than our technology peers on a sustained, long-term basis. This goal is balanced with other important priorities that we believe lead to success: winning and satisfying customers, driving innovation, leading the industry transformation to services, and building a broad and deep leadership team.

We are focused on execution which has translated to our revenue and earnings growth. Revenue, operating income, and EPS in fiscal year 2008 all grew by double digit percentages.

We’ll also continue to execute on our financial strategy of returning capital to shareholders through buybacks and dividends. Over the past 5 years we returned over $115 billion to shareholders, allowing Microsoft to offer a very compelling return to our shareholders.

Regards,

Microsoft Investor Relations

In late October 2008, we responded to Mr. Ballmer with the following letter:

Dear Mr. Ballmer

This is in regards to the response we obtained from Microsoft Investor Relations concerning the numerous letters that we forwarded to your attention. We were shocked that the letters were so blatantly dismissed and forwarded to Investor Relations. This disregard reflects your same careless, negligent and poor guidance and decisions for the company.

Investor Relations state “ Microsoft’s primary financial goal is driving long-term shareholder value. We aim to grow operating income faster than our technology peers on a sustained, long-term basis. This goal is balanced with other important priorities that we believe lead to success: winning and satisfying customers, driving innovation, leading the industry transformation of services, and building a broad and deep leadership team. We are focused on execution which has translated to our revenue and earnings growth. Revenue, operating income, and EPS in fiscal 2008 all grew by double digit percentages. We’ll also continue to execute on our financial strategy of returning capital to shareholders through buybacks and dividends. Over the past five years we returned over $115 billion to shareholders, allowing Microsoft to offer a very compelling return to our shareholders”.

This response by Investor Relations is naïve and delusional. The very notion that it states “ Microsoft primary financial goal is driving long-term shareholder value” demonstrates the negligent regard for failing to achieve long-term shareholder value.

In 2004 Microsoft stock was trading for approximately $25 per share. Within a five year period the stock price has continued to fluctuate at approximately $25 per share with minimal variation.

Investor Relations states “this goal is balanced with other important priorities that we believe lead to success: winning and satisfying customers, driving innovation and building a broad and deep leadership team”. The dilemma with this statement is the phrase “ we believe lead to success”. Based on the fact that the stock price has displayed minimal variation within five years, demonstrates that investors fail to share the same belief and have contention regarding the long-term success of Microsoft.

Investor Relations state “ winning and satisfying customers lead to success”. However, numerous reports indicate the dissatisfaction of consumers with Microsoft products. Numerous articles within newspapers and magazines indicate that consumers are frustrated and dissatisfied with Windows, MSN and other Microsoft products. This is reflected in the demand for open source Linux. Microsoft has over the past five years had difficulty in winning and satisfying consumers.

Investor Relations state another goal is driving innovation. Microsoft has failed to achieve this goal.

Apple Inc was previously a company that was languishing. Through the current leadership and management of Steve Jobs the company through innovation has dramatically increased shareholder value. However, within the same period Microsoft has languished.

In 2004, Apple Computer was trading at approximately $7 per share. Within the same five year period as Microsoft trading at approximately $25 per share, the Apple stock has climbed to a high of $210. The company through new management and strategy has created tremendous innovation and shareholder value.

Microsoft has displayed innovation characteristics that are reflective of a reactive strategy as opposed to proactive. Subsequently, in five years Apple has propelled innovation and created tremendous shareholder value while Microsoft has remained at approximately $25 per share and therefore created no value for shareholders. This demonstrates the contrast in which company is innovative and which is a laggard. Apple has created shareholder value while Microsoft has failed.

Investor Relations state “ a important priority that leads to success is building a broad and deep leadership team”. However, the company has failed to achieve this goal and obtain success. Current leadership has failed to create long-term shareholder value. It has failed to win and satisfy consumers. It has failed to drive innovation. Therefore, the company has failed to build deep leadership reflected in the failures of current leadership.

Investor Relations state “we are focused on execution which has translated to our revenue and earning growth”. However, this is inconsequential to investors. Microsoft could increase revenue from $20 billion to $120 billion, however, if investors are not confident in long-term goals it will reflect in the price investors are willing to pay for stock. Regardless of the fact that Microsoft has increased revenue and earnings, the stock continues to trade at the same five year level of approximately $25 per share.

The execution of revenue and earning growth has had no effect on increasing investor confidence and creating shareholder value. Therefore, investors have failed to realize long-term shareholder value.

Investor Relations state “ we’ll also continue to execute on our financial strategy of returning capital to shareholders through buybacks and dividends. Over the past five years we have returned over $115 billion to shareholders.”

In 2004 you stated “ As we looked at our cash management choices, our priorities were to increase our regular payments to shareholders, increase our stock buyback efforts given our confidence in the company’s growth prospects, and distribute additional resources in a special one time dividend”. Through these initiatives created by you and approved by the Board the company has deployed according to Investor Relations approximately $115 billion in capital. This strategy has failed to create shareholder value.

Through your guidance and leadership from 2004 to 2008 the company has deployed $115 billion in capital. In 2004, you stated that it was a priority based on the confidence of the company growth prospects. However, despite deploying $115 billion in capital in the five year period, the stock has remained at approximately the same five year level. Historical charts indicate that the average five year price has remained at approximately $25 per share with minimal increase. Therefore, despite deploying $115 billion in capital this priority has failed to create long-term shareholder value. If investors were confident in this approach the stock price would reflect a higher valuation creating true long-term value.

As mentioned, the company in five years has spent $115 billion and has failed to increase the share price. However, with our proposal had Microsoft in 2004 deployed the same level of capital it would currently be generating an additional $20-$40 billion in revenue and have approximately $80 billion in assets. This strategy would have resulted in investor confidence and ultimately lead to an increase in the share price. However, through current management it has wasted $115 billion through ill-conceived strategies that have failed to create any true long-term value.

According to a report within the New York Times, in 2005 you stated that you had trouble selling the long term value of Microsoft stock even to the company’s own employees. The article indicates that you stated “ Are you buying our stock?” to a team of Microsoft executives, “All the hands were down”.

We are confident that if you presented the same question to current Microsoft executives that it would garner a similar reply. For a period of five years Microsoft stock has performed poorly.
Microsoft was seeking to deploy approximately $50 billion in capital to acquire Yahoo. This acquisition will add approximately $8 billion in annual revenue. Microsoft is additionally required to change Yahoo business model and strategy to compete with Google.

According to an article in the Wall Street Journal, an analyst with Goldman Sachs stated “ Microsoft made what could play out to be the stupidest move in its history: a high ball bid for Yahoo”. Reports indicate that the company was offering a 65% premium for Yahoo. This strategy was pursued by current management and approved by the Board.

According to an article in BusinessWeek, Stefan Selig, global head of mergers and acquisitions at Banc of America states “ With more than $1 trillion in assets controlled by hedge funds, they have credibility and capital. Companies have to take this threat seriously: the balance of power is shifting away from boards and management. You cannot ignore them just because its some hedge fund you never heard of”.

Numerous companies have succumbed to shareholder activism. Companies such as General Motors, Time Warner, McDonalds, Waste Management, Oracle, Sears have had to respond to demands from hedge funds. Small hedge funds such as Breeden Capital forced change at H&R Block. Additionally, Pershing Square forced change at McDonalds. This small hedge fund through a media strategy gained support from dissident shareholders and within one week forced change. At the time of the investment in 2006 McDonalds was trading at approximately $30 per share.

The company had a market valuation of approximately $30 billion. The hedge fund invested in McDonalds. Within one week it through shareholder activism effected change of strategy for McDonalds. The company with a $30 billion market valuation was forced to accept and implement the proposal of the hedge fund.

According to an article with BusinessWeek, numerous large institutions and mutual funds have changed their investment strategy. Several of these firms which would either suffer a loss or sell shares in poor performing companies have recognized the influence of shareholder activism. Therefore, as a result companies such as Fidelity Investments are supporting hedge funds.
We have forwarded numerous letters to your attention. We have indicated that we have strategies that would create long-term shareholder value through deploying capital to new strategies. These letters have apparently been dismissed and the current management will continue to execute its poor strategies.

With five years of poor performance of increasing the company share price, we are confident that there are numerous dissident shareholders. This will include individual shareholders, institutions and mutual funds. As mentioned in previous letters, the five largest Microsoft shareholders control approximately $40-50 billion worth of equity. Each of these shareholders have failed to realize a return on their investment and experience long-term shareholder value. Therefore, we are confident that they will support new strategies that will create true value.
We are also confident that we can rally support from hedge funds. As mentioned, there are numerous funds that collectively manage $1 trillion in assets. Numerous funds currently employ activism strategies to create returns for the funds.

According to reports several firms are expanding and adopting activism strategies to increase returns. We understand that funds have collectively invested to maximize pressure and returns. For example, SAC Capital with $20 billion in assets is investing with Jana Partners with $5 billion in capital to influence TD Ameritrade. We are confident that we can obtain or rally support from hedge funds to influence the adoption of our proposal for Microsoft.

BE ASSURED that based on your dismissal of our previous letters we are going to initiate the strategy of gaining support for the implementation of the proposal. Since this strategy involves deploying capital towards building assets and generating additional revenue it will be supported by hedge funds, institutions and individual shareholders of Microsoft.

The proposal will be implemented with or without you as current CEO. Based on your response to our letters it seems apparent that our initiative will incorporate forcing your resignation as the CEO.

Regards

Craig Montgomery

We are aware that based on the above information there are two strongly conflicting opinions regarding the execution of past strategies and the value that it has created for shareholders. There is also conflicting views concerning the overall performance and future direction of the company. We do not want to appear bias towards our “New Strategy” that will create true value for Microsoft. Therefore, we will provide additional information to support our views and concerns. Ultimately, these facts will be left for discretion to determine which party has the correct view and which party is delusional.

CONCLUSION

Microsoft states that its primary financial goal is driving long term shareholder value. According to CBS Marketwatch and other historical share data, Microsoft has for a period of “long-term” traded at approximately $25 per share.

As reflected in the stock chart, Microsoft since 2004 has experienced minimal variation. It had a minor rally when Microsoft announced the potential acquisition of Yahoo. As noticed in the chart, it rallied to approximately $38 per share in February 2008, at the time Microsoft offered $45 billion to acquire Yahoo in an effort to narrow the market share margin with competitor Google.
After the rejection of the bid by Yahoo, the stock has declined to a level reflective of the past four years. Despite Microsoft deploying $115 billion in stock buybacks, the stock continues to languish with no creation of “long-term” shareholder value.

The annual P/E chart shows a clear downtrend, which keeps negating the positive impact on share price that otherwise might be expected from what earnings gains have occurred.

In addition to deflated P/E , there is subsequently the potential for “earnings” to decrease as well. This will be discussed in greater detail.

Microsoft states that with its financial goal of creating lasting long-term shareholder value, that it includes within its priorities that lead to success: winning and satisfying customers, driving innovation, and leading the industry transformation to services.
Microsoft states within the email The Crandrea Group received, that its priority is “driving innovation” which will both win and satisfy consumers.

1)Microsoft claims that Vista was a success.

Management claims it “sold” 150M licenses and subsequently hails that “success”. But, in reality given a ludicrous 5 year gestation period and reported $5-$6B price tag, media reaction, corporate adoption, FPP retail sales, the company’s own expectations, and most important the competitive need – it’s a drastic disappointment.

As illustrated within the two graphs, Microsoft has from the third quarter of 2007 to the third quarter of 2008 lost market share to Apple. These graphs only reflect a one year period. Charts with wikipedia illustrate that since 2006 Microsoft has been losing market share within the operating system sector. Apple is gaining momentum with winning customers and Microsoft has progressively losing its market share.

There is additional information provided within the wikipedia chart concerning Operating System Market Share. This chart can be accessed at http://en.wikipedia.org/Usage_share_of_desktop_operating_systems or by clicking on our link contained in this site. Microsoft launced Windows XP in 2001. It launched its update operating system Vista in 2006. The NetApplications chart illustates that approximately in 2008, 69% used Windows XP and 17% used Vista. Despite Microsoft hailing it a success, despite five years of development and a $5-6 billion cost to develop, only 17% use Vista and the majority of consumers have remained with the older Windows XP. Subsequently, this chart demonstrates the failure of Vista and Microsofts failure to win and satisfy consumers with "New Innovation".

The chart also demonstrates that Mac OS with Intel and PPC has collectively grown from approximately 4% in 2006 to 8% in 2008. Microsoft according to the chart has failed to capture consumers while Apple has gained 4% market share in a two year period.

Microsoft through advertising has resorted to creating the mojave campaign. Reality, regardless of calling it mojave, vista, or even windows, consumers are not satisfied. Competitors such as Apple recognize this consumer frustration and have created a advertising campaign that incorporates a mac and a PC. The ads sarcastically exploit that Microsoft fails to call the system vista. These ads by Apple continue to increase the exodus of consumers from Microsoft to Apple. Therefore, it seems that Microsoft is trying to reclaim consumers through hiding the fact its really vista. During the same time Apple is winning and satisfying customers with innovation.

We will be kind to Microsoft and we will at this point not discuss “Longhorn” and the dramatic impact it received from investors concerning the confidence in the management team and the overall company strategy.

Leadership are also delusional about the future implications that this underwhelming release represents. Windows market share, while still above 90%, has fallen . And others, particularly Apple, have been steadily gaining share. Consumers have voiced dissatisfaction with Microsoft and subsequently an exodus to competitors has impacted Microsoft.

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?

In four to five years will there be a continued report by Microsoft that revenue, earnings and EPS have grown by double digits?

The possible answer to that question is a resounding “NO”. There is the potential Microsoft will surrender revenue and earnings to Apple and Linux with double digit loss.

The chart at wikipedia illustrates that Mac OS has grown from approximately 4% to 8%. If this growth is maintained there is the potential that within the next four to five years Mac OS could capture 20-25% of the operating system market. Based on the poor response of Vista (17% of market share), if Windows 7 receives a similar consumer response as Vista there is the potential that Mac OS will obtain more than 20-25% of the market.

2) We have a “Success” strategy in Online Market Share.

Microsoft’s Online efforts have been a massive expensive and ultimate disaster. Microsoft’s performance has been the worst of the four major players. It has lost considerable market share to Google. The company Google, has a considerable margin in contrast to Microsoft.

In an effort to eradicate the substantial margin between Microsoft and Google the company attempted a bid for competitor Yahoo. This strategy resulted in Microsoft offering a 65% premium bid for languishing Yahoo. The bid ultimately was valued at approximately $45 billion. This strategy would have resulted in deploying $45 billion in capital to establish an additional $7 billion in revenue and $600 million in net income. However, these revenue and earnings are contingent on if Yahoo through the merger had the ability to sustain 2007 revenue and earnings levels.

If the acquisition proved successful, Microsoft would have increased annual revenue from $60 billion to $67 billion. Net income for the company would have increased from $17 billion to $17.6 billion. This is based on 2007 Yahoo Annual Reports. Therefore, Microsoft would have spent $45 billion to achieve a modest gain in both revenue and net income. Spending $45 billion to achieve a $600 million increase in net income fails at presenting characteristics of a company driving innovation and winning customers. It is more reflective of a company that failed to recognize the significance of the Internet and like a prehistoric dinosaur is trying to avoid extinction.

As demonstrated by the above chart, Microsoft and Yahoo combined fail to control as much market share as Google. Within this sector Google experiences a similar characteristic as Microsoft in the operating systems sector. Microsoft has experienced a near monopoly in the operating system sector. Despite a decline in operating system market share Microsoft controls relatively 90% market share. However, illustrated in the above chart, in this sector of service Google experiences a near monopoly. Subsequently, Microsoft is required to adopt a strategy that will enable the company to compete with Google. Currently, Google has 80% market share.

The acquisition according to Charlene Li of Altimeter Group and formerly an analyst with Forrester Research states “the bid appeared beneficial on paper, however, the reality of making the two companies work would have been a nightmare. There are numerous overlaps which would have made the integration complex when all Microsoft requires is the search deal”.
Microsoft despite deploying billions to create an online service and attempting to deploy $45 billion in additional capital, its online service continues to be outpaced by Google. The reality is that its consumer online satisfaction has failed to prove successful and fails to capture consumer satisfaction at the same growth rate as competitor Google.

It has become evident the plan hasn't worked, which is the main reason Microsoft tried to buy its way into competitiveness by acquiring Yahoo, a deal evaporated in May 2008, when Microsoft withdrew its bid for the Internet company.

3) Microsoft believes that it is “Successful” in obtaining consumer satisfaction with Xbox.

Xbox, while financially more successful than the Online division or sector on a comparative basis, it has been a financial disaster. More than twenty billion dollars “invested” over nearly a decade. The reality is that Microsoft has failed to maintain competitive consumer loyalty especially with the introduction of Wii and its increasing popularity. The reality, it’s conceivable that Microsoft will finish last of three main competitors.

4) "Microsoft is “Successful” in driving innovation and gaining consumer loyalty through mobile services".

Considering this set of competitors, and Microsoft’s failure to propel innovation, Microsoft could potentially lose additional market share to its competitors.

Subsequently, based on the historical data concerning Microsoft, it has failed at its priority of satisfying customers and driving innovation. Microsoft based on data, has failed at remaining innovative and maintaining customer satisfaction.

Based on Microsoft’s performance in contrast to its competitors (Apple and Google) numerous shareholders are speculating how Microsoft will succeed in future strategies. Competitors have been able to sustain successive growth and earnings through modest R&D expenditures and new product/service offerings, and yet the largest R&D spending company has failed to remain competitive.

Microsofts largest effort to remain competitive was the poorly conceived and executed bid for Yahoo. This strategy failed to obtain support from numerous Microsoft shareholders. The majority of shareholders are relieved Microsoft abandoned its premium bid to acquire Yahoo. This strategy, if it proved successful,would have cost $45 billion to achieve what a “search” only deal could accomplish.

Microsoft will continue to operate. However, will it continue to languish. Apple in 2004 was trading at approximately $7 per share. Through the leadership of Steve Jobs, the company drove innovation and secured consumers. As a result, the market responded and shares have increased in 2008 to surpass $200 per share. Subsequently, Apple was successful in driving innovation and obtained customer satisfaction. The mac and iphone have obtained market share from vista and Microsoft Mobile. The market has responded, and Apple succeeded in creating shareholder value. This first and foremost is to be the goal of every company. The primary goal of every company management is to create shareholder value. Despite, Microsoft stating in its email that it was a primary goal, it has failed to create shareholder value similar to its competitors.

In 2004, if an investor acquired shares in Microsoft the investment according to historcial charts will have expereinced minimal return with the share value remaining at approximately $25 per share. Therefore, the investor will have realized "NO" return, unless the investor sold in February 2008 when Microsoft rallied to approximately $40 per share. However, if the investor failed to sell during that minor rally, the portfolio will currently be expereincing a negative return.

If an investor in 2004 acquired Apple shares at $7 per share, charts indicate that the investment would have increased to $210 per share in February 2008. Simple math demonstrates that equates to a gain of $203 per share. The comparasion between Microsoft and Apple is simple. An investor in 2004 could have spent $25 per share for Microsoft stock and expereince it increase to $40 per share in February 2008. The alternative, the investor could have spent $7 per share to acquire Apple stock and within the same period witness the shares valued at $210 in February 2008.

The reality is simple to determine. In 2004 the entry level was $25 per share for Microsoft. Currently, the Microsoft shares are trading below the entry level at approximately $18-19 per share based on market fluctuation. In 2004, the entry price for Apple was $7 per share. It with current market volatility has declined to approximately $90 per share. It is still simple to determine that Microsoft has produced a negative impact while apple is worth 12 times higher than the entry price. Apple is a gain of $83 per share.

In 2004 the market valued Microsoft shares at $25 per share. In 2004, the market valued Apple at $7 per share. Based on current market volatility Microsoft has declined to below 2004 levels. Therefore, logically we would have to draw the conclusion that Apple would expereince similar reaction from the market. However, Apple trades well above its 2004 share valuation. An individual that invested in 2004 to acquire shares of Apple would have regardless of market volatility expereinced a substantial gain. This creates the question, what is truly volatile the market or Microsoft?

In the next four years, what will the historical charts of Microsoft’s shares appear or reflect?

From 2004 to 2008 it has fluctuated at $25 per share. As outlined in the data it is losing market share to competitors. This includes losing market share in its valuable Operating System monopoly. It has begun to already loss share in this sector. Being proactive and looking forward, in four years during 2012, what will be Microsoft’s market share in Operating Systems, online services, home entertainment and mobile services?

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?

3-5 years from now (maximum), growth in the cash cows might diminish, this will dramatically impact the potential for shareholder value. There is the potential for Google, RIM, Apple and other competitors to seize additional market share from Microsoft. There is the potential that if Apple continues with similar success, Microsoft will witness its 90% operating system market share diminish further.

All of this assumes Ballmer is still at the helm of course, which sadly and ironically is very probable. Despite, poor performance during his tenure, he continues to preside over the strategic direction and ultimately the fate of shareholder value. What is perplexing is that activist hedge funds target other companies that have languished for equal or shorter durations.
Carl Icahn has acquired numerous shares of Yahoo. Reports indicate that Icahn Partners recently acquired an additional 7 million Yahoo shares. Articles indicate that Icahn Partners were dissatisfied with Jerry Yang and Yahoo. Numerous media articles state that Mr. Icahn was instrumental in supporting Microsoft bid and the proposed acquisition of Yahoo. The activist fund is willing to discuss with Mr. Ballmer the benefits of a 65% premium bid for Yahoo. It’s ludicrous that this activist fund would rally support behind a $45 billion, 65% premium bid for Yahoo and believe that it’s a viable strategy for Microsoft.

What’s confusing is that activists have failed to target Microsoft. Through our initial research we discovered some hedge funds that in August 2008 held Microsoft stakes, however, in their November SEC filings they had liquidated holdings. Liquidating shares has no effect on the direction of the company other than potentially forcing shares further down as its creates more volatility and pressure on other investors portfolios.

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.

According to the email that we received, Mr.Ballmer intends to continue with the strategy of deploying billions of dollars worth of capital towards stock buybacks. Despite this strategy and its failure to elevate the share price, Mr.Ballmer makes it clear it will continue with the same course of action. That strategy appears ridiculously redundant. If you were in a boat paddling towards a waterfall, perhaps Niagara Falls, and realized it was getting closer, would you continue in the same pursuit of action or would you attempt an alternative strategy?

Another analogy, if you were the Captain of the Titanic and were warned of the ensuing iceberg would you attempt evasive action?

As the Captain, would you turn the wheel and put the propellers in reverse to avoid the collision?

Icahn Partners in a letter to Yahoo shareholders stated “the company is moving towards a precipice”. Microsoft based on losing its grip on the PC market, poor performance in online services, poor performance of mobile services, is subsequently moving towards a precipice. However, reflected in the email that we obtained, Mr.Ballmer is adamant on continuing to paddle the boat towards the waterfall as opposed to seeking a “New Strategy”and, is as the “Captain” stating 'throttles full ahead' to accelerate the pace we hit the iceberg. It’s time Mr. Ballmer realize it's time to stop paddling in the same direction and it’s time to reduce throttle before shareholders are either taken over the waterfall or hit the iceberg at full throttle.

It’s time to stop deploying capital towards stock buybacks. In the next four years will Microsoft spend another $115 billion with the same failing results to elevate shareholder value?

Without a rally of shareholders and a “New Strategy", Mr. Ballmer and current management will continue with a general lack of accountability and urgency within the senior management ranks, a lethargic like approach to creating strategic focus on long-term growth and will fail to create shareholder value.

Attempting to protect the cash cows and inadequate attention to the product innovation, and its related failure to spot new trends and get out in front of them (invariably resulting in a desperate, expensive, and often unsuccessful attempt to play catch up later with a 65% and $45 billion bid for another failing company), a staggering annual R&D expenditure that produces minimal technology innovation and even fewer successful new products, poor execution of strategies ( the premium bid for Yahoo), ultimately Microsoft will become its own folly to the detriment of shareholders.

Through the current leadership team and its strategy of creating shareholder value, driving innovation, satisfying customers and pursuing stock buybacks, the reality is within the next four years will Microsoft loose more market share and therefore shareholder value?

The reality is the market sees Microsoft losing its grip on computer users and having nothing to take its place when those users start leaving. There has already been an marginal exodus to mac and Linux, and AT&T with iphone is outpacing Microsoft Mobile. The market is a forward looking mechanism and senses that at Microsoft there's a greater chance of losing market share than gaining market share. Subsequently, the market reflects this fundamental truth in the value that investors are willing to pay for the stock.

Within this analysis we presented a P/E chart that we stated would be discussed in greater detail. Typically, stocks with higher forecast earnings growth will have higher P/E ratios. Those with expected lower earnings growth will have a lower P/E to reflect this expectation.

The company Apple generates $32 billion in annual revenue and has a market capitalisation of $76 billion. The company P/E is currently 16.

The company Google generates $16 billion annually and has a market capitalisation of $93 billion. The company P/E is 18.

Microsoft generates the highest level of annual revenue with $60 billion. It has a market valuation of $170 billion. Its current P/E is 10.

The market is a forward looking mechanism. The market realizes Microsoft is losing its dominant operating system market. The market reflects the expectation of future earnings growth potential and its reflected with the low P/E. The market has demonstrated its belief in Microsoft and the company ability to propel future earnings growth.

Therefore, it can be concluded that despite the fact that Microsoft states “its priority is shareholder value, driving innovation, satisfying and winning customers”, that it’s failing to be successful in these goals. It can also be concluded that it will continue with the same failing strategy. This will be detrimental to current and future shareholders.

It is time that shareholders rally support. It is time that shareholders indicate a “New Strategy”.

The reality, shareholders are in the boat heading towards the waterfall or shareholders are on the Titanic. Regardless of the analogies, it’s time for shareholders to take the initiative and gain control of the boat before shareholders are swept over a waterfall or hit a iceberg.

It is time to take control and rally support. It is time to adopt and execute a “New Strategy” that will avoid future disaster and loss of market share and shareholder value.

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.

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.

The “New Strategy” enables Microsoft to increase annual revenue to potentially surpass $300 billion annually. It has the capacity to increase net income to $30 billion annually. It enables Microsoft to accelerate growth in both online and mobile sectors. It enables Microsoft to offset the potential decline in revenue based on losing market share in its monopoly Operating System division.

Numerous companies missed the opportunity to accelerate growth during the dotcom meltdown. As mentioned, valuations are at record lows. Microsoft can currently spend less than its proposed Yahoo bid and acquire assets that will add an additional $260 billion in annual revenue.

We will continue to post blogs and rally support. In the New year we will post more information concerning recent developments. We wish all Happy and Safe holidays. We look forward with anticipation to the “New year” and the potential of the “New Strategy”.