Eric Jackson's Blog About Longs, Shorts, Hedge Funds, Corporate Governance, and China
10/14/10 - 09:00 AM EDTBill Koefoed: There are a bunch of ways that we are driving social experiences across our platforms, products and services. Xbox Live and Windows Live are obvious ones; we are doing some very interesting things with Facebook through Bing, and that will be a place to watch. We are also bringing social into our collaboration offerings, including Office 2010, and it will be a space to watch moving forward.
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Steve participates in a large number of externally-facing events, such as the Windows Phone 7 launch. He delegates the investor-related activities to Peter and myself as we have the best day-to-day interaction with investors, view to the numbers and the questions that investors are asking. He obviously participates in our financial analyst meeting and meets with investors from time to time.
What do you think is the biggest misconception of Microsoft(MSFT_) among investors and analysts? Who is responsible for that misunderstanding?
We are in a lot of businesses, and a lot of markets. Some of the places we are investing in today like cloud, search and mobile are emerging and critical to long-term growth. Others, such as Windows and Office have competitors, but we continue to innovate and drive increasing value to customers.
Since 2001, Microsoft has grown revenue from $25.3 billion to $62.5 billion in 2010, a CAGR of 11%. EPS has grown from $.66 to $2.1, a CAGR of 14%. Our Server and Tools business has grown to be a $15 billion business. We've grown new billion-dollar businesses: Xbox (+ Xbox Live), SQL Server, System Center, Unified Communications (Exchange), SharePoint, Developer Tools (Visual Studio), Dynamics (ERP & CRM), Online Advertising (display & search). I think that people lose sight of our ability to grow and scale.
Do you think there are any big misconceptions about your competitors in different spaces?
Google (GOOG_) has been making lots of claims when it comes to cloud computing, while businesses are continuing to buy Microsoft. Today, more than 40 million people are using Microsoft Online Services, which are available in 41 countries and regions around the world. We are tapping 20 years of productivity experience while they (Google) tap advertising experience. If you look at the traction Google has claimed - they are now backtracking. Customers and educational institutions recognize they are not prepared for business needs.
A lot of investors are still scared by the whole Yahoo!(YHOO_) hostile bid foray. They're concerned that you guys are not sure of yourself. You wanted to do the deal, then you didn't (thank goodness for investors). The concern going forward is: How are you going to look at M&A now? You haven't done any deals this year while Google has done a bunch. Is that indicative of what we can expect going forward?
We feel like we have the right partnership in place with Yahoo! that will help us gain the scale and relevancy needed to drive success in our search business. This combination now makes up for almost 30% of the U.S. search market. Not all of our acquisitions are made public, and that goes for most companies. Our philosophy on M&A has not changed; most often we look to do small acquisitions that complement our organic growth -- tuck-in acquisitions. Talent is the most important part of any deal.
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