Tuesday, May 06, 2008

Investment Advice - Microsoft and Yahoo

Now, I'm no genius, but there are a few rules I've learned about investing. You may have heard them summarized as follows: Buy low, sell high.

As one of the stockholders of Microsoft, I am very pleased to see my employee, Steve Balmer, drop the deal with Yahoo. He was violating one of the prime directives.

Would I ever try to buy an $18 stock for $32? No. Never. Not in this lifetime. Get the hell out.


But let me give another perspective on the whole Yahoo/Microsoft debacle.

Why does Microsoft want to buy a search engine whose days are over? Because they can't build one themselves to compete.

Why can't Microsoft build a decent search engine? Because it's not software.

Microsoft is perhaps the best software manufacturer out there. As I mentioned before, MS Office is the most successful software package in history, and Microsoft is killing Office by trying to deliver it as a service.

Microsoft thinks that online services are just another kind of software. They're not.

An online service requires two things Microsoft has never been good at: 1) Service, and 2) Nimble, adaptive programming.

Look at the whole Alpha/Beta program. A product has early betas and late betas. It has TAP programs, public beta programs, and release candidates. There's no quick turn-around or response to immediate market needs.

If you were a victim of Microsoft's now-abandoned shopping cart program, you saw a taste of this. They threw it out there to collect money. But every service and every line item came across the same on the bill: Microsoft Service. Okay, how do I know which service is which so I can cancel? No email help, no phone help, no web help. Problem with the service itself? No email help, no phone help, no web help.

And today, if you use the commercial MSDN or Partner site, you have the same experience. Things just stop working for days at a time.

Need to straighten out your partner license sales? Good Luck. No one at Microsoft is interested. No one cares. No one has a compensation plan that would lead them to help you in any way.

The point is: Microsoft doesn't belong in the online service business. They can't do it. They've proven they can't do it.

Microsoft got where they are by developing spectacular software and building a machine that pushes that software through the partners to the end users. They know how to do that. They're good at that.

But why would a partner push a client to a Microsoft search engine? Will it increase my sales? My margin? My general client relationships? No. No. No.

So I'm not pushing people AWAY from MSN Search (or MS Yahoo), but I'm not pushing anyone to it either.


With an online service, like a search engine, the developer needs 100% reliability. They need to constantly change the product (live, in real time) to improve performance and experience. They need to respond very quickly to advertiser requests and complaints.

They need an experience so good that viral marketing spreads the word for you.

Microsoft doesn't have a culture that can do these things.

(Most obvious example: Ipod vs. Zune. Ipod defines an industry. Zune is an mp3 player.)

When it comes to online services, Microsoft has no passion. They want the money desperately, but they don't care about the product or service. They just hate the idea that someone else is getting all that money.

In truth, when Microsoft tries these things, they produce a "competent" product that will get some share of the market. But no one has passion for the product (no customers are passionate, no MS employees are passionate, no partners are passionate). It's just another product.

The answer? Microsoft would need to build (or buy) a completely new organization from the ground up that is not based in the culture that makes the software giant so hugely successful. They need to be absolutely committed to delivering the product, delivering service, being passionate about constant live development, and doing a kind of marketing they've never done before.

I'm sure that's not what they had in mind with Yahoo.


Final note to Steve: It's okay if other people have some of the money. You don't lose just because someone else wins some of the time.

1 comment:

  1. Need an example of Microsoft producing great software for the Internet age? Windows Live Writer. The awesome product that no one knows about. It's the software that bridges the gap between writing and blogging. It's awesome and Microsoft should look at what ever tiny division wrote this bit of genius and model it accross the company. They can do this. They can remain the dominate company, but they've got to start now.


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