Microsoft has launched its new product “Bing”, which is supposedly a new search engine. From a product positioning standpoint, it appears that it designed to compete with Google’s search engine. I do not know the nuances of Bing’s capability, and I do not intend to make a relative comparison for pros and cons. In this product launch what caught my attention is the amount of money being spent on its branding exercise, its promotions, its marketing, etc. Media reports suggest that Microsoft has allocated $80million to $100million for this exercise.
In my post on opportunities of technology dividends, I had mentioned that I am wary of Microsoft’s habit of squandering cash in meaningless acquisitions (i.e. meaningless projects). I believe this is a perfect example of squandering cash on meaningless projects.
I just do not understand what Microsoft wants to do. Does it want to compete with Google Search and take some business? Does it want to develop it organically, or does it want to acquire Yahoo Search? Or Does it want to compete with Apple (remember Zune!)?
Why Microsoft does not understand that a mere attempt to replace an already established product is not going to work? How many times it has failed? It’s products (whether Bing or Zune) does not bring anything new to the table for consumers? Assuming that it has few extra features, but then how long will it take for Google/Apple to replace it?
In times of recession, what do you think of $100 million spending on marketing exercise for re-branded or re-formatted product? Can this be justified?
We all focus on Microsoft’s ability to generate cash, its towering presence in desktop and laptop notebook operating systems, and office servers. There is no doubt it has wide moat in that domain. But it has failed to leverage that for next phase of growth. It continues to bank on growth of its market segment.
Microsoft with its towering presence has the ability to shape the new technology boom. It should get rid of its fixation with apple pies. It should stop googling around. It should use its operating system capabilities and take that to newer areas like industrial applications and energy.
Microsoft of this decade wants to be “one of others”, instead of “the only one”. Instead of using its resources to create new market segments, it is more interested in competing in existing markets. This not only shows that Microsoft has run off ideas, it also demonstrates management is not able to adapt to new realities. It has failed to leverage its existing might to create something that does not require shouting.
I can see parallels between Microsoft and Detriot’s three musketeers. First, they became bankrupt in ideas, and after sometime they became financially bankrupt. Microsoft is showing all signs of bankruptcy in ideas.
Microsoft has loads of cash, and it continues to generate lots of cash. But it only knows how to waste it. It is for these reasons I am wary of considering it a potential dividend growth company.