Strictly in the rumor category – Microsoft Likely In Digital River’s Deal Pipeline:
Digital River reported on Thursday solid second-quarter results with upside despite the seasonally weak quarter. The e-commerce outsourcer also announced it has reached new business deals, one of which could be with Microsoft, according to a report from RBC Capital Markets.
On Thursday, Digital River (nasdaq: DRIV ) posted second-quarter earnings per share and revenue of 41 cents and $71.3 million, beating the Street’s estimates of 37 cents and $70 million.
On its earnings conference call, Digital River also announced new deals in the pipeline for first-quarter 2007.
“It was these new deals which garnered the focus of the call, and while management was not able to say much, they did mention that it was some of the biggest business they had ever seen,” wrote Robert Breza, an analyst at RBC, in a report Friday.
The analyst speculated that one of these new deals is with Microsoft (nasdaq: MSFT). Digital River said it hopes to announce the deals before its third-quarter earnings report, he said.
As indicated in the article, Digital River is a prominent e-commerce outsourcer:
Digital River is a global leader in e-commerce outsourcing, having built, managed and grown revenues for more than 40,000 clients since our inception in 1994. We deliver e-commerce sites based on best practices for companies like Symantec, Motorola, 3M, H&R Block, Novell, Autodesk, ACT! and Staples.com.
It’s fun to speculate on a hot Friday afternoon about which of Microsoft’s businesses will need significant e-commerce outsourcing in 1Q2007.
Accenture will provide Microsoft with credit and collection services in Europe, the Middle East and Africa (EMEA) under a five-year business process outsourcing contract the two companies signed recently. Financial details of the agreement were not disclosed.
Under the terms of the contract, Accenture will manage the processes associated with receivables and collections from Microsoft’s business customers and channel partners throughout EMEA. Accenture will also provide support for Microsoft’s credit analysis, cash application, customer data management and associated business intelligence reporting processes.
The technology supporting the services consists of a sophisticated suite of enterprise resource planning (ERP), invoicing and receivables management applications all running on the latest Microsoft platform.
Accenture is a long time Microsoft partner on the selling side so it isn’t surprising that Microsoft turned to them for outsourcing, but the question is why did Microsoft feel the need for outsourcing this function in the first place? Ovum has some analysis:
We assume complexity of work was one of the drivers behind the deal. Microsoft’s indirect channel is huge. This means that management of account receivables must be a costly and time-consuming activity. The size of the contract is hard to quantify. Microsoft has 5,000 employees in general and administration, and derives 32% of its revenues from outside of the US. But certainly, this is big deal for Accenture.
And the implication, of course, is that Accenture has better tools and/or cheaper employees to handle the work.
The negotiations for the creation of a mega-software outsourcing company by Chinese companies, India’s software giant Tata Consultancy Services (TCS) and Microsoft are expected to be concluded in one month, giving China’s ambition to develop its software industry a big boost.
Grabbing the Chinese domestic market has been an ambition for TCS, so in order to get easier market access, it decided to form a joint venture with companies backed by the State.
“The biggest benefit for us is to get a bigger access into the Chinese market,” said V. Rajanna, general manager of Tata Information Technology (Shanghai) Co Ltd.
According to a report by the Beijing-based Economic Observer newspaper published on Monday, TCS is expected to take a 65 per cent stake in the proposed venture, with Microsoft and three Chinese firms designated by the National Development and Reform Commission sharing the remaining amount.
The joint venture aims to have 8,000 developers in five years, which will further expand to 10,000 in seven years.
The biggest Chinese software outsourcing company today has about 2,000 people.
The Economic Observer reported 90 per cent of the work of the proposed firm will be export-oriented, but that was denied by Rajanna, who said the focus will be both on the domestic and overseas markets.
The American Microsoft corporation has injected 13 million U.S. dollars in a Chinese IT company to develop softwares, according to sources of the Chinese company.
In August of 2005, Microsoft and the Jinan-based Langchao Groupin east China’s Shandong Province struck a 25-million-U.S.-dollars agreement to produce softwares for Chinese customers.
The remaining investment of 12 million U.S. dollars will be in place by June 2006, said sources with Langchao Group.
Of course, there’s always another side to the ledger in dealing with the Chinese government. Rebecca Mackinnon, a Research Fellow at the Havard Law School’s Berkman Center for Internet and Society, reports that Microsoft’s MSN apparently took down the blog of Zhao Jing who was doing more investigative reporting than was appreciated by the government. Microsoft’s Robert Scoble looks into the case, offers him blog space, and has an followup.
Bill Gates was only expected to announce a $1 billion Microsoft investment in India during his visit this week, but it turned out to be $1.7 billion and 3,000 new jobs. Rajesh Mahapatra at the AP:
Microsoft Corp. plans to invest $1.7 billion in India and add 3,000 jobs in the country over the next four years, nearly doubling the world’s largest software company’s work force here, Chairman Bill Gates said Wednesday.
Microsoft Corp. has long viewed India, a country of 1 billion people with a robust economy, as a potentially huge market, and the investment would be one of the single largest by an information technology company in India.
Much of the money would go toward improving the software giant’s research and development capabilities, including the creation of a new facility in the southern city of Bangalore, India’s technology hub, Microsoft said in a statement.
It’s not clear exactly how the pot will be divided between offshoring, outsourcing, sales, and marketing. Besides the above article’s “much of the money” going to R&D, there were other opinions:
John Ribeiro at InfoWorld:
The funds will be spent on Microsoft’s development operations in India and other areas in line with the company’s strategic vision for India, Gates told reporters in Delhi.
Ribeiro in a separate article:
Microsoft currently has 4,000 staff in India, and plans to increase that figure to 7,000 over the next three to four years, Gates said. It is not, however, clear whether the staff will be all employed by Microsoft or will also include staff at outsourcing companies in India that do work for Microsoft.
Shailendra Bhatnagar at Reuters:
About half of the money would be spent on its existing research and development centre, its global software delivery unit and expanding to 33 more cities by opening retail outlets.
Chris Noon at Forbes riffs on Bill Gates’ rock star status in India and echoes the first Ribeiro article above:
Gates said the $1.7 billion investment “would be deployed across select focus areas over the next four years in line with Microsoft’s strategic vision for India”.
And the last is probably as clear as it is really going to get.