I often wondered what it takes to get acquired by Microsoft. I have often heard the refrain “talent and technology” in the annual report of Microsoft and other technology companies, so it seemed that all that was needed is to bring together a group of smart people and develop an interesting, innovative technology.
Don Dodge, from the Microsoft Emerging Business Team, has a couple of recent posts called “Does Microsoft Invest, Partner or Acquire” and “Microsoft Will Acquire My Company?” In it, he confirms the Microsoft’s penchant for smart people and IP, but he also adds that, to get the high valuation, the company needs to have established market leadership in a new product space.
In a related note, Paul Graham gave a talk “Hiring is Obsolete” about a new alternative to getting hired by Microsoft. He elaborates further in his blog essay.
Most CS undergrads hope to get a good job when they graduate. But as the age of startup founders creeps downward, I foresee an alternative path for the most ambitious: instead of going to work for Microsoft, start a startup and make Microsoft buy it to get you.
This change will do more than make some young hackers richer. It will fuse recruitment with product development. Instead of applying for a job and then being told what to work on, you join the company as a complete development team, with a beta version. Results: (a) a shift in power from companies to hackers, and (b) an increase in the rate at which new technology gets developed.
Obviously this new model will be a better deal for the best hackers. But I think it will also be better for the Microsofts. The few tens of millions extra that they'll pay will be a bargain for what they'll get.
This was exactly the route taken by a fellow classmate of mine who turned down a job offer from Microsoft to work at Vermeer (FrontPage), only to be acquired a year later by Microsoft with, effectively, the signing bonus of a lifetime.
This reminds me of Eric Sink’s blog entry "Just how big is that big empty office?" in November 2003. In it, he reported that Microsoft was looking for a development lead for Visual SourceSafe, and Eric suggested his company SourceGear. I suspect that Eric, already knew that Microsoft was going forward with VS Team System edition. That post was written about the same time that he later claimed to have been informed about the direction of VS by Microsoft.
In my MBA program, Microsoft was a favorite topic, and its acquisition strategy was actually a significant piece of a course I took on Digital Strategy. The course professor, Professor George Geis wrote a book, Digital Deals, which explains how companies like AOL, Intel, and Microsoft planned and executed partnerships, alliances, investments and acquisitions. Geis, seemed especially obsessed with Microsoft and Intel, as he created a website called Trivergence.com (Alliance Infographics), which lists every Microsoft and Intel investment and alliance and shows them graphically. Some of the older content is available for free, but the remainder is password-protected for a fee.
I learned from the course that Intel’s policy, for example, was to “only” invest in companies that simultaneously provide both a strategic and financial upside. In determining the strategic value of an investment, Intel considered not just its direct benefits, but also the impact of a new technology on the broader ecosytem of the computer industry (ie, whether it would stimulate long-term demand for hungrier processors.)
Microsoft thinks long-term and places far greater emphasis on strategic objectives. Financial concerns often go on wayside, sometimes with disasterous results, as in the case with the billions of dollar that Microsoft lost in its cable investments. One of Microsoft’s report lays out its focus on emerging technologies (aligned with its own vision) as well as demand generation. In acquiring companies, Microsoft seeks and extracts out the “talent and technology” and discards all the business functions and the corporate shell—more like an asset purchase than a merger.
From the course, I was actually surprised with the sheer number of acquistions that Microsoft made, most of which don't make the news. I was personally close one of the acquisitions in my time in the Excel group, that of an OLAP company from Israel, I believe called Maximal Intelligence. Actually, after FrontPage was acquired and became part of the Office division, I did meet up with one of the founders, who was nice enough to chat with me and give me one of the original copies of the business plan.
The founder of the company, Charles Ferguson, tells all in his fabulous book, High Stakes, No Prisoners : A Winner's Tale of Greed and Glory in the Internet Wars. Despite Vermeer only being able to sell about 200 copies of FrontPage and on the verge of collapse, the product was valuable for Microsoft in entering into the Internet client development space very quickly to tap into the rapidly emerging Internet market. Vermeer had really smart engineers and it also secured a few patents such as FrontPage Server Extensions. Charles also claimed that, having been based entirely on Microsoft technologies such as MFC and Office user interface, FrontPage was readymade for Microsoft and therefore very attractive for acquisition; however, other recent acquisitions by Microsoft indicate that look and feel is not a prerequisite.
Other observations:
- Most of Microsoft’s Office products, FrontPage, Visio, PowerPoint, Project have been acquired. Microsoft Access may also have been acquired, but Visual Foxpro definitely was. Dodge’s post points to a list of additional Microsoft applications that originated externally.
- Microsoft frequently purchases companies to achieve expertise in a new domain such as for speech recognition, natural language processing, gaming, message and database analysis. Historically, Microsoft’s schedule-driven culture with generalist programmers has been better suited for development than research; for example, early attempts at in-house development of games failed, forcing Microsoft to acquire companies with domain expertise.
- A number of acquisitions, both in application and in system software, such as Visio, FrontPage, RenderMorphics were essentially platforms that exposed an API to developers.
and .NET 2.0. 