Coding Sanity

There seems to be a serious issue with Microsoft lately, and it seems to be a strategic and executive issue. They have, for a couple of years now, been desperately running around trying to own every technology market they're not in whilst at the same time allowing Windows, their core product to "collapse". Witness their doomed attempt to take on the iPod with the Zune. The question has to be asked, why? I mean, I can understand why Creative or Sony or another portable media company might try and rush out ill-advised competitors to the iPod, it's a major part of their business after all. But why for goodness sakes would Microsoft decide to spend a fortune taking on an established incumbent? Especially after waiting years for them to cement their lead before getting involved?

Forget the numerous complaints about the Zune itself; I'm just trying to understand their strategy here.

Let's not forget their decision, many years ago, to take on the games consoles. Well, that seems to have worked out okay, although it sure cost them a ton of money. Now, why did they do that? Well, the worry was that consoles might supplant PC's, a reasonable concern I guess, unlikely, but possible. They sure couldn't have done it to sell software, since MS games were few and far between at the time.

So now we get onto their biggest strategic blunder; their desperate attempts to unseat Google as the king of search. It seems that Ballmer and Co are so terrified of Google and the *gasp* massive advertising revenues they earn that they are literally willing to bet the entire company on a chance, not a certainty, but a chance that they can eat into this revenue stream.

Financials 

Let's look at some figures, to be precise the 2007 Q4 earnings reports from Microsoft and Google:

So, Microsoft has assets of 2.5 times Google's, it's income is 3 times, and it's market cap is 1.8 times. Now, this is by no means a complete picture. For starters it is my opinion that Google is in fact significantly overvalued, however I'm certainly no expert. Up until fairly recently I'd also have said that Microsoft is undervalued, but I no longer think that. This is not because I think that the company as a whole is valued correctly, I just feel that the utterly idiotic actions recently demand a discount to be placed onto the Microsoft valuation.

Yahoo!

To be precise, the idiocies to which I am referring is the Microsoft desire to buy Yahoo come hell or high water. As a matter of interest, Yahoo has a market cap of a mere $37,860,000,000, meaning that a "perfect" merger that inflated Microsoft's market cap by Yahoo's would result in Microsoft gaining a mere 14%. Needless to say, no merger goes that easily. In this case you're merging two companies with incredibly different cultures and overlapping products, so the value to be gained from the deal is at a significant discount.

The question has to be asked: what will the Yahoo deal do for Microsoft as a company? The answer: not a helluva lot. I'd imagine most of the really good Yahoo developers will not be too keen on working for Microsoft, so we can expect a raft of defections. Then Microsoft will have to shut down and merge various divisions, paying massive retrenchment packages. The final result: an even more bloated and top-heavy Microsoft with a few niche internet products and one or two good ones (flikr for example).

Many years ago I worked at a large South African IT company with management who'd seriously stuffed up. It seemed that, in order to hide from the shareholders the magnitude of their mistakes, they engaged in acquisition after acquisition. You see, due to all the merger activity, it was incredibly difficult to compare one year's performance with another's, since the company profile had changed so much. Needless to say, the constant, poorly thought out acquisitions were part of the problem, and eventually resulted in the company all but collapsing.

What are they doing?

Given Steve Ballmer's Bush-esque charge for this Yahoo deal, ignoring overwhelming opinion that it's a bad idea and seemingly paying attention only to that tiny group of people who think it's a good idea, one has to ask what his motives are?

• Is he honestly convinced that such a deal will suddenly turn Microsoft into a Google-killer? If so, the shareholders need to swiftly find a CEO who actually has his feet planted in reality rather than cloud cuckoo land.
• Does he believe that advertising revenues are going to grow so huge as to turn Google into a Microsoft-killer, able to wipe out all of Microsoft's products at a whim? In this case, he needs some meds for his paranoia. He could also look at trimming down the massive bureaucracy that Microsoft has become, weeding out the time-servers and turning Microsoft lean and mean again. Steve needs to ask himself how successful Big Blue was in wiping out Microsoft back in the day.
• Is he hoping that this deal will obscure the upcoming financial disasters due to mismanagement of the Windows stack? Whilst this is my latest pet theory, it doesn't really hold water, unfortunately.

Basically, I'm concerned that Microsoft is making misstep after misstep, from Vista itself and the Vista-capable debacle, to the Zune, the hugely overpriced Facebook deal to Yahoo, and many, many others. As a .NET developer I have a vested interest in seeing Microsoft succeed. Sometimes that means chiding them for their mistakes. However, I am growing increasingly concerned about the direction Microsoft executives have been taking recently. If I was Google, and had to pay someone to destroy Microsoft, I'm not sure if I could get them to do a better job than the current rash of poor decisions.

My advice to MS

I wish Microsoft would stop panicking about every upstart industry or internet fad that comes along, and focus on their products. Get Windows to where it should be, and you can probably kiss Apple OS and Linux goodbye. Work with hardware manufacturers well enough and you could possibly kill off MacBook too, or at least relegate it to a niche market. Drop the Zune, let Apple keep that market, with enough care you can effectively turn them into a consumer electronics company like a Sony. In other words, make their flair for design other people's problem, not yours. Make a decent online-capable rich client Office, along with web versions, obviously not as full featured, and you can kill off any possible Google Documents challenges.

Forget advertising, it's a niche and fickle market. Let Google have it, there's already some rumblings of discontent amoungst advertisers around Google's opaque pricing strategies. Let them deal with that pain. Sure they're going to control search for a while to come, which means they will effectively be everyone's landing page. So what?

Oh, and the #1 strategy? Install an ad blocker in IE, and offer to switch it on when the users install IE. You know, something like "Adverts can slow down your browsing experience, and distract from the content on the page". Something like that. Make sure it blocks Google ads. Yeah, sure you're going to effectively de-monetise the web, but since your web efforts have been, ahem, well, not as successful as you'd like, who the hell cares? So half the internet companies subsisting only on advert revenue would shut down almost immediately, why the hell would this be your problem? Best of all, make the ad blocker easily replaceable and you probably wouldn't even have to worry about anti trust issues, especially if you gave up on competing on search.