I don't believe that at all. Google doesn't need Skype. Microsoft bought Skype because they have large amounts of cash in Europe that they cannot repatriate without taking a huge tax hit. For some strange reason, Ballmer has that obsession with hyperactively pursuing the same consumers that Google and Apple have. That's why he didn't see anything else to buy in Europe (Actually there isn't a whole lot).
But there is something: SAP. What Microsoft should do is take on Oracle and IBM instead of Apple and Google. They should make an offer to that large number of companies who want one thing more than everything else: Peace of mind based on an integrated stack. They are ready to pay up. Microsoft is the master of integration (some call it lock-in). Together with SAP, Microsoft has the most complete enterprise stack imaginable. All of a sudden even Windows Phone would have a place in this world as a BlackBerry successor.
I agree with this wholeheartedly -- Microsoft's fatal error was assuming they would continue to be the dominant force in both consumer and enterprise computing. They still own the enterprise. Why they aren't happy with this and focus on taking steps to ensure their dominance there for the next decade is beyond me.
They think that what's popular with consumers will eventually make its way into enterprise. Or in other words, their consumer efforts are the steps they're taking to (try to) protect enterprise dominance in the long term.
You might have something there! A few years back I wondered if enterprise software was experiencing a disruption because of the way user expectations were being set outside of the company:
Maybe Microsoft sees this they way you suggest and believes that by controlling the consumer experience, they will also control the enterprise experience. For example, if they control the dominant VOIP consumer application, their tools can dominate enterprise-VOIP integration.
I don't know if they have the management moxie to pull it off, but I think you may be right about what they're trying to do.
Yeah, this isn't my speculation, it's how Ballmer and others have been publicly justifying their decision to continue targeting both consumer and enterprise instead of splitting up into two companies or dumping the consumer side.
They're still the ones who make the most used OS in the world. They're not the ones innovating and creating new markets and paradigms. But were they, ever ?
I've waved the "What did Microsoft ever invent?" flag plenty in my life, so let me try and advocate for the devil:
Microsoft basically invented the hardware-agnostic software platform. Before Microsoft, there were a variety of hardware platforms, each with their own libraries and languages... not unlike the situation today with phones. Developers had to choose what to target... not only Mac vs PC, but different video cards, different sound cards, different network stacks, etc.
Microsoft took that fragmented market and unified it under a set of standard APIs for both hardware makers and software developers to target. I would consider that an innovation: the loose coupling that they enabled allowed much faster innovation in both hardware and third-party software.
Interestingly, Netscape tried to play the same game on top of them (unifying Windows, Mac, and UNIX under one standardized API), and though Microsoft was able to destroying them, Webkit has succeeded where Netscape failed, and it is slowly making Microsoft irrelevant, just as Gates feared.
Other than that, I don't think Microsoft invented much. But they did a good job copying, were ruthless with business executation, and so their one innovation ended up being a multi-trillion dollar innovation.
> Microsoft basically invented the hardware-agnostic software platform
Digital Research did that. You could run a CP/M program on any CP/M-capable computer. Microsoft tried that with MSX (and failed) and then with MS-DOS (and succeeded on a different hardware platform). Only then, different graphics cards and printers became relevant.
> Other than that, I don't think Microsoft invented much
Visual Basic is one thing that comes to mind. I don't remember anything like it before. Hypercard and Toolbook were huge and heavy in comparison. VB allowed BASIC programmers to write compact Windows programs. That more or less doomed DOS.
To be more precise, MS-DOS (and 86-DOS before that) tried to copy CP/M on that area (the original platform for SCP 86-DOS which MS bought and renamed MS-DOS was SCP's S-100 8086 cards which existed before the IBM PC), but MS bought SCP in the first place because they needed an OS to sell to IBM for their 8088-based PC, and so of course it first shipped on the IBM PC, and what happened was that the DOS calls was too limited and slow, so apps used the BIOS and even direct hardware access. So in the US full IBM PC hardware and BIOS compatiblity ended up being needed. (In Japan it was a different story)
Microsoft basically invented the hardware-agnostic software platform
I'm trying hard to understand what you're talking about and its not working. Windows has run on the "PC clone" for almost its entire existence. IBM pioneered the original PC as a fairly easily clone-able platform, meaning it wasn't hard to reverse engineer the bios. It was one hardware platform, one hardware standard, that multiple manufacturers could target (and it was created by IBM despite repeating more of the benefits). But that kind of thing had happened at least since Boroughs (I think) created the first IBM compatible mainframe.
Windows runs on PCs. It doesn't run on Mac, on mainframes or anything else - contrast that Linux, which truly runs on a huge variety of platforms.
I think you're too focused on looking at it from a technical perspective. I think what erikpukinskis is referring to is "hardware-agnostic software platform" as a business model/industry environment.
Maybe IBM did invent that, but it was accidental. I'm not sure they did though, I think MS did.
I think a case can be made that huge software companies generate gigantic sums of cash. They have to do SOMETHING with this cash. They could give it back in dividends but most investors would prefer they instead used their internal cash-multiplier machine because it probably runs better than their own would should they have to reinvest dividends.
So what do you do? Acquire.
Look at Microsoft. Look at Google. Adwords, Android, Chome, Maps, Voice, YouTube, etc, etc, etc, all acquired.
It still takes a talented company to marshal the resources and assets of these acquisitions into a successful, larger conglomerate. And in the cases where the sum is more valuable than the parts, THAT'S innovation just the same as a homegrown product or language.
Execution is everything.
For everything Microsoft copied from someone you know about, five things you know about were copied from someone you do not know about.
Interesting comment. IMO using a virtual machine to abstract away the hardware is what an operating system is all about. Microsoft has done a lot of work to prevent any competing middleware (Java, Internet browser, Flash, OpenGL, ...) from challenging their position.
Interesting point about taxes. Can anyone confirm if this is how it works? What prevents Microsoft Europe from buying an entity in the United States and holding the new company in Europe? It's not like other European entities need to pay tax penalties on top of the purchase price when buying assets abroad, right?
Good question. Presumably, a corporation cannot pick and choose to act as a single entity in one regard and as multiple independent companies in another. But I'm not sure either how it really works. Would be interesting to hear from an accountant or tax lawyer.
Humorous how the article recommends the US can take the suggested 5% repatriating tax revenue and use it to give a tax break. So the net repatriating tax revenue to the US government would be 0%? Ah, WSJ.
On the other hand dropping the tax would encourage even more overseas shenanigans, which I guess is burning Microsoft (and presumably Oracle and Cisco) for not thinking ahead, forcing them to pass on valuable domestic investments and overpay for less valuable overseas investments.
The WSJ article gives a basic, but slanted description of how it works. Briefly: income earned by overseas subsidiaries is not taxable to the American corporate parent until those overseas earnings are sent back to America via a dividend. Here, rather than pay a 35% rate on their overseas profits, Microsoft chose to use it to acquire another company, essentially delaying taxation on that income until much later into the future, if ever.
Edit: There is no advantage to the reverse (MSEuro buying a US company), since the US-earned income is taxed in the US at the US corporate rates, which are much higher than the European corporate rates. The money would be taxed at a lower rate when repatriated to the Euro owner, but you would have ended up paying the higher tax rate first.
I think you are missing the main point that the article is arguing.
You're right about Google. They do not need Skype, but the article does not say anything about Google needing Skype at all. The article only said Microsoft needed Skype. It was a defensive measurement on Microsoft's part.
I think this is the most important sentence of the article: "Were Google to buy Skype they’d convert those 663 million Skype subscriptions to Google Voice and Gmail and in a swoop make parts of Yahoo and MSN irrelevant." This is important for a number of reasons.
1. If Google were to buy Skype, the 663 million users would probably convert to Google's search engine - if they have not already - and not use Bing, which Microsoft has invested heavily in.
2. By buying Skype, Google could force the 663 million users to only register with a Gmail account. Meaning, those with an MSN email account would be forced to convert.
3. Google would also integrate Google Voice with Skype. With the two utilities working together, they would make an incredibly powerful tool, and the users might start to rely on the two combined utilities. This would mean the users would want the utility on their phones which entices them to buy an Android phone and not a Windows phone.
4. With the buy, Google was looking ahead in the future. They could integrate Skype with Google TV. (Which I know was first a failure, but they are still banking on the idea. They'll come out with it again soon enough.) They would also integrate with Chrome OS, and, if the users come to rely on it heavily with the integration of Google Voice and Android, then it would entice them to us Chrome OS and not Windows.
I think Google had much more use for Skype compared to Microsoft. So, Microsoft did not buying it to go after the consumers of Google and Apple; instead, they mainly bought it to keep their users.
You guys do realize that SAP is at least one order of magnitude larger than Skype, right? It rings in at a $77 BILLION in market cap on the NYSE[1]. I'm not even sure that represents SAP's total value, either. There seems to be a separate listing valued at $55 BILLION that's traded on ETR[2]. SAP AG was the fourth largest software company in the entire world by revenue in 2010[3].
That kind of merger would be unique in Microsoft's history[4]. In fact Skype is already Microsoft's largest merger in history by a sizable margin.
EDIT: The ETR listing is valued in euros, where 55 billion EUR roughly translates to 77 billion USD. Although I still don't know if that fully accounts for SAP AG's value.
I'm aware of that. Usually deals of that size are done at least partly through a share swap, not all cash. Microsoft needs to do something big. Skype just won't move the needle and it still costs a whole lot of money.
But there is indeed a problem caused by SAP's size. It's completely uncertain whether regulators in Europe would allow such a deal to happen. Microsoft and SAP wanted to merge many years ago (when MS was arguably more powerful) but it was called off due to regulatory issues.
That's why it would be an interesting acquisition / merger. It would be a transformative event, changing both companies in radical ways that would require a true leader with vision to take the reigns and recreate both companies.
In my opinion, buying SAP would be Ballmer's worse nightmare - he wouldn't even know where to start in harnessing the energies of both companies, and that's why we'll probably never see this happen.
Give Ballmer a couple years and SAP may be able to buy Microsoft.
That was unfair - Microsoft's demise is not completely Ballmer's fault. The market has been changing in directions Microsoft was not able to follow at speeds they were never able to match.
Would Microsoft be able to afford SAP? According to Google Finance, they have a market cap of $77.04bn and Microsoft would have to pay a hefty premium over this.
Good point. SAP is an order of magnitude bigger than Skype but the point about getting into this space if they're serious about getting into a different space is a good one. Netsuite, intuit & salesforce are trading @ $2.3b, $16.75b & $17.9b. They could conceivably buy all three with just this 'overseas cash' they supposedly need to spend and still have change. Thinking about MS's available cash in terms of companies they could buy really puts some perceptive on it - huge.
They could do nearly six Skype-sized deals, just using cash (without issuing bonds or using stock!) Incredible. They could probably buy SAP, but their cash pile would be gone, plus they would have to give up a significant amount of stock as well. Doubt Ballmer would be willing to risk this.
I've heard elsewhere that Apple is sitting on a ~$35bn cash pile. One wonders when the US Government will declare some sort of 'tax holiday' or window during which these companies can repatriate all this cash.
They have begun taking on Oracle and SAP after buying Navision and turning it into Microsoft Dynamics. From what I've seen, it's a very strong product and I'm expecting it to do well.
But there is something: SAP. What Microsoft should do is take on Oracle and IBM instead of Apple and Google. They should make an offer to that large number of companies who want one thing more than everything else: Peace of mind based on an integrated stack. They are ready to pay up. Microsoft is the master of integration (some call it lock-in). Together with SAP, Microsoft has the most complete enterprise stack imaginable. All of a sudden even Windows Phone would have a place in this world as a BlackBerry successor.