DoubleClick and Microsoft's Thrift Culture
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How could Microsoft let Google snatch search and advertising deals with AOL and MySpace or companies DoubleClick and YouTube? In the words of character Vizzini from the movie version of "The Princess Bride": "It would be absolutely, totally, and in all other ways inconceivable." |
The reasons may have lots to do with corporate culture, which is still strongly influenced by the past leadership of Microsoft Chairman Bill Gates. He is known as a shrewd bargainer and deal maker.
For a company with so much revenue coming in and cash in the bank, Microsoft operations tend to run on the thrifty side. Even when spending big money promoting new products like Windows Vista, there's a thriftiness about the where and how. Forefront is a good, recent example. Last week, Microsoft launched a new Forefront marketing campaign, but the big spending—or little, really—is online.
Microsoft is no stranger to buying companies; the company could even be accused of being on a buying spree. Microsoft's acquisitions page reveals 11 companies purchased in 2006 and two so far this year. But the number of acquisitions is much higher most years. For fiscal 2006, ended June 30 last year, Microsoft acquired more than 20 companies.
The software giant tends to buyer smaller companies, with good technologies, that don't command a premium price. Microsoft may buy big volume but rarely by paying a premium. Most acquired companies tend to be privately held, so terms aren't always made public. The technology and people tend to disappear, too, with the products or technologies absorbed into other Microsoft software.
Microsoft pretty much doesn't spend a billion anything, unless it's to develop a new version of Windows. Two of Microsoft's most valuable acquisitions in recent years were Groove and PlaceWare, both of which actually continued as Microsoft products. Microsoft picked up PlaceWare for about $200 million, which was considered to be a value purchase in 2003. About two years later, Microsoft picked up Groove for about $120 million.
By comparison, Google is almost a spendthrift. The information company's $3.1 billion bid for DoubleClick is shocking, considering some Microsofties balked at the rumored $2 billion asking price. Heck, Google's $1.6 billion YouTube acquisition now looks downright paltry by comparison.
Google is willing to spend, in part because the company sees it as cheaper than building. For Google, the $3.1 billion is essentially display ad research and development, for which the company will garner near-immediate return. Buying technology has long been part of Google's corporate culture, proving to be instrumental in extending its advertising platform.
Microsoft is more willing to build rather than to buy, unless the price is right.
Microsoft also bid for DoubleClick and YouTube and for the search and advertising deals with AOL and MySpace. But, as Microsoft CEO Steve Ballmer told Business Week last year, Google bid more. It's not like Microsoft couldn't outbid Google. Even with a nearly $30 billion cash reserve, Microsoft chose not to.
The willingness to spend—or not—reveals much about the two company cultures and how their executives assess value. Microsoft's thrift culture is very much about value for the dollar. If X is worth Y, the most I'll pay is Z. Google's approach is more reaping value from the purchase, regardless of cost. If I spend 25 cents and don't use the item, the money spent was wasted. But if I spend $25,000 and put the item to use daily, the money spent yielded good value.
Ballmer indicated that Microsoft looked at YouTube, at a potential, half-billion purchase price, as too much money. The company instead chose to build MSN Soapbox. Months later, Google easily plunked down three times the price Ballmer balked at. Microsoft will spend plenty—as indicated by recent acquisitions—but more a little here and little more there.
Google has some competitive motivations for spending big. DoubleClick is best known for its display advertising business, an area where Google is rapidly expanding. Display advertising is the only real revenue bright spot for Microsoft's Online Services group. No doubt, that's a light Google would like to extinguish back into the general revenue darkness surrounding Live and MSN. Google's DoubleClick purchase takes away something potentially valuable from Microsoft. Same can be said about the AOL and MySpace deals.
More importantly, these acquisitions all protect or extend Google's core advertising, search and broader informational businesses. Microsoft has established monopolies with broad developer and partner economies that act as buffers. Google is still building out its business and business model protections.
The real question: Should Microsoft have been willing to spend, particularly when it could afford to, to lock out Google? Commenters, please pipe in with answers.
Related Posts:
- Google Loves DoubleClick's Video Research, Too, Google Watch, April 16, 2007
- DoubleClick Purchase not an Anti-Trust Issue if Google's Market is all Advertising Everywhere, Google Watch, April 16, 2007
- Will Microsoft See Double (Click)?, Microsoft Watch, March 28, 2007
- Google Catfight About 30 Years in the Making, Microsoft Watch, March 6, 2007
- Why Google Matters to Microsoft, Microsoft Watch, Feb. 22, 2007
- Google and Long Tail Computing, Microsoft Watch, Feb. 22, 2007
- Sorry, but Live Isn't Dead, Microsoft Watch, Dec. 12, 2006
Comments (12)
Joe are full of it !
MS doesn't get Double Click now you say it's because they are "spend thrifts".
What a lot a load of BS !
One minute you say MS is going after Double Click (which ended up costing US$3.1 billion) and now you say the exact opposite.
"The software giant tends to buyer smaller companies, with good technologies, that don't command a premium price. Microsoft may buy big volume but rarely by paying a premium."
You are unbelievable Joe ... what a load of rubbish ! !
Posted by Neil | April 17, 2007 1:36 AM
Neil,
I fail to see what Joe has done wrong here. Joe said Microsoft were going after DoubleClick which, judging by the admittance that they were talking, they were.
In your second paragraph you say Joe is talking a load of rubbish without saying why.
I don't often agree with Joe either but if I were to state my disagreement with something specific I hope I'd be gracious enough to explain why.
-Jamie
Posted by Jamie | April 17, 2007 2:21 AM
Jamie
I fail to see why you don't if you have been reading the articles that appear in this site.
If you have not try reading Joe's article on Double click and microsoft, then you will understand.
Posted by Neil | April 17, 2007 4:45 AM
Neil, I suspect that Joe has come to the point where he looks at things more objectively and assesses things with _free trade_ in mind. I advocate justice in the market, not necessarily just Free software. Honestly, Google deserves some whooping for this acquisition. It will not serve the industry well. Nither the skilled worker nor the customer will benefit from lack of competition and hostile takeover bids.
Take care and relax. You make the comments obnoxious to read with this writing style.
Posted by Roy Schestowitz | April 17, 2007 6:22 AM
Roy Loves Suse
Thanks for your comments and I be careful to disregard them.
Posted by Neil | April 17, 2007 7:39 AM
I'm guessing Neil is Joe's little brother.
Neil is currently frustrated because he is sitting at home babysitting the neighbors dog, taking notes and creating spreadsheets with MS Office (the old crusty version), while Joe is on the internet writing columns and gathering attention.
Neil is jealous of Joe; look closely and you will see that his comments reflect this.
Posted by Eric Layne | April 17, 2007 9:45 AM
Neil
This is my first post, so sorry about being long winded. You just set me off.
Three postings and you do not have anything constructive to even put forth. As condescending and obnoxious as you are making yourself seem, you do deserve to make a point. If only your were actually doing that.
I will admit that Joe does have a perceived bias against Microsoft. It is my belief that this is justified, as it is our duty as an open society to question the actions of any entity (personal, governmental or corporate). The larger an entity, the more questions that must be asked, as you can not let any entity go unchecked, whether you agree with what they are doing or not. The larger the entity, the more cynical you must be to protect your own interests.
Now I thoroughly expect a reply back from you bashing me, so here is some of my history:
I was a major supporter of MS-DOS when it came out. I developed software that worked down at the core level of DOS for multiple customers.
I loved Windows when it came out. I thought it was great. I did not even know what a MAC interface looked like.
After I saw a MAC interface, I fell in love with it and wondered why Microsoft could not make their system work as easily and hassle free. I have NEVER owned a MAC, but still wonder when Microsoft is going to make the Windows OS work as good as OS X.
I became an expert in Visual Basic (1-6) and I still am an interface design specialist.
I believe that the .NET Framework is bad for the consumer.
I also believe that it is the consumer's right to make the final decision (although I may not agree with that decision).
Shutting out someone because they do not agree with you is bad business. In the end, it will come back to bite you.
I work on Windows XP Professional every day.
Now about the article itself. I think Joe does make a very good point, although it seems to be well buried.
The following points need to be considered about Microsoft:
Microsoft Search & Advertising was already so far behind Google that they needed to do something.
You never get something good for nothing (in the end you always pay in time, effort or money). Somtimes you must push aside a perceived value and look at the end result. Microsoft has the cash reserves that they could be ahead of Google, their arrogance is costing them dearly in the Search and Advertising markets.
MSN and Hotmail are has beens, but their names are mainstays. Whether the names can prop up other services still must be seen, but they tend to be viewed as 'second rate' alternatives around the tech industry. If you need free services, try Yahoo! or Google.
Being fiscally in the black is not always good. Microsoft has cash reserves that any company envies. They need to start spending. Their need to be conservative in spending, and thus have these large cash reserves, is costing them dearly in reputation, stock value and market share.
Yahoo! and Google are pushing forward. Yahoo! may not have the cash, but they are making the deals. Google is doing what it takes to extend its dominance in advertising.
Microsoft, on the other hand, has been playing catch up. But everytime they have a chance to gain on the leaders, they not only stumble, but fall flat on their faces.
Microsoft is used to defining the market. Just look at what they have done on the desktop. But whenever they have entered a market where they do not already have a market lead (i.e. Quicken, MSN, Search and Advertising), they have never been able to drive their business forward to where it can compete successfully.
Posted by Phish Speaker | April 17, 2007 10:03 AM
Per Phish: "Hotmail are has beens"
Hotmail is still the 2nd largest email community. Gmail isnt even 1/2 of hotmail. So careful with being swayed by market perceptions that Goog is rocking everything. In many ways, the only thing they are doing really well is search. Everything else is dying slowly on the vine....
Posted by Andreas | April 17, 2007 12:13 PM
Let me add to Andreas comments, that most of that search stuff was bought from AltaVista.com. Most of the other freebies they are giving out are not that impressive...
Posted by Evan | April 17, 2007 3:36 PM
Grow up Google, grow up . You need to be stronger to resist MS (monopolist, prepotent ,arrogant)
But do not forget that us (the simple people) are who gives you the power (MS forgot it), forget it and will be other MS and us too will leave you.
Posted by antonio | April 17, 2007 6:43 PM
Great advertising and effective marketing communications are about editing -- that is making choices to say less, in order to convey more.
If you must include everything and the kitchen sink too, then whether your product is an ad or something like, say software, then you will never, ever, ever achieve clarity or distinctive memorabilty.
In fairness to the company, people think they know Microsoft, but can scarcely take the time to validate their biases. So even when Microsoft messages effectively, all too often many people simply aren't listening.
Posted by AME | June 18, 2007 4:07 PM
Let me add to Andreas comments, that most of that search stuff was bought from AltaVista.com
Google bought precisely nothing from AltaVista.
Posted by Christine | August 26, 2007 7:40 AM