On May 5 the rumor hit the newspapers that Microsoft was considering buying Yahoo (see article here). Both companies insisted this rumor was unfounded. Then, on May 10 it was reported that Microsoft bought a 4% stake in CareerBuilder (see article here), competitor of Monster and Yahoo! HotJobs, for an undisclosed sum. These reports drive home the differing viewpoints between investors, who want White Space to drive value, and management, that wants to Defend & Extend the past.
Microsoft built its empire upon a Success Formula as a near monopoly. Systematically and effectively Microsoft first dominated the market for small computer operating systems with MS-DOS. They leveraged that knowledge and kept the company in the Rapids with the hugely successful Windows operating system. Then they overwhelmed all competitors making their suite of personal automation products (Word, Excel and Powerpoint supported with the Access database and a slew of supporting free products such as Internet Explorer and Outlook) a near monopoly as well. This Success Formula of building a totally dominant position in software products for PCs now dominates all decision-making.
Unfortunately, the market for personal computers no longer has the high growth rate it once did. Customers don’t feel compelled to purchase upgrades, as the recently released Vista has shown. Instead, they are doing more with other tools such as PDAs, mobile phones and even MP3 players. Additionally, the growth in PC usage has turned much more to internet environments such as search and entertainment (such as Google and YouTube) rather than the PC as a personal productivity tool. But Microsoft’s Lock-in to their old Success Formula has kept them out of these new markets.
Investors look at the slower growth and huge cash pool at Microsoft and long for the company to find new White Space. Yahoo! would be large enough and in a market with enough growth to actually represent an opportunity for Microsoft to move from its low-growth Swamp back into the high-growth Rapids. So investors are pushing the company to make moves to create and fund White Space to drive future value enhancement.
But Microsoft is so Locked-in it shows no inclination to take such a move. Dabbling into a segment such as career tools keeps the investment very low. Four percent of CareerBuilder in no way Challenges the Lock-in, and does not offer an opportunity to create a new Success Formula. By making this investment Microsoft tells investors "we have no intention of addressing new Market Challenges. We intend to remain Locked-in and hope Vista will someday give us the kind of growth we used to obtain from such new releases."
Investors will remain disappointed with Microsoft. But management, which is insulated from external investors by the large holdings of Bill Gates and its extremely large market capitalization, can ignore this disappointment. And by overlooking the White Space opportunities in favor of near meaningless small investments management signals investors the company has no intention of doing anything different any time soon.
Which should make the executives at Google extremely happy!