Microsoft News Tracker

Today, Research in Motion (RIM) and Microsoft announced an agreement to provide Windows Live Messenger and enhanced support for Windows Live Hotmail on RIM’s BlackBerry smartphones:

Microsoft Corp. and Research In Motion (RIM) today announced an agreement to provide Microsoft Windows Live services on BlackBerry smartphones. As a result of this collaboration, BlackBerry smartphone customers will enjoy easy mobile access to Windows Live Messenger and an enhanced level of integration between Windows Live Hotmail and the BlackBerry platform.

The integration of Windows Live services into the BlackBerry platform will allow customers who use Windows Live Hotmail and Windows Live Messenger on their BlackBerry smartphone to benefit from the BlackBerry platform architecture with the ability to communicate in real time using push technology, and an exceptional mobile communications experience. Customers will also be able to seamlessly access their Windows Live Hotmail and Windows Live Messenger account from their BlackBerry smartphone by simply entering their Windows Live e-mail address and password once.

There are more details on the features by following the link. Microsoft did a similar (but larger) deal with Nokia back in August, 2007. One wonders whether any money is changing hands in these deals or at least how the porting and support expenses are allocated, but no information has been provided.

The long running soap opera of Microsoft’s attempted acquisition of Yahoo ended after a week of hectic negotiations yesterday as Steve Ballmer withdrew the offer. The fundamental reason was a disagreement on price (Microsoft’s last bid was $33 per share and the lowest Yahoo would go was $37), but Yahoo’s threat of a search ad outsourcing deal with Google proved so much of a poison pill that Microsoft did not care to pursue a hostile takeover.

The two protagonists now get to lick their wounds and pursue their own separate paths to online riches. It’s in the nature of the US legal system that Yahoo’s management and board of directors will be sued for not taking the cash when they could, but worse is the very public acknowledgement of the fundamental weakness of Yahoo’s search ad business. As for Microsoft, despite the happy talk that a Yahoo acquisition would merely have sped up Microsoft’s inevitable success in the online business, the Microsoft employees concerned know that they barely escaped a "synergy" bloodbath which is hardly a vote of confidence. Moreover, if Yahoo’s prospects don’t improve, this may turn out to be merely a merger delayed.

The traditional weakness of Microsoft’s system management software has been that no matter how good it was for managing Microsoft systems, it didn’t play in the heterogeneous environments that predominate in large enterprises. Yesterday, Microsoft stepped up to that challenge with public betas of new heterogeneous environment enhancements for their flagship data center management products, Operations Manager and Virtual Machine Manager:

Microsoft today announced the availability of a public beta for System Center Operations Manager 2007 Cross Platform Extensions, which build on the existing Operations Manager 2007 technology and capabilities and are designed to help customers extend the value of their Microsoft System Center investments. Providing customers with a comprehensive management solution, this new end-to-end IT systems monitoring capability incorporates industry standards and proven open source technologies, including Web Services for Management (WS-Management) and OpenPegasus, extending the capabilities across both physical and virtualized Windows and non-Windows operating systems and applications. Microsoft delivers the core foundational cross-platform support out of the box for HP-UX, Red Hat Enterprise Linux, Sun Solaris and SUSE Linux Enterprise Server operating systems so that partners can focus on adding their deep domain expertise in the form of management packs. Companies such as Novell Inc., Quest Software Inc. and Xandros Inc. have demonstrated their support by working to deliver monitoring abilities for applications made by organizations such as The Apache Software Foundation, MySQL AB and Oracle.

Further demonstrating support for its commitment to OpenPegasus, Microsoft also announced today that it will be joining the OpenPegasus Steering Committee and contribute code back to the open source community under the Microsoft Public License, an Open Source Initiative (OSI)-approved license.
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Microsoft also delivered a beta of the updated System Center Operations Manager 2007 Connectors, based on many of the same extensible open source technology and industry standards as the Cross Platform Extensions, which provide an integrated administrative experience and the ability to interoperate and exchange System Center monitoring data with third-party management offerings such as HP OpenView and IBM Tivoli Enterprise Console.

Also delivered today was the public beta of System Center Virtual Machine Manager 2008 (formerly code-named “Virtual Machine Manager vNext”), which enables customers to configure and deploy new virtual machines and to centrally manage their virtualized infrastructure, whether running on Windows Server 2008 Hyper-V, Microsoft Virtual Server 2005 R2 or VMware ESX Server.

The proof of the pudding will be in the eating, of course, but Microsoft clearly is making a serious run at the traditional enterprise system management vendors like HP and IBM. If you want to try the free samples, all three betas are downloadable at Microsoft Connect.

Shareholders were justifiably nervous after the first good news called out in the 3Q08 Microsoft earnings report was that the nearly profitless sinkhole of Entertainment and Devices grew revenues by 68%. That such a diversion was necessary was because the milk yields of Microsoft’s leading cash cows, Windows and Office, dropped in a still mostly unexplained manner.

Below are the segment breakouts with some brief commentary based on the 10-Q.

Client:

The big hit here is the $1.14 billion of deferred revenue that got tacked on in 3Q07, but even removing that, revenues were down over last year despite OEM sales (which account for 80% of unit sales) being up 5% and the "premium mix" being up as well. Estimated PC sales growth was 8-9% and theories ranging from piracy to Apple/Linux competition to Microsoft shifting revenue to next quarter have been offered for the shortfall.

Business (mostly Office):

Subtracting the $500M deferred revenue booked in 3Q07 makes this look much better apparently due to strong Office revenue growth from businesses, but consumer revenue was actually down. R&D expenses were up 19% driven by headcount expenses and headcount itself was up 7%, presumably not to add bells and whistles to the traditional Office product.

Server and Tools:

Another sterling quarter for Server and Tools who launched major new products.

Entertainment and Devices (mostly Xbox):

The good news is that E&D made money in 3Q. The bad news is that it didn’t make much, but then it never does. R&D expense was up 26% and sales and marketing expenses were up 29%.

Online Services:

Online advertising revenue grew 39% ($175M) to $619 million including aQuantive’s $47 million. aQuantive also added $97 million in agency revenue. So where did it all go? There was a large write-off from the acquisition of aQuantive plus increases in general expenses for infrastructure, "online content expenses," and headcount. One item that caught my eye was "a $24 million in-process research and development write-off." The Online Services Business (OSB) doesn’t seem to be going anywhere fast. The question, of course, is whether it would go any faster with the addition of Yahoo.

Corporate Level Activity (overhead and legal): 

The big ticket item here was an increase of $1.2 billion in legal expenses including the EU fine.

Bottom Line:

Out of Microsoft’s three cash cows (Windows Client, Office, and Servers) only Servers delivered in accustomed fashion. Entertainment and Devices is all sound and fury signifying nothing, while Online Services is treading water waiting for a Yahoo life preserver

Steve Ballmer’s three week ultimatum to Yahoo’s board of directors to accept the Microsoft acquisition offer passed yesterday with no comment from Yahoo or specific action from Microsoft to carry out the threatened reduction of the offer amount and proxy fight. The next episode in this soap opera is expected early next week and predictions range from Microsoft withdrawing their offer to a full out hammer and tongs proxy battle. The most telling commentary however is likely the desire of Yahoo employees to take the money and Microsoft employees to forget about the whole thing.