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Yesterday Microsoft held their annual Financial Analyst Meeting for 2008 and while you can view the full video and (nearly unreadable) transcripts of the presentations, it was mostly predictable fare. However, there were a few newsworthy nuggets::
Steve Ballmer (Chief Executive Officer)
"One last thing I wanted to also talk about is an extension of our Facebook relationship where we are extending it to Search and Page Search. We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that’s something that they will launch in the fall, working with us, and it’ll carry both our Web results as well as our Page Search advertising."
Bill Veghte (SVP, Online Services)
We still have the possibility of doing a search transaction, which we think makes some economic sense. If I had a worry it’s the parallel paths continue, and about the time Yahoo decides that search deal makes sense for them is probably about the time that we have committed to our own plan so much that it may no longer make sense for us."
Yesterday, the head lawyers for the protagonists in the Yahoo acquisition soap opera headed off to Washington for testimony before both House and Senate committees, but it turned out to be one of the least exciting episodes so far. Brad Smith (Microsoft’s General Counsel), David Drummond (Google’s Chief Legal Officer), and Michael Callahan (Yahoo’s General Counsel) all delivered predictable prepared testimony as to whether Yahoo’s search advertising deal with Google indicated creeping monopoly or was just an ordinary business transaction that would provide better advertising for both consumers and advertisers.
The biggest excitement was provided by Brad Smith quoting Yahoo CEO Jerry Yang:
Yang "looked us in the eye," Smith said, and told Microsoft executives, "The search market today is basically a bipolar market. On one pole there’s Google, and on the other pole there are Yahoo and Microsoft both competing with Google. If we do this deal with Google, Yahoo will become part of Google’s pole, and Microsoft would not be strong enough in this market to remain a pole of its own."
…
Senators quickly bored in on Smith and Callahan, saying that Yang’s "bipolar" comments, if substantiated, were startling."This is pretty explosive stuff," said Sen. Herbert Kohl, D-Wis., chairman of the antitrust subcommittee, who reminded the witnesses they were under oath.
Smith said he repeated "exactly what Mr. Yang said." After the June meeting, Smith recalled, Microsoft chief executive, Steve Ballmer, told him "He (Yang) said there’s only going to be one pole in the market. I guess that would be a monopole, wouldn’t it?"
Callahan was pressed to respond by Sen. Arlen Specter, R-Pa., a former prosecutor. At first Callahan said "it would not be appropriate to comment on Mr. Smith’s accuracy." Then he said he could not recall Yang’s comment.
Good punning on Mr. Ballmer’s part, I’d say, but none of the solons called for storming the gates at the Department of Justice on behalf of either Microsoft or Yahoo-Google so this was merely all for PR value.
The deal that would not die is back for another episode and terrifying Microsoft shareholders everywhere. This time the story is that Microsoft Seeks Partners For a New Run at Yahoo:
Microsoft Corp., positioning itself for a new run for Yahoo Inc.’s search business, has approached other media companies in recent days about joining it in a deal that would effectively lead to Yahoo’s breakup, say people familiar with the discussions.
Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks. In the past, Microsoft has floated an arrangement under which it would acquire Yahoo’s search business and another partner, such as News Corp.’s MySpace or Time Warner’s AOL, would combine forces with what remained of Yahoo.
This effort does not seem to have been too successful as yet since Microsoft is said to have canceled a meeting with Yahoo Chairman Roy Bostock presumably because they had not yet found a buddy. The takeaway, however, is that Steve Ballmer apparently just won’t give up on a Yahoo search deal. When will the shareholders do themselves a favor and stage an intervention?
MSFTextrememakeover is shutting down his always interesting blog and by way of a farewell present provides a lengthy valedictory post about all the things that are wrong with Microsoft from a shareholder’s perspective - Eight Years of Wrongness:
For example, I bought my first MSFT shares back in the early 90’s. Like most holders that decade, I did very well. Then came this one, which has been an absolute disaster.
It’s sobering to realize that during Ballmer’s term as CEO, MSFT has underperformed almost all of its top tech peers (including AAPL, IBM, HPQ, SAP, INTC, CSCO, SYMC, NOK, ORCL, ADBE, RIMM, QCOM, Ebay, and AMZN), and badly lagged the major averages. We may even see our third plunge to test the 2000 lows during his watch. Unbelievable. There may be another major technology CEO with an equivalent or worse track record who is still in power, but a name doesn’t come readily to mind. Indeed, it’s instructive to note the four companies who didn’t make my list above: DELL, YHOO, Sony and Sun. In other words, four well-publicized flameouts/turnaround stories (depending on your perspective), all of which have new CEOs. Go figure.
…So it’s time for me to listen to the fat lady who has been singing for years now, and finally pull the plug. I can’t keep waiting another 11 years for MSFT’s leadership to deliver the returns that say AAPL’s have in just the past 12 months …
What follows is a lengthy dissection of Microsoft’s business which may be briefly summarized as Microsoft has become a bloated bureaucracy throwing money and people at "big bets" that aren’t paying off while mishandling the cash cows that are financing the party. I highly recommend you read his assessment and I agree with it, although I am somewhat more sanguine about the cash cows and would observe that Microsoft has had one sterling success in the last eight years - the server operating systems and server software which started to gain real momentum circa Windows 2000. Who knew there were high margin, low capital outlay profits in the software business?
Less cynically, Microsoft is suffering from the malaise that commonly afflicts successful companies. When they are young and hungry they conquer a market or several related ones which makes slower growth inevitable accompanied by a "middle age spread" of bloated headcounts and bureaucracy. However, management still yearns for the glory of the company’s lost youth and goes through a "midlife crisis" of mostly outlandish gyrations until a transition to maturity finally occurs, hopefully without lasting damage. Microsoft’s particular problem is that their core business is so incredibly profitable that management can indulge the midlife crisis on an unprecedented scale.
Bill Gates made a valedictory appearance at this year’s TechEd and along with a Steve Ballmer robot had some some development related announcements:
Not on the formal program was a certain amount of uncertainty over the arrival of SQL Server 2008:
He said Microsoft’s SharePoint Server would become the first Microsoft product to use enterprise search from its Fast Search and Transfer acquisition. The delayed SQL Server will be next. "Think of it as SQL Server, but it’s really Fast," he said.
For all the talk of data services, there was still no date on the next edition of SQL Server. Demonstrating SQL Server 2008, Dave Campbell, from Microsoft’s data storage platform division said SQL Server 2008 would be available in the "next month or two."
SQL Server 2008 is due in 3Q so it is not really past its latest due date. Fast Search & Transfer was acquired by Microsoft in January.
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