Posts Tagged ‘microsoft’

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The deal between Vodafone and Verizon announced earlier this month is, in fact, the third largest corporate deal in history. In comparison the deal between Microsoft and Nokia is small beer, but it is still a massive arrangement by any normal yardstick. Interest rates are low, but they may not be low for much longer. Is now, and pretty much right now, the time for a new M&A boom?

Let’s look at some of the reasons why the two mega deals of this month have happened. Okay, there is good strategic fit. Verizon and Vodafone both see new opportunities, particularly thanks to 4G in their domestic markets. In the case of Microsoft and Nokia the rationale for the arrangement is pretty obvious and has been discussed to death elsewhere.

But consider two other factors less commonly discussed. In the case of Vodafone and Verizon the factor is low interest rates. Fears that rates may rise soon, was possibly the main rationale for the timing of their deal – indeed Verizon referred to this very point. In the case of Microsoft, the software giant is one of the companies with a massive cash pile. There are many of them. Corporate cash piles have been a particularly notable phenomenon of recent years. Market bulls have been predicting the release of this cash mountain for some time. In the case of Microsoft, its partial release has been triggered by desperation – fear of Google, Samsung, and Apple, even Amazon. Other companies may start spending because they see signs of an economic pick-up. The reason may not matter. It was surely inconceivable that companies were going to sit on all that cash for much longer, but a trigger was required to release it.

Look further down the corporate league and other evidence of new M&A activity emerges. David Lloyd Leisure has been bought by private equity firm TDR Capital – and its new owners have plans for expansion.

The ‘Telegraph’ recently quoted Greg Lemkau, who is the co-head of M&A at Goldman Sachs, as saying: “Within two or three years from now, people will be looking back on this time as a golden opportunity.”

But the overriding point is this. The economy both here and in the US seems to be improving, and pretty significantly too. M&A is always popular during an economic upturn. But because interest rates are set to rise, the ideal timing for such activity is now.

Not everyone in the corporate world has cottoned on to the recovery; they were likewise slow to spot the seriousness of the crisis five years ago, but as the recovery gatherers momentum, the penny will drop, and then we will see a rush for leveraged deals before rates rise much further.

What are the implications? AS M&A activities rise, so too will equities. The FTSE 100, the S&P 500 and the Dow will all pass new highs – probably.

Is it all a good thing in the long run? Well that will be the subject of another article.

© Investment & Business News 2013

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Over the weekend the press were full of talk of Steve Ballmer, the CEO of Microsoft, who has announced his plan to retire next year. This begs the question: what next for the company? Should it revisit the idea of a merger with Yahoo?

Some focused on the somewhat less than gushing terms of the Microsoft release announcing Ballmer’s retirement. Some reckoned they saw hints of a rift between Ballmer and Bill Gates. The two men have been colleagues for decades. By the way, Ballmer was Microsoft’s 30th employee, joining the company in 1980. He became CEO in 2000.

It is not hard to point to what is wrong with Microsoft these days, and as the boss Ballmer will clearly receive most of the blame.

It is not so obvious that things would have been much different if Bill Gates had stayed at the helm. Gates famously failed to predict the rise of the internet, so it is doubtful whether he would have come up with a plan to counter the threat posed by Google, Apple and Facebook.

In fact, you may recall that back in the 1990s Microsoft, led by Bill Gates, and Apple began a joint venture. Some Apple aficionados saw a tie-in with Microsoft as akin to a pact with the devil. Few foresaw a day when Microsoft would be struggling, and living in Apple’s shadow.

But will Microsoft come back?

It is suffering from classic innovators’ dilemma with a little bit of recession to the mean thrown in for good measure. See: The UK’s export-led recovery

The market it has dominated for so long is changing – arguably disappearing – and Microsoft seems to be left plugging technology people no longer want.

It was not always this way. Back in the 1980s, Microsoft learnt how to experiment. To tell the story, we must rewind the clock to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’. These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

By Ballmer’s own admission, Surface was a bet-the-company product, but there was never a need to take such a gamble.

What of the future?

Not so long ago Microsoft tried to buy Yahoo, but the price seemed to be the sticking point. Under  the dotcom seems to be staging something of a renaissance.  Maybe some kind of merger should come back on the agenda, but it’s difficult to see Mayer heading up Microsoft. If, however, she was to head up some kind of joint venture between Microsoft and Yahoo, now that might be more interesting.

© Investment & Business News 2013

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If you are really nerdy, not unlike the author of this article, you may never have recovered from the death of Blake. He was the eponymous hero of the TV series ‘Blake’s Seven’, who was killed off halfway through the series, only to apparently reappear in the last episode, but this time as villain, who killed all the other main characters. So what has that got to do with the price of bread? Well, it turns out that Microsoft – that’s Microsoft a company better known for a product you may have heard of called Windows – is re-making Blake’s seven for Xbox Live service. It’s a part of a – sorry to use an overused word – revolution in the world of content. It is one that will affect us just as much as a sharp change in the price of bread.

Microsoft is not alone. Netflix has had a go at another old BBC series, ‘The House of Cards’, and it has been praised to the hills too. To misquote the rather nauseating fictitious politician Francis Urquhart, played by Ian Richardson in the original series: “You might say it is better than the original, I cannot possible confirm that.”

Amazon is making a TV series called ‘Alpha House’. They are at it because these companies realise something crucial: content really is king. They need content to promote their distribution channel.

Not all are going for unique content. Vodafone is licensing BSkyB sports content to appear on its 4G network. BT, as you will surely know, is taking on BSKYB in its own back yard. Virgin is in turn licensing content from BT.

But are the companies with real value the ones that create content, and why does their content have to be sold on an exclusive basis? So HBO or the BBC are examples of content producers – although in the case of HBO it has its own premium network, and in the case of BBC asking whether it is a distributor of content or a producer of content is akin to asking which was first: the chicken or the egg. But content producers also include producers of sports, football clubs, and cricket clubs and, well you can continue the list.

And as mobile internet evolves from 3G to 4G to 5G, we will all have access to the means of distribution. Do we need the distributors, or can we go direct to the content producers?

© Investment & Business News 2013

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‘Seven habits of highly successful people’ was the title of a book published in the late 1980s and seems to have sparked off a trend. Successful people behave in a certain way, so if you behave that way too, you will be successful. But here is something we don’t often consider. How many of these characteristics shared by successful people, are also shared by unsuccessful people?

It depends on what you mean by success of course. But for the sake of this article let’s assume success equates to making a great deal of money.

Maybe what successful people really need is an eighth ingredient, and that ingredient is called luck. You can’t do much about luck; it is after all down to sheer… well to sheer luck. But there is something you can do to ensure fortune favours you. Alas, this is a lesson few entrepreneurs have grasped.

Actually, some successful entrepreneurs seem to have grasped it. Maybe they are trying to appear humble, or likeable, or just plain modest, but many successful people in business admit to luck. They will quite honestly say that if the particular gamble they had taken had not come off, things would have been very different for them.

They might also admit to major mistakes they made in their carrier, or bad judgement calls, but supposing those bad judgment calls were made very early on in their career before they had, as it were, made it? Maybe the difference between a highly creative and hard-working entrepreneur who makes it and one who doesn’t is one of timing. The successful entrepreneurs made the good gambles early on, while the unsuccessful one didn’t.

Bill Gates famously failed to recognise the potential of the Internet. He also admitted to a degree of luck with Microsoft. Supposing his first big business decision was as hopelessly wrong as his judgment over the Internet. Would he still have become the world’s richest man?

Luck is not something to which we like to admit. It is also hard to accept that we are mortal. It is built into us, and for the young especially this is a very hard concept with which to come to terms. But here is something else it is hard to accept; not all our ideas are good, and if we are of an entrepreneurial leaning, not all our ideas will work.

But the narrative to which so many of us cling tells a different story. It tells us that successful people have seven characteristics in common. We hear of life stories, and how key decisions were made, and it is as if fate was working, making one person’s success inevitable. But if fate really does exist, why is it so hard to predict the future? If it was inevitable that someone was going to be successful, why is that so rarely predicted in advance?

The narrative of success only works in hindsight.

The European Flash Barometer once found that around 43 per cent of people in the UK (compared with 19 per cent in the US) believe that a new business should not be created if there is a risk it may fail. The implications of the findings of this survey are absurd. How can Brits really believe that a business should not be formed if there is a chance it might fail? A business that is guaranteed of success is a business that measures success by the most modest of ambitions.

Those 43 per cent of Brits who think a new business should not be created if there is a risk it may fail have fallen for the narrative that success is somehow predictable.

But while entrepreneurs may laugh at the findings of the European Flash Barometer, they themselves are just as guilty. They concede that risk surrounds us, except that they rarely acknowledge that their own business idea is risky; instead they say and appear to believe that it is guaranteed to succeed.

An entrepreneur might say don’t put money in other companies, on the stock market or in investment trusts, invest every penny you have in your own business. Business advisors may advise focus. A venture capital firm might say it is essential that entrepreneurs do not deviate from their core focus; from their business plan.

From the point of view of a venture capital firm, or VC, with diversified investments, it makes sense to urge entrepreneurs to remain focused. A VC may only need a small number of its investments to come off to stay in businesses. A VC with a portfolio of driven entrepreneurs, who put their heart and soul into their business idea, only need luck to smile on some of those entrepreneurs.

But for the individual, who can see the shortcomings in the narrative sold to them by the VC and public perception, will know that at least some diversification might make the difference between a comfortable old age and one spent in poverty.

© Investment & Business News 2013

Don’t write-off Microsoft yet. It has patented an application for incentivising people to watch more ads. It’s a clever idea, but may suffer from a fatal flaw. Erm….adverts. They are everywhere.

Have you ever had the misfortune to watch a programme on the ITV player? If you are interrupted and put the programme on hold, and you lose connection, you may have to re-start the app. Each time, you have to sit through the ads before you start watching. If you are unlucky, and keep being interrupted, you have to watch ads over and over again, before you can start viewing the content.

That is an extreme example. But we have all had that frustration of channel surfing only to find ads on virtually every channel. And you must have noticed that on some shows the ads seem to appear every few minutes. Take the ‘X Factor’. In part one we are reminded of what happened last week and what is happening in part two. Then we have the ads. In part two we get the highlights of part one, a sneak preview of part two and then we get the ads. It continues.

So we look away. It’s like a battle between our ingenuity in avoiding ads, and advertisers’ ingenuity in putting their ads in front of us.
Now Microsoft has patented an app for its recently announced Xbox One, due out later this year, using the technology behind its Kinect product to incentivise us to watch ads.

So the technology knows when we are not watching ads, when our eyes are, as it were, averted, but gives us credits when we give the ads our full attention.

It is thought we will be able to trade the credits for free content. There is one snag. Advertisers want to target their ads as accurately as possible. And if people start viewing them because they are being paid to do so, is there not a chance they will be the wrong type of audience?

The advertising industry itself, talks about ads being more interactive; about us choosing to view them. Well, let’s wait and see.

© Investment & Business News 2013

The rumour mill has it that Microsoft is set for an embarrassing change in direction. When Windows 8 was announced, CEO Steve Ballmer called this a bet-the-company product. Well, the bet does not appear to have paid off.

The ‘FT’ drew a comparison with Coca Cola, when it announced Real Coke, only to reverse direction, after customers turned their noses up at the new drink.

Real Coke was a flop despite research showing that customers would prefer it.

But the analogy between Microsoft and Coca Cola is not precise. The drinks company changed because it thought it needed to progress, but it underestimated how unwilling customers are to change.

Microsoft, on the other hand, has to change. Innovation and potential disruptive technology demand it.

It is just that customers are conservative. Coca Cola found that they didn’t want to change drinks; Microsoft is finding that they don’t want to see such a dramatic change in their computer’s operating system.

This is classic innovators’ dilemma. See: Innovators’ dilemma http://www.investmentandbusinessnews.co.uk/directory/innovators-dilemma/4855 Clayton M Christensen, who produced the study that we now credit with giving rise to the Innovators’ dilemma theory, found that most companies look to change their products, but it is their customers who stop them.

Take the disc drive industry, for example. The emergence of 5.25 inch disk drives for desktop computers changed everything. Many of the existing market leaders examined the new technology; some invested. However, they stopped short of embracing it; their customers used mini-computers and were not interested in “here today gone tomorrow” desktops.

By the time the desktop market was established, with 5.25 inch drives showing signs of dominance, it was too late. The new entrants, with their specialisation in the latest technology, held all the cards. The former heavyweights lost market share; many went out of business.

Microsoft is struggling to change because its customers won’t let it. As a result it is vulnerable to new disruptive technology. Microsoft has been here before, when DOS was heading towards the end of its natural life. But back then the company dealt with the challenge differently.

To tell the story, rewind the clock back to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’.

These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

At the time, the company was lambasted in the press for being inconsistent – for having no strategy. In reality, it was just opening itself up to internal gales of creative destruction.

And now back to 2013, it seems Microsoft has forgotten the lesson of DOS. Instead of experimenting, it bet the company.

Windows 8 was not a bad idea, but it was a mistake to rely so heavily on this one idea.

© Investment & Business News 2013

The PC is supposedly dying and the Windows 8 debacle is making things worse. But you wouldn’t have guessed that from the latest results at Microsoft. Google is up against it because per click revenue is much lower on mobile technology than on PCs. You wouldn’t have guessed it from the company’s latest results. IBM is back. It is a star of tech again, and growing like it used to in the good old days. Well, you wouldn’t have guessed it from the company’s latest results.

Google profits came in at $3.35 billion in the latest quarter, up 16 per cent from a year ago.

It was good stuff, but there was a whiff of something not quite so good, that creased investor’s foreheads. Per click revenue for Google fell 4 per cent. The explanation of the fall is not rocket science. The move to mobile is hurting, after all.

But CEO Larry Page didn’t want to talk about that when the company’s results were released. Instead he focused on the crazy. He said: “Companies tend to get comfortable doing what they’ve always done with a few minor tweaks…It’s only natural to work on what you know.” He said that Google, in contrast, does the things “no one else is crazy enough to try.” So what are these crazy ideas?

Well there are goggles, and fibre internet, and driverless cars, and bodiless human brains (maybe not the last one).

Microsoft isn’t quite so crazy. It does something rather sensible called selling software for money. Profits were up 17 per cent coming in at $6 billion.

The underlying challenge at Microsoft has not gone away, however. Its profit growth came from cost cutting and changes in its strategy with corporate clients. It is hard to see growth continuing from these areas for very long.

The snag is that innovators’ dilemma shows that really sensible strategies have a tendency to look dumb when we go through a phase of disruptive technology. The crazies can look quite smart.

Talking of smart, IBM – the company that suffered such a pasting from Microsoft all those years ago – embraced Linux, learnt the joys of open source software and engaging in tech communities, but didn’t have such a good quarter. Operating income was up 3.4 per cent to $3.4 billion but sales fell 5 per cent.

CEO Ginni Rometty blamed the disappointing performance on the company failing to close what she called “a number of software and mainframe transactions that have moved into the second quarter.”

©2013 Investment and Business News.

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