Alley Insider published a fantastic must read this morning, a 857-word ditty on Microsoft’s colossal mistake, which I (usually the verbose one when it comes to ‘blog’ entries) can sum up in 2 words: Google envy.
The mid-form version, simply, is that businesses are happy to pay for software, and will do so for web-based software too (ie. Saleforce.com). Essentially, MSFT’s thinking that ad-supported free software in the clouds is the silver bullet it needs is pure folly, or a colossal mistake.
Google envy has killed many companies, it is driving some very erratic investment behavior by VCs (most of whom lack a lot of experience in media and any in advertising, what drove Google to a $200B market cap).
I think SAI is right in arguing that businesses don’t need, or want, free ad-supported software. But that’s half the problem and I do not think that Blodget recognizes what is fully driving MSFT’s decision. Maybe that’s the difference in perspective of an analyst as opposed to that of an executive.
Entering the ad business was not initially about survival for Microsoft (or fear), it was about greed. Don’t get me wrong, greed is part of the business DNA of all entreprises, and the epicenter of it all is in Silicon Valley (Google and Yahoo!’s backyard) and not Redmond. As such, greed is what drives Google’s decisions today, and for a lack of better terms, “greed is good”.
But with regards to MSFT, only in the past year with Google’s Apps strategy has fear become part of the driving force.
Once Google bought Writely and launched web-based alternatives for Excel and Powerpoint did MSFT fear becoming irrelevant. But that is not, we think, what has-been driving MSFT to invest so much into its online advertising business .
Similarly, today, with MSFT breathing down its neck is suddenly Yahoo! fearing anything: initially, it was greed that drove Yahoo! to emulate Google by acquiring Inktomi and Overture.
The problem then, with both Yahoo! and MSFT has not been the cause of the action but the result - or lack thereof - or the consequence:
- Yahoo! is a disgrace from an execution perspective, and some of this might be as a result of the fact that no one challenges Chief Yahoo! Jerry Yang.
- MSFT’s failure to generate any profits or gain traction in online advertising and search stem from its lack of web DNA and understanding of the medium, pure and simple.
In other words, Google managed to exploit Bill Gates’ slowness in “getting the Web” (if you doubt me, ask yourself why Gates’ “The Road Ahead” has nary a mention of the web) and Yahoo!’s sheer apathy in the face of search.
In “If Yahoo! outsources search to Google, who wins?” I outlined Google’s tremendous revenue growth (along with its’ recent slowdown). Indeed, since 2002 Google has generated upwards of $35B in revenues, which with margins of 25% represent nearly $10B in profits. If that does not lead to Google envy, I don’t know what does.
Of course, with those profits, and driven by greed - the heartbeat of capitalism - then Google can reinvest to take on:
- Yahoo! in display advertising as a starting point for consumers (as it has been doing more and more) and in video advertising (as a source of entertainment).
- Microsoft in software and services.
Judging Google on its track record, it has fully positioned itself to surpass Yahoo! and financially has done so in aggregate terms (its share of online advertising is staggering because search accounts for 40% of all ads online, but its intake of display/video is puny, something that is important as video and display outgrow search ads in years to come).
But with regards to MSFT, it has yet to really assemble the product assortment or infrastructure required to put a dent, let alone kill MSFT. For this reason, to bring things full circle, we are not yet convinced that MSFT’s foray in online advertising or search is a colossal mistake. We think it’s simply a different strategy, one of taking it to Google by arguing that the best defense is a resounding offense.
MSFT seems to recognize that a “go-at-it-alone” strategy to take on Google (or YHOO) in online advertising or search has failed to live up to MSFT’s ambitions and objectives, so it’s pulling out all the stops and making an effort to take on Yahoo!
Whether it is driven by fear or greed, we think that risks notwithstanding, this is something that Microsoft should fully pursue and had Yahoo! shows as much ambition then it would not have suffered the inevitable fate it’s about to face.
- Only the Paranoid Survive vs. Innovator’s Dilemma
- YHOO/MSFT more about online ads than cloud computing
- Will Google surpass MSFT in market cap by 2010
Digg this Blog
Share on Facebook
WatchMojo on Twitter
WatchMojo on YouTube
Add to Favorites
WatchMojo Newsletter
