Microsoft should put its money where its mouth is and spend more than $1 billion to win the Web

Posted May 8th 2006 2:01PM by Brian White
Filed under: Deals, Rumors, Industry, Consumer Experience, Internet, Blogs, Competitive Strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

You know Microsoft feels threatened when rumors continue to circulate about a possible acquisition of Yahoo! in order to fend off rival Google, which is now just barely eight years old. As the Stones used to croon, Ti--i--i--me is on my side, yes it is -- for Google, that is.

The power of market disruption that has been covered well by Clayton Christensen in his excellent "Innovator" books is being shown in how Google's products and services are assaulting the buried fortunes of world powerhouses like Microsoft. Like IBM and its "computer hard drives" in the 1950s, Google is upsetting the balance of power with a perfect example of a disruptive service and or technology (well, both of them).

So, what do you do when a rival has kicked your behind and is knocking at the front door of a large chunk of your revenue base? You build organically (hard and time-consuming) or you acquire.

There is a large buzz being discussed on blogs and on the net in general (even in the WSJ) right now about Microsoft not only partnering with Yahoo!, but actually acquiring the company and integrating its services with the Windows Live strategy. That is a good start -- but it may be too late in the game for the kind of massive impact Microsoft needs. Windows Live is still in beta while Google marches forward with products that are gaining customers every day. Yes, many of Google's services are launching in beta as well. But the public and market perception is that Google is innovating and releasing at a pace that's unmatched.

While Steve Ballmer recently announced $1 billion-plus R&D spending effort in online services in an attempt to "catch up," I wonder why a cash-rich powerhouse like MSFT doesn't commit more -- in money and effort -- to ensure it holds onto its position as time moves forward. It's time for Microsoft to put its money where its mouth is, or risk becoming semi-irrelevant -- or even worse, completely irrelevant -- in the consumer eye.

(Disclosure: I own MSFT shares as of 5-8-06)

Print this

Reader Comments (Page 1 of 1)

5-08-2006 @ 2:19PM

Dan said...

I can certainly understand their hesitation to commit that kind of money. Simply put it's just throwing money at a problem that isn't going to get any better. It would be a classic case of locking the barn door after the horse has been stolen. It is way too late in the game to suddenly decide to compete with Google. Even if MSFT dedicated that kind of money to innovations or even acquiring Yahoo, it's not like GOOG is going to stand back and watch it(them) try to catch up!! Google will continue to innovate, diversify, and monetize for quite some time to come.

5-08-2006 @ 2:19PM

Dan said...

5-08-2006 @ 3:53PM

MR. T said...

Why would they buy yahoo. Msft business software alone is worth great money.
I have been utlized search term technology from the begining of e-commerce. Google is very hot right now. That can all change due to the nature of their biz. If the public decides to start using MSM over google then google could lose a huge chuck of market share. Google is not building any relations with their clients. If google can keep making their client money they win the search term game. There is no true relationship between Google and their clients its only numbers.

5-08-2006 @ 4:15PM

Adam Sharp said...

I agree that Microsoft could probably pump more money into R&D, but they need to do it at a measured pace.

Finding good people isn't easy, especially when competition is Google, who has some of the smartest engineers in the world working for them.

5-08-2006 @ 4:48PM

dan said...

Naturally if the majority of people "switched to MSN" for their searches Google would suffer but the odds of anything like that happening are less than trivial. Google has already established itself not just as a household name but as a verb. You "google" something or someone that you need information about. Google is to search what Heinz is to ketchup. Did ya ever notice that practically every restaurant on the planet serves Heinz and not DelMonte or Hunts. That's because the people are so conditioned to expect Heinz that using anything else would seem strange. People are not going to flock from the best service provider just to "try something different" and thus far there is nothing in the results department that would tempt anyone away for valid reasons.

5-09-2006 @ 6:23AM

Toby said...

I own MSFT for several years now and I am completely in awe that (1) the stock has done absolutely nothing in the past five years (2) they are cash poor (3) and Bill Gates finally gives an interview and who is it with "an entertainment journalist in lieu of a seasoned Broker/Financial Garu and finally (4) his language of "I am having Fun, Fun with the competition....the stockholders sit by while Bill/Steve have fun, fun....We would like to also have fun,fun but are at a loss with the
(any) direction MSFT is going......thank you..toby