MSN: Money Pit or (Not So) Secret Weapon?
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Is Microsoft's MSN unit a bottomless money pit, or the strategic lynchpin upon which the company's future depends? The answer depends on what you think of Microsoft's budget for 2007. Many Microsoft watchers are still reeling over Redmond's spending projections for fiscal 2007, which company officials shared during Microsoft's latest earnings call. Goldman Sachs analyst Rick Sherlund, for one, said that Microsoft is planning to spend more than $2 billion more than he expected next year. And even for a company with pockets as deep as Microsoft's, that's a lot of spending. In no particular order, here are areas where Microsoft brass said they are planning to invest substantially during the next fiscal year (which starts July 1):
Does Microsoft's budget factor in the $2.4 million-per-day antitrust fine that the European Commission has demanded Microsoft pay for abusing its monopoly power (and which Microsoft is appealing)? Microsoft won't say. Does it factor in more stock buyback? No word. What about coupons for consumers who were hoping to get Vista in time for holiday 2006? We don't know. Given Microsoft's reticence to share specifics, it's not too surprising that analysts distilled Microsoft's budget down to Sherlund's now infamous quote: "It sounds like you're building a Google or building a Yahoo inside the company." Despite the number of times Microsoft officials insist that IBM, not Google, is Microsoft's No. 1 competitor, no one really believes them. The reason? Microsoft might be hiring more sales people to sell direct and be beefing up its Microsoft Consulting Services unit. But it is in add-on Web-based services where the company is really making its most visible (and, presumably, its most expensive) push. Microsoft is beefing up its stable of service offerings, focusing first on consumer services, with plans to phase-in additional business-oriented services as the months unfold. During last week's earnings call, Microsoft Chief Financial Officer Chris Liddell said that Microsoft is releasing a new Windows Live beta faster than every 20 days. In building its Windows Live team, it is hiring world-class developers at a rapid clip. And given the number and severity of outages of its MSN Messenger, Hotmail and other existing services, it's not too surprising that Microsoft is beefing up its Windows Live data centers as part of this initiative. But just because Microsoft sets its sights on a market – especially one that isn't built on the backs of operating-system and desktop-office-suite monopolies -- doesn't guarantee success. As former Wall Street Internet analyst Henry Blodgett recently blogged, "Analysts and commentators conditioned by years of Microsoft's come-from-behind victories in software continue to act as though MSN's ascendancy is only a matter of time. The numbers (and general business history) suggest otherwise." Will Microsoft's MSN business-unit investments ultimately pay off? If so, when? And how will that change Microsoft's revenue mix – which is still almost entirely dependent on Windows and Office? More pressingly, what if Microsoft bets wrongly, and the company's Windows Live strategies never manage to pull MSN out of its "distant third" market position? What's your bet? Will Windows Live become Microsoft's new crown jewels, becoming even more valuable to the Redmondians than the vaunted Windows source code? Or is all the commotion around Windows Live little more than a planned distraction, meant to keep company watchers' eyes off the place where the real action is still happening, namely, Windows and Office? Talk back below or write me at mswatch@ziffdavis.com and |
