On Tuesday Microsoft (MSFT) paid nearly $9 billion for Ebay's (EBAY) Skype. The question, of course, is does it matter? Breakout brought in crack tech watcher Henry Blodget to discuss if the deal is long-awaited evidence of a coherent MSFT plan beyond their Windows/ Office cash cow or simply more evidence that the redwood of Redmond has topped out as a growth engine.
The view of the panel is the latter; Microsoft still doesn't have an answer for how to put their $10 billion - $20 billion of free cash flow per year to work. Is this a lack of leadership vision or just the law numbers? Blodget sees it as a little of both. While Steve Ballmer makes a convenient whipping boy, the reality is he has made efforts to take on the competition. Microsoft probably overpaid for Skype, but the company's absurd cash flow and cash hoard make it difficult to see why $4 billion or $5 billion here or there matters.
What is easy to see is Microsoft screwing up the integration of Skype and making little to nothing of the asset. Blodget points to the company missing the tablet market and thus opening up a "window" for Apple (AAPL) to take OS market share via phones and the iPad. Microsoft also obsessed over the threat of Google (GOOG) in search yet failed to actually do anything effective toward the goal of competing effectively in that realm.
Nesto points out that if Facebook had acquired Skype, the deal would have been seen as a likely winner, if only because Facebook has a more natural platform for the service. Microsoft may effectively deploy Skype to corporate customers, but there's an obvious and disturbing one-word rebuttal to those who would suggest Mr. Softie will be able to create a product that will capture the imagination of individual consumers. That word is Zune.
Of course there's also Xbox, which has managed to become a market-share winner in the gaming space. Alas, the Xbox illustrates another issue for Microsoft; it's going to be almost impossible for the company to come up with anything which could move the needle for the company given their huge revenues and margins for Windows and Office.
The solution? Blodget suggests a massive buyback or other deployment of the company's cash hoard. Nesto suggests a series of huge investments and aggressive efforts to find another growth vehicle of any sort, though not if they look like Skype, which a huge number of people use for free. My take is that Microsoft is one of thousands of stocks available for purchase and a quintessentially dead money investment. Even the coolest, richest people face death. Microsoft isn't likely to go away anytime soon but, from where I'm sitting (in flowing robes atop Mt. Judgment), the stock is destined to stay roughly where it is for the foreseeable future.
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- free cash flow
- Henry Blodget
- Steve Ballmer