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Microsoft Bidding Up Acquisitions On Purpose?

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Don Dodge, who works at Microsoft, offers up some interesting analysis of Google and Microsoft’s acquisition strategy. Not saying I agree with it, but it does make for fun Sunday-morning reading.

Oh, there’s plenty of “paying more later” behavior on every side of the fence. Microsoft certainly has a “we can build that ourselves for less” kind of attitude in its halls that is still proving to be ineffective in the Web 2.0 space.

The thing I see in common between YouTube and DoubleClick is that Google is buying a moat around its search engine advertising business. Google doesn’t want there to be ANY reason you’ll think of going with another advertising company. They are spending billions to protect their core business: contextual advertising delivered to search engine users. Since Microsoft doesn’t currently need moats (its core businesses, Windows and Office, have no real competitors left anymore that’ll try to jump the castle walls) Microsoft is willing to drop out of such deals when they get too rich.

Are there any moats left on the block? I don’t know of too many more. News Corporation? (Owner of MySpace?) Too expensive. $74 billion market cap. Yahoo is only $42 billion.

I just went back and read the email reply that Steven Sinofsky sent me back in February 2005 (I asked Microsoft to buy Skype, Bloglines, SixApart, and Flickr, among others). Steven used the words “business value” 13 times (he couldn’t see it in what I was advocating). Flickr was purchased by Yahoo a few weeks after that email. Skype went to eBay in October. Bloglines went to Ask a few weeks before my email.

The email makes it very clear that Microsoft’s leadership isn’t willing to pay big bucks for things that don’t have clear business value. Don is quite right that at some point it’s hard to discern business value in acquisitions. Microsoft has been quite consistent in turning down best-of-breed deals because they get too expensive. Google, on the other hand, is seeing value in these things in the future.

It makes for an interesting contrast, that’s for sure.

Which strategy is best? The conservative Microsoft approach? The rock and roll Google approach?

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