What Microsoft will do next
By Michael V. Copeland
The last time Microsoft walked away from a major acquisition was more than a decade ago. It was 1995 and a $2 billion bid to buy financial software company Intuit fell apart under scrutiny from the U.S. Department of Justice. While there are clear differences between Microsoft’s Intuit deal and its failed attempt to buy Yahoo, a look at what happened within Microsoft after the Intuit bid collapsed offers a preview how things might play out now.
Intuit (INTU) makes Quicken, the leading personal financial software program. And before trying to buy Intuit, Microsoft had tried to beat it with its own software program, Microsoft Money. Microsoft (MSFT) launched Money in 1991 as a way to get a bigger chunk of the consumer software business (Microsoft Office was yet to come to market), and specifically to get a piece of computerized banking. Personal finance was one of the tasks that helped drive personal computer sales. Think back: in the pre-Internet era of the early ‘90s, a PC let you write documents, build a spreadsheet, and track your spending - that was about it.
Microsoft Money did not capture the hearts and checkbooks of anyone, and became a perennial also-ran (not unlike Microsoft’s web effort MSN). Quicken captured about 90% of the market, the rest was divided among three or four other players including Microsoft’s Money. By 1994, Microsoft was done playing around. Rather than try to beat Intuit, it would simply buy it. Here’s how it went down according to several former Money folks.
On a morning in October1994 everyone on the Money team received a phone call at around 7 a.m., telling them to be at a work by 8 a.m. No explanations. At 8 a.m. an unmarked bus rolls up to the Microsoft campus, and the money team is told to get in. No explanations. The team is deposited in a drab conference room at a Bellevue, Wash., hotel and told to wait. No explanations. About 45 minutes later Bill Gates walks in and explains that Microsoft is about to announce its intention to buy Intuit, and answers a few questions. The Money team waits at the hotel until the market closes.
But Gates and his team knew that there might be anti-competitive flags raised. The weirdest part of whole day was the explanation that not only did Gates want to replace the Money product with Quicken, but to do that Microsoft needed to sell off a new version of Money to Novell and therefore sidestep what were likely be complaints from the Justice Department. So the Money team had to get back to work on a product that Microsoft didn’t really want, to buy a company it did want. (Again, what are you thinking if you are hunkered down at MSN?)
Unlike Yahoo (YHOO), Intuit Chairman Scott Cook agreed to the purchase. (Though according to some on the Money team, it was implied that if had not he and Intuit would face the full Microsoft Death Star fury, that is, they would put everything they had smarts-wise and money-wise in to beating Quicken if he didn’t acquiesce.) It was left to the Department of Justice to raise enough questions that it became obvious to Gates and his team that fighting a protracted battle to buy Intuit might ultimately fail, and in the process kill off whatever audience Microsoft Money had. So Gates bailed on Intuit.
That didn’t mean he bailed on the space, and here is where you are likely to see a similar push post-Yahoo (if it is indeed over). Microsoft took all its focus and much of its money and doubled down on Money. The product improved dramatically. Money 1995 actually found an audience, and all the sudden it was a two-horse race with Intuit. Money grabbed about 35% to 40% of the market, Quicken the rest.
MSN in many ways is like Microsoft Money - it has never been on top. But the culture at Microsoft has always been one of intelligence if not arrogance. It doesn’t matter if MSN isn’t on top, there is a belief that Microsoft’s bench will figure out a way to put it there. “People at Microsoft still believe that they are smarter than everyone else,” says one former Money team member who asked not to be identified. “So just because the current team hasn’t unlocked the door to the Web, doesn’t mean another team won’t. And if they do, they’ll be heroes.”
If the Yahoo deal is indeed dead, you can bet that MSN will get the people and the resources it needs to make a run at Yahoo and in the grander scheme, Google (GOOG). Microsoft has already shown its commitment - $46 billion worth in the Yahoo bid - putting up a real contender in the fight for the web. As with Microsoft Money it’s likely to double, quadruple down it’s own efforts. But as one former Money team member points out, the question is, can Microsoft win or just put up a good fight?
“The epilogue is, as good as we all thought it was, as much progress as we made, Money never became the dominant player,” says Jan Miksovsky, the lead designer on Money 1995 and part of the Money team through 2000. “Intuit remained the market leader and has gotten stronger in other areas. When I look back I was personally gratified to see the Intuit deal fall apart, says Miksovsky, who went on to co-found online calendaring startup Cozi. “But my sense now is that Microsoft would have been in a much stronger position had the deal gone through and they acquired Intuit.”
The question for Microsoft now is, can MSN battle Google with the team and the audience it has or does it remain an also-ran. You will see Microsoft make a move within MSN to catch its competition - it has to. But it needs to be at a pace that will allow the software giant to catch up, and fast.
I put Microsoft’s chances of pulling this off at somewhere around Z-E-R-O. These pitiful slobs have had TEN YEARS to turn a simple email program (Hotmail) into something usable, and have failed miserably. My hotmail account is unundated with 50 spam messages a day that the people at MSFT seem to be unable to filter. My gmail account? Not ONE spam message gets through, and not ONE real message gets accidentally sent to junk. Gmail has effectively completely eliminated spam for me. Not to mention that their UI is roughly 1000 times better, faster, and more reliable and easier to use than MSN. MSN and Microsoft are an EMBARRASMENT to the web at the moment, and there is no excuse for this. Unless they fire everyone and hire away all the smart people at Google, I give them a ZERO percent chance of ever catching up. Their web strategy is nothing but a pathetic and colossal failure at this point, and they should be ashamed of their efforts.
The next logical step is for Microsoft to acquire NewsGator Technologies. NewsGator has been the number 3 player worldwide in Enterprise RSS. In the last year they created Social Sites which sits directly on top of MOSS/SharePoint. This would give Microsoft an upper hand in the Enterprise Social Computing space, and would put them light years ahead of IBM’s Lotus Connections. Plus its a much cheaper acquisition with far superior technology to the consumer version of FaceBook.
This would put OpenSocial on the ropes.
I think, MSFT’s strategy is “not winning” but “slowing the pace of GOOG’s growth”. The more $$$$$ GOOG has in it’s pockets, the more it tries harder to diversify it’s business. With less $$$$, GOOG might take a real hard look at it’s diversification strategy instead of investing in a million products as it is doing these days. That’s indeed a scary situation for GOOG.
Microsoft should design a fantastic web experience that is really useful and makes people want to use it?
Really good journalism. I am impressed. You stayed out of favourites game and we all learn something.
I like to go to the dog races. I have favorite kennels and dogs. I always bet on them. They don’t always win, but they usually do and I’m ahead in winnings vs. losings. Microsoft (and even Apple)are a few of my favorites at the dog race called of beat the competitor. Odds are, they win more than they lose.
Dealgonesour in Portland - Boy, did you ever hit the nail on the head. Copycats indeed. I’m following the Yahoo story closely, but the techie around here is my husband. His take on Microsoft is that, even if they hire a few of the brightest, their claim to fame has never been innovation. In his words, Microsoft merely “buys their innovation”.
Great Article.
Excellent article that truly captures the feel of Microsoft. It’s like you used to work there as well. You nailed it.
MSFT does not have to beat GOOG to win this battle. At present their web-market share is less than 10%. If they can show a positive trend and reach 20-30% that will be great.
MSFT will not win in every space and will not win every time.
neither will GOOG.
When I was a kid there was this home computer called MSX (correct if wrong) there were about 6 companies producing it. It did not win, it did not even do well. But it was a try.
Decades later MSX was reborn as XBOX. Now you tell me that Microsoft does not have what it takes to come back.
In the capitalist world money can buy as much talent as possible, so long as it is managed properly. If Msft was willing to bet $46 billion dollars on Yhoo you can rest assured they are prepared to go all in and since neither GOOG or YHOO possess technologies that money can’t provide my bet is on Msft. The Yhoo offer from Msft was nothing other than an expedient which Msft paper can easily compesate for if they choose to go it alone.
Given the enormous cash resources at MSFT, clearly, the leadership is impotent, and too siloesque. MSN was MUCH better than the competition, but starved for resources to make it a wonder product… too many TOMs at MSFT - Tired Old Men. New blood, new faces, FRESH ideas to EFFECTIVELY EMPLOY the cash flow. But, re Google, GIVE IT A REST…they are FAR from being the 2nd Coming…very good a SEARCH, but a the web is anything but static.
How about this Idea.
Microsoft buys some of the publicly traded companies that have large domain holdings and currently are using Yahoo or Google to send the traffic to, and moves all that traffic to MSN. Then Microsoft buys some of the large privately owned domain portfolio’s, which generates hundreds of millions of dollars in revenue now with Yahoo and Google and sends that traffic to MSN.
MSN might take away 10% or more from Yahoo and Google and put it with MSN.
We have blogged on this.
You can read it:
Face it! Google has slowed down. What had turned out to be a revolution around email and unlimited storage - has in fact become an advertising and media company. In the last year Google has run out of ideas, in pretty much the same way Yahoo had - especially noticeable here in India. Yahoo lost out on glaring winners like Youtube - so did Microsoft - especially when Gates had talked of education through video - made very possible with the advent of flv files. Tell me one great innovation that Google has made besides selling text ads - an easily duplicable technology these days. I think search will continue to be Google’s dominance but this does not necessarily guarantee growth. As for Microsoft - it’s wins will come from India and China - Eclectic Investor (www.eclectic-investor.blogspot.com)
What a very well researched and well written article. The MSN group at Microsoft does not have the talent to even begin to catch up to Yahoo or Google. At best they will copy the others features until they can get rid of the current team and bring on real talented developers. I don’t think they can do it. MSN is stuck in their own mud of arrogance and will need to toss billions into MSN to even see if they can catch up. By that time Google and Yahoo will have leaped into the future and MSN will always be left behind. There are few things that Microsoft has done that are truly creative. At best, they are mere copy cats.
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This is all about fighting the last war. Cell phones will become the dominent internet platform. This is the pattern in Europe and the United States, let’s not even attempt to mesure the growth potential in China and India. Whoever creates and captures dollars there will quickly overtake and pass the current leaders. Search has become the economic killer app because you can link to what the person is currently interested in. With a cell phone, which goes with the person all day, you can link to where he goes and ( with the cell phone replacing credit cards ) what he does.