What is wrong with MSFT?
Despite the fact that their sites (MSN.com and I guess MSNBC.com as well) garner the highest time spent on site of any company, they cannot convert those eyeballs and engagement into profits?
Then again, maybe it’s specifically the reason why their operations are burning so much money?
Once again, like a used care salesman, Microsoft says “Trust me.” When it comes to WIndows, Microsoft’s promises never end and they never get realized, either.
Here’s Funny or Die’s 2:00 version - with British accents to boot:
Here’s the original, weighing in at 6:00 (!):
I doubt Google’s market capitalization will surpass that of Microsoft’s (as I outlined as a possibility in 2006), but judging by the growth in cash flow of each company, it’s not impossible over time:
Graph via Business Insider.
Watching this, I am thinking: they purposely said “let’s make something so lame that people will talk about it”
7 minutes to boot?
Madness.
Worst part, they probably spent $2M on it…
On Sunday I mentioned that YouTube was probably doing better than the naysayers suggested, and the very next day, YouTube published a post agreeing.
Earlier this year I suggested Soapbox was next to die, today MSFT confirmed that too.
Do we really need a crystal ball to imagine who is next to step under the guillotine?
For the CEO of the world’s largest technology company to realize that content - not technology - drives advertising says a lot.
all of us sit here as advertisers, we have to ask: Who will be creating the content that people spend time on and what is their motivation and will they even have advertising on their Web sites?
Read more and see Microsoft’s Steve Ballmer’s presentation here.
While 2008 finished off with companies doing their best to cling on to anything to avoid from being sucked into the maelstrom, I think - despite the continued stock market meltdown - that many companies are seeing some stabilization in their core business. In other words: yes, 2008 Q4 saw a rapid evaporation of booked business, but 2009 is not looking as dire as some expected.
Online Remains a Beacon of Growth
Let’s face it: online media remains a growth area regardless of the fact that growth targets have been reduced. If you are CBS, News Corp., GE’s NBC, Walt Disney, Viacom or Time Warner, you have to look at ways to spruce up your online assets and acquire new ones. If you are Yahoo!, Microsoft, Google, Amazon, Apple, Cisco, Comcast, or IAC, you are looking at online assets as more reasonably priced relative to the previous couple of years.
A couple of companies that remain wild cards are print-based media firms Conde Nast and Hearst, who unlike their newspaper brethren (Tribune, NYT, etc.) are not on the verge of banktrupcy, but whom might fare a similar fate if they don’t take action soon.
This, I believe, is what explains the latest report by JP Morgan analyst Imran Kahn, who (Via Paid Content) in a new report, says:
“Mergers and acquisitions among internet companies could grow significantly. Since most companies cannot look to the economy for growth (JP Morgan estimates GDP will decline 2.2 percent this), Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.
Small is Beautiful
I’ve mentioned for some time that microdeals are the wave of the future:
- companies just don’t have the financial wherewithal to go for grand slam deals, and
- integration becomes a nightmare.
Lowered Expectations
Where things get interesting for big media companies is that VCs have been blindsided by their own investors inability to meet capital requirements, so many will accept lesser exits… though truthfully, heavily-funded VC companies are going to get sidelined in the M&A song-and-dance because entrepreneurs might be more realistic whereas VCs will never be able to pull their investments “in the money” when they agreed to nosebleed valuations for some of these bubbly Web 2.0 fares (Digg, Slide, Facebook, Ning, etc.).
Kahn seems to agree:
“Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.”
Build vs. Buy
The other variable we’ve touched on Big Media’s Buy vs. Build dilemma for some time:
Large internet companies may re-consider the “build vs. buy” strategy—they’ve been moving recently toward the “build” side of that continuum, which resulted in only 45 acquisitions in 2008 versus 94 in 2007, according to Kahn. While he predicts large internet companies will still increase their R&D spending by 8 percent in 2009, that is much less than the 25 percent increase in 2008. As they spend less on innovation internally, large internet companies will probably be on the hunt for smaller companies.
Balance Sheet vs. Income Statement
This plays into the nuance between balance sheets and income statements. A company’s income statement captures the revenues and costs over a period. Right now: revenues are going down (or at best flat) whereas costs remain high. Yet companies do have cash on their balance sheet, which captures a firm’s assets and liabilities (and shareholder equity) at a given time. In other words, even if companies revenues go down, their cash remains idle. But if revenues are flat or going down, a company cannot justify adding to costs (and thus “building” in house) because this will push the company into a money-losing status, which in a tightening credit market might mean lights out if the company’s financing and credit facilities dry up.
As a result, while cash is king, too much cash on a balance sheet is inefficient.
“Finally, the large internet companies have stockpiled a ton of cash as they grew significantly the past several years, and they will be looking for ways to make a solid return on that money.”
In case you are wondering who is going to be taken out, here are some of Kahn’s picks:
As for which public companies are most likely to be acquired? Kahn evaluated them according to brand strength, product leadership, ease of integrating the smaller company into the larger company, and barriers to entry to determine that Omniture, the online analytics company, and MercadoLibre, the Latin American e-commerce company, are the most likely to be acquired. Shutterfly, The Knot, and Expedia were also attractive candidates, according to the report.
There are a few others I can think of… but we’ll leave that for a separate post.
The economic meltdown and accompanying advertising slowdown is the best thing that could happen to Twitter, much the same way that Google benefited from dot com bubble bursting. Had the dot com bubble not burst, Google’s business model would have been to slap Doubleclick (version 1.0) display banners everywhere. Instead, the bubble burst, display banner went bust and Google pioneered borrowed ripped off and scaled GoTo.com Overture’s pay per click model.
The rest is history: today Google owns Doubleclick (version 2.0).
When Twitter first began to take off, I wrote that Twitter should lose the “Google envy” (to build a ubiquitous online advertising model) and focus on what its natural disposition was: e-commerce and referal. Read more in Twitter’s 140 Problems.
When you see its most popular users include brands such as Zappos, you realize that this is Twitter’s niche anyway, and that forcing “yesterday’s ad model” into the product would only hinder its growth.
Now, I will say this, if Twitter were smart, it could leverage its fanboy’s noise about how “Twitter is search” to get Microsoft to consider pay a crazy amount for it (as it did for PoweRset), which might prompt Google to outbid Microsoft, as it did for Doubleclick.
Ultimately though, Twitter is not search, at least not yet, and its long term utility has yet to be determined. In no way is this a knock. It’s an observation. It’s also reality. Twitter is evolving, and the market meltdown could prove to be a blessing in disguise… were it not for one thing (which we’ll delicately/respectfully get to in a second).
Twitter might be search, it might be news, it might be classifieds, which is what I think Google actually was… but the point it, 1% of 1% of people would turn to Twitter for search in its current incarnation. If MSFT’s own Don Dodge argues that 1% market share of search was (pre-crash) $1B, then 1% of that is $10M. Not too shabby, but Twitter’s raised over $30M on a $250M valuation. So if I were Twitter (in its current incarnation), I wouldn’t push the “search” tagline too much… maybe Twitter is a part of the future of news. But let’s face it, news organizations are so shackled now (due to their print pedigree) that they won’t know what to do with it either, and even if they did, they could not.
Ultimately, Twitter only has 6M users, which is nothing to sneeze at, but having won over a vocal minority isn’t enough to talk down to players like Google… and just as it was ridiculous to say last year that “Facebook would kybosh Google“, it’s more ridiculous to say that about Twitter.
Which leads us to make the following recommendation to some of the company’s financial backers: get the hell out of the spotlight and let the company operate and execute instead of looking for a soapbox to inflate expectations out of any realm of possibility.
The best summation of all of this is a commentor on the SAI blog:
A guy with a multi-million dollar vested interest in Twitter tells you that he swears they have a secret business model, and you idiots print it as news. That’s great guys.
After all, the most successful companies of the last decade (starting with Google) all underpromised and overdelivered. In other words, for a company that likes to limit expression to 140 words, some of its backers are doing way too much yacking for the firm’s own good… Come to think of it, the same can be said for most of the company’s supporters, too.
There’s a rumor out there that MSFT is looking at shedding some headcount, too. From Fudzilla (via ArsTechnica and via SAI):
Currently Microsoft employs about 90,000 people across the world and from what we’re hearing, some 15,000 of those are expected to be giving marching orders come January 15th. That’s almost 17 percent of Microsoft’s total work force, not exactly a small number.
I would agree with MSFT using this downturn as an opportunity to lay off, say, 1,500 people, for example, but 15,000?
MSFT is already burdened with the image of a mature stock, whose shareholders have endured a “lost decade”.
So while I am all for increased efficiency, layoffs of this magnitude would make MSFT fall in the “stock in decline” category, which will basically ensure a second decade of doom.
In today’s climate, flat is the new growth. I doubt if even 2000’s darlings Google or Apple are growth stocks.
So far, we haven’t managed to confirm what departments or regions will be hit the worst, but we’re hearing that MSN might be carrying the brunt of the layoffs. We’re also hearing rumors about the possibility of somewhat larger staff cuts at Microsoft EMEA (Europe, Middle East and Africa).
But by cutting in growth areas, MSFT is either throwing in the towel or contenting itself to move from the monopoly category to the utility category.
PLAY
