Microsoft (see chart here) is huge and has a lot of cash.  So do you care?  What made Microsoft an incredible company was how it managed to aid the growth of PC technology, making the machines every day parts of our lives.  Microsoft products ranged from operating systems to desktop applications to the prolific Internet Explorer web browser.  Along the way Microsoft grew incredibly fast, literally won every marketing war it engaged in, dominated its markets and made huge amounts of money.  What a great past.

But what is Microsoft doing now?  It’s latest operating system (Vista) took 6 years to develop, got to market almost 3 years late, and is not even adopted by half the current customers.  A year after launch, Microsoft has to strong-arm PC manufacturers to load the product rather than the older version (XP).  Meanwhile both Linux and Macintosh are stealing operating system share from Microsoft – a very bad sign.  Users aren’t clamoring for new versions of office automation software, and growth has stymied.  And after dominating the market with IE, Microsoft is now contending with Firefox in the browser market.  Quite simply, Microsoft isn’t growing.  It is sitting on a huge pile of cash, but can’t figure out how to invest it to generate additional growth.  And investors haven’t seen any growth in company equity value the last 5 years!

So, Microsoft has offered to buy Yahoo!  But why?  Microsoft hasn’t offered any new insight to what it’s ownership of the #2 browser will do for customers or investors.  Microsoft has merely said it has the money to spend – like a teenager with last week’s paycheck burning a hole in his pocket.  If there’s no plan to launch new products, or otherwise generate growth, why spend the money on a company that is far, far behind the #1 player Google?  If Yahoo! can’t maintain or grow share versus Google, what is Microsoft planning to do to change the situation?  Merely owning Yahoo! won’t help Microsoft be a better company.

Microsoft slipped into the flats four years ago.  Now it’s trying to Defend & Extend its past glory, but to not much success as it is losing little bits of share all over.  It has a huge war chest to fight this defensive battle.  But wouldn’t investors be better off if Microsoft handed out huge dividends?  Why not let investors take the money and buy shares of Cisco, Google, RIMM, Oracle or other higher growth companies?  Why should Microsoft management burn this cash?  No one is fooled by this action – today’s Chicago Tribune headline ran with "Is Yahoo deal set up for failure?" (read article here) and the last paragraph reads  "No matter who ends up with Yahoo, the people involved are not innovators" – quoting Marc Benioff CEO of Salesforce.com. "They are followers.  This is not a deal about the future of the Internet.  It’s about the problems of not executing in the past against Google."

If companies don’t grow, then why do they exist?  Without growth, the company should be milked for maximum cash and the money given to investors who can invest in other high growth opportunities.  Microsoft had a great past – but it has not maintained its focus on markets and new opportunities.  It missed the networking wave – which largely went to Cisco.  It missed the PDA wave (personal digital assistants) which has gone to RIMM and Palm.  It missed the digital music wave which has gone to Apple.  It missed the internet search and advertising wave – which has already gone to Google. 

Microsoft started Defending & Extending its personal computer business, and it lost its growth.  Bill Gates demonstrated a knack for developing future scenarios and identifying emerging markets.  But he almost missed the web – and it took a herculean effort on his part to get the company refocused and out with IE.  Mr. Gates did not build an organization that valued Disruption and invested in White Space seeking new markets early and experimenting with new Success Formulas.  He relied on himself. Mr. Balmer is a classic D&E manager – not a Disruptor nor investor in White Space.   So now Microsoft leadership is doing things that will just waste our time and investor money.