MIAMI BEACH – Microsoft Corp. has undergone a drastic evolution from in-house developer shop to assuming an increasingly non-organic growth approach, said a company executive.
“This might be the first time we see Microsoft’s acquisition spend be higher than its own R&D,” said Fritz Lanman, director of online services and Windows with Microsoft’s strategy and merger and acquisition group. Lanman was part of a panel presentation at Accenture’s Global Convergence Forum this week along with Yahoo! Inc.’s vice-president and general manager of connected life Americas, Bruce Stewart.
Although the discussion was meant to be about the future of Web 2.0, the dialogue inevitably began and continued for a disproportionate amount of time on the topic of Microsoft’s offer to buy Yahoo!, or as the moderator called it, the “large elephant in the room.”
And although neither executive could discuss the status of the offer, which has recently turned a little hostile, they did share their thoughts on why industry consolidation was happening.
A company’s acquisition philosophy is definitely a reflection of strategy, and recent strategy shifts have meant that acquisitions are no longer solely about incremental innovation and filling gaps in the portfolio, said Lanman. Rather, they are now increasingly geared towards making “game changing” moves.
The large degree of consolidation observed, said Lanman, is likely due to recognition of the economic returns of scale in the online services space. The fact that Google Inc. possesses a large market share in online advertising attracts small to medium advertisers looking to buy clicks, he added.
Businesses are typically looking to acquire that scale by combining assets with others, but the goal of an acquisition can either be to attain talent or technology, noted Stewart.
“We’re constantly striving for net new talent acquisitions to help drive any of our core business,” he said, adding that often such decisions are based on whether it’s best to build or buy. Buying, he said, may help a business get there faster.
The online services industry is also moving to a model of exchanges given the benefits that can be gained from liquidity, said Lanman, citing the financial market in which several exchanges exist as opposed to just one. “That scale will prove critical to attract people to exchange,” he said.
When the panel discussion did get on the topic of the future of Web 2.0, Lanman said he thought the term itself “implies a sequential effect” – Web 1.0 was about the intelligence and sophistication of the programmer building services, and Web 2.0 is about using the “wisdom of the crowds” to provide superior services.
“The next one is the wisdom of your crowd,” he said, explaining that it was the same concept as Web 2.0 except the services are personalized based on social behaviour and social graph, a term given to the visual representation of a user’s network of contacts.
But granting a personalized experience means that users must relinquish an increasing amount of personal data. As long as a company can demonstrate that it can provide superior utility, users will often provide their personal information, said Lanman. The caveat, is that it needs to be well communicated to the masses, he cautioned, citing the user backlash against Facebook’s Beacon, an application that sent out notifications about user activity, such as purchases.
If executed well, the increasingly quality data reaped from users can be amassed into software intelligence to eventually render an MSN experienced that’s “entirely customized,” he said.
The ubiquity of the mobile device is also shaping user experience and changing companies’ approaches to service delivery. Yahoo!’s mobile search capabilities are based on a “built for the mobile first” concept, said Stewart, explaining that Web search cannot be simply extrapolated to mobile search. Query results must be relevant to the fact that the user is on a mobile device, he said.
Furthermore, a keyword monetization strategy will also differ for the mobile platform given the personal nature of the device, said Stewart. “Mobile phones are one of the most personal devices” whereas several people could be sharing one PC, he said.
At the close of the panel discussion, the moderator couldn’t resist polling the audience on how they thought the Microsoft-Yahoo! offer would turn out. The majority predicted Yahoo! would sell to Microsoft for more than $35 a share, above the initially proposed $31 – at which point, the moderator offered a “congratulations” to Stewart.