Friday, May 01, 2009

Latest Idea from Microsoft R&D: Copy Twitter

Henry Blodget at Silicon Alley Insider has a story this morning about Microsoft (MSFT) preparing to launch a Twitter-like service that it believes is superior to Twitter.

This story is maddening to a MSFT investor like me from a number of angles:

1. MSFT seems capable of only building products themselves rather than buying them. Maybe this all dates back to them passing Netscape with Internet Explorer. Maybe they now forever believe that can pass any competitor with their own product -- whether Google in Search, Apple (AAPL) in Ipods, and now Twitter in tweeting.

2. According to the story, this project (called Vine) has meandered around within the bowels of MSFT for several years before ending up in the large Research group and now being finally launched. The lead times for this and other projects which are also working their way through MSFT's system seem to be disconnected from market realities. Vine might have been a good offering 2 years ago - now it appears to have little chance of success. Does the world need another FriendFeed -- even if it's got MSFT's name on it?

3. MSFT's R&D group is pushing an annual budget of $10 billion. They will surpass that level next year at current trends. I know there are very talented engineers in that group working on very interesting projects but who is managing them? How can you spend $10 billion a year in R&D and be seen as light years behind a company like AAPL which spent $1.5 billion on R&D last year? If MSFT's R&D management was as good as AAPL's, then MSFT should be getting 10x the number and quality of new products as AAPL -- instead they're getting 1/10th at 10x the cost. Management like that is something I don't need as a MSFT shareholder.

You can do lots of things when you have MSFT's pristine balance sheet. Wasteful managing of R&D projects shouldn't be one of them.

Position: Long MSFT

Originally published in on 4/28/2009 10:21 AM EDT

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