The Great Debate

Microsoft learns to love leverage

James Saft

Sep 23, 2010 07:36 EDT

If you thought the era of better living through financial engineering died with Lehman Brothers, have a look at Microsoft.

The ubiquitous computer software company has decided to borrow as much as $6 billion at the same time as it is increasing its dividend by 23 percent, despite sitting on a $36.8 billion cash hoard and generating more every day.

It reminds me of the old Saturday Night Live skit about the “Bank of Change,” which existed only to turn dollars into quarters and pennies into dimes. “How do we do it?” their pitchman said, “Volume.”

Microsoft’s shares fell more than 2.5 percent on the news, but mostly because investors had hoped for a bigger return of cash, presumably financed by a bigger bond issue.

It looks as if Microsoft will pay out about $5.6 billion annually in dividends, quite close to the size of the bond issue and perhaps a quarter of the free cash the company is likely to generate in fiscal 2011.

So why would Microsoft want to borrow money when it already has so much and is shoveling more in every day? Partly no doubt because financial conditions engineered by the Federal Reserve have made borrowing so cheap for the world’s few remaining AAA credits. According to initial indications Microsoft will pay anywhere between 30 and 87.5 basis points over Treasuries for borrowings of between three and 30 years.

Could it be that Microsoft thinks it can make money by funding and reinvesting? A hedge fund and a software company — there’s a business model for you.

Apple over Microsoft by a TKO

Robert X. Cringely

Apr 23, 2010 09:59 EDT

– Robert X. Cringely has been writing about technology since 1987 and blogging since 1997. His work has appeared, well, everywhere, but can mainly be read at http://www.cringely.com. The views expressed are his own. –

Winning by a technical knock-out (TKO) over Microsoft, Apple this week became, according to Standard & Poors, the second most valuable NASDAQ firm by market cap after Exxon-Mobil (click here for more on S&P’s ranking).  What a difference 13 years makes!  Apple is on a roll and while Microsoft is far from down and out it is clear that the competitive momentum lies these days with Cupertino more than Redmond.

When Steve Jobs assumed the CEO position at Apple on July 9, 1997 Apple shares cost $3.42 and the company had a market cap of around $3 billion. This week Apple shares hit $266 with a market cap of $241 billion — 80 times larger than it was 13 years ago.  Microsoft shares, in contrast, went from $17.67 to $31 in the same time frame — not even a doubling despite more than $80 billion in share buy-backs by the company.

So what’s going on here, really?  Having known both Steve Jobs and Bill Gates for more than 30 years, it comes down to market transitions and the fact that, as Gates explained to me many years ago, “the way to make money in this business is by setting de facto standards.”  And while Windows and Microsoft Office remain the biggest de facto standards of all, Microsoft hasn’t created any new such standards in over a decade while Apple has the iPod, iPhone, a resurgent line of Macintosh computers, a huge retail operation, and dominant market share in music sales.

What’s really significant here is that the computer industry is undergoing a transition to web services and mobile hardware, neither of which are dominated by Microsoft.  Yet in each Apple holds a leadership role.  So while Microsoft can continue to live off Windows and Office fat for years to come, absent some very dynamic product initiatives, the long term trend for Redmond is far from good.

The trend line is definitely up for Apple and mildly down for Microsoft. It took 13 years to do it, but Apple is well positioned now to take Microsoft’s crown. I mean it. Look at the downward price erosion of Microsoft Office caused by a combination of Open Office and iWork, which is down to $30 on the iPad. How long will it be until Apple is giving iWork away to sell hardware — an option Microsoft doesn’t have? Not long. By then a bit more of Redmond’s goose will have been cooked. Digital market leadership is now Apple’s — not Microsoft’s — to lose.

But that doesn’t mean that Apple’s success is guaranteed any more than is Microsoft’s failure.  If Apple is going to maintain its momentum it will have to take on bigger and bigger competitors, which Steve Jobs seems eager to do.  Not just Microsoft, in this case we’re talking about the publishing, broadcasting, and movie industries, as Apple moves to dominate those media the way it already does music.  Microsoft is nowhere to be seen in any of these venues.

from The Great Debate UK:

Microsoft bets on Windows 7 heaven

-Matthew Bath is technology editor at Which? The opinions expressed are his own.-

Microsoft’s Windows operating system has been frustrating and delighting computer users in almost equal measure since it was first debuted by the software giant first in 1985. Fast forward through nearly a quarter of a century of powering the majority of the world’s personal computers, and Windows is about to hit another milestone.

Windows 7 launches on October 22, worldwide, and it’s safe to say that, as a firm, Microsoft will be collectively crossing fingers and toes that shoppers flock to the new version.

The successor to its Windows Vista operating system, Windows 7 promises to be faster, more reliable and make computing simpler than ever – so much so that like a proud parent, Microsoft hosting worldwide coming-of-age parties to help launch Windows 7 onto PC desktops worldwide.

Yet the key question is whether consumers, already stung by what many found a problematic Windows Vista, are as willing to take a punt on this latest version.

Certainly, it’s chalking up record sales – and Windows 7 has overtaken Harry Potter and the Deathly Hallows to become the biggest grossing pre-order on Amazon.co.uk of all time, and the online store says demand for the new operating system remains strong.

Forget Microsoft, Yahoo’s value is overseas

Eric Auchard

Aug 25, 2009 11:58 EDT

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The fate of Yahoo Inc has become intertwined in the public’s imagination with the success or failure of its dealings with Microsoft Corp in recent years.

That’s despite the fact that as much as 70 percent of the value investors put on Yahoo’s depressed shares are tied up in its international assets or cash holdings — factors that have nothing to do with Microsoft.

Yahoo’s operations trade for just $5 to $6 per share out of its current $15 share price, once you exclude its Asian investments and the value of its cash. Its hidden assets in Japan and Chinese affiliates — Yahoo Japan Corp and China’s Alibaba Group — alone are worth around $6 to $7 per share.

The trouble is that Yahoo needs to find a way to cash out of its increasingly rocky relationship with Alibaba Group, in which it holds a 39 percent stake after it pulled back from operating its own business in China in 2005.

Yahoo’s best chance here may come next year if Alibaba succeeds with a second IPO of its Taobao.com consumer ecommerce site, building on the success of the 2007 IPO of Alibaba.com, now valued at more than US$13 billion on the Hong Kong exchange.

Truth be told, Yahoo’s huge success in building the biggest U.S. Internet media destination never translated very well overseas, despite the early foray into Asia that left it with lucrative assets in Japan and China. These passive investments came to substitute for a global operating strategy.

from Commentaries:

Apple-Google learn Corporate Governance 1.0

Eric Auchard

Aug 3, 2009 18:06 EDT

LONDON, Aug 3 (Reuters) - The resignation of Google CEO Eric Schmidt from Apple's board should come as no surprise to anyone with an inkling of what corporate governance means.

But then Silicon Valley's idea of corporate boards has long consisted of cozy, interlocking directorships which would be considered collusion in most other industries.

Google's CEO is not leaving Apple's board voluntarily. He is only stepping down in response to the increased government scrutiny of obvious potential conflicts of interest between the two companies.

Yet regulators shouldn't be content with Schmidt's departure. The truth is that Apple and Google have been heading into the same markets for years. A veritable chain of overlapping business ties remain in place even if the most obvious formal link is now broken.

The chairman of Apple's board, former Genentech CEO Art Levinson, remains on Google's board. Another Google board member, Ann Mather, is the former chief financial officer of Steve Jobs' former animation company, Pixar Studios.

Paul Otellini, the CEO of Intel Corp, Apple's main chip supplier, also sits on Google's board. Al Gore remains on Apple's board, but in his new turn as venture capitalist he has many business ties to Google and its founders. Gore is a partner of Google board member John Doerr at legendary Silicon Valley VC firm Kleiner Perkins.

For months, the U.S. Federal Trade Commission has been examining Schmidt's participation on the boards of the tech world's two most dynamic companies. Last week, the Federal Communications Commission said it was looking into Apple's decision to reject a Google phone application to run on the iPhone.

from The Great Debate UK:

Google calls time on the Age of Windows

-Tom Dunmore is Brand Director & Editor-in-Chief at Stuff magazine - Stuff has over 1 million readers worldwide. The opinions expressed are his own.-

Google announced on Wednesday that it was developing its own computer operating system. It will be secure, fast, lightweight and - most of all - free. And it presents the biggest challenge yet to the long-standing dominance of Windows.

The idea behind Google ChromeOS is nothing new - it's built on a Linux foundation and will no doubt share many of the features of other open-source operating systems. But Google is the only computing brand with more might than Microsoft: it's trusted, and has a proven track record of building brilliant, free services, from search to instant messaging.

Indeed, Google has been busily chipping away at Microsoft's market for some time, with the Google Docs suite of in-browser applications providing a decent (and free) alternative to Microsoft Office, while the Android mobile phone software has pulled the rug from under Windows Mobile.

Microsoft's attempts to strike back by stealing some of Google's lucrative internet search advertising market have had little success - hence the rebranding of MSN as Live search, and the subsequent replacement of Live search with Bing.

But Microsoft's core business is the Windows operating system that powers nine in ten of the world's computers. By launching against Windows, Google is declaring out-and-out war - and doing so when Microsoft is at its weakest.

Bing just shows Microsoft still needs Yahoo

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Microsoft Corp’s new Web search service Bing is a far cry from the general-purpose tool the company must build or buy to compete effectively with rival Google Inc.

Microsoft would do far better helping users find the emails, documents and Web pages that users of Outlook, Office and Internet Explorer rely on every day.

But competitive restrictions appear to prevent the desktop software giant from doing what it knows best. Microsoft operates its business under oversight from U.S. regulators after it settled antitrust charges in 2002 that it abused its market dominance in personal computer operating systems.

Barring that, Microsoft needs to come to terms with Yahoo over Web search. A deal has eluded them for 16 months but Yahoo remains Microsoft’s best chance for competing with Google on the consumer Internet.

Microsoft offered to pay up to $47.5 billion for Yahoo early last year but was rebuffed by Yahoo’s former leadership. They have been in talks in recent months but no deal has emerged.

Rather than trying to be all things to all people, Microsoft’s latest reboot of its Internet strategy helps consumer dig deeply and find what they are after quicker, but only in a selected set of categories. Type in the name of an automobile and Bing assumes the user is thinking about buying or repairing a car. For example, the left frame of the search results page for “hyundai sonata” links to reviews, repairs, used cars, dealers, videos, images and reference manuals. A search for “diabetes” turns up health-related categories.

Advancing global Internet freedom

– Leslie Harris is the president and CEO of the Center for Democracy and Technology in Washington, DC. The views expressed are her own. —

In the wake of troubling reports as recently as last year that Western companies were assisting China with Internet censorship and the unmasking of cyber-dissidents, governments around the world seemed poised to regulate the conduct of Internet companies. Lawmakers appear to have stepped back from those efforts, but the challenges of advancing global Internet freedom remain.

The Global Online Freedom Act, drafted in the U.S. Congress, would have made it a crime for Internet companies to turn over personal information to governments in cases where that information could be used to punish dissent. The bill produced a firestorm of controversy. Human rights groups campaigned for swift passage, while the tech industry scrambled to stop the bill, which they viewed as a global eviction order from many difficult but emerging markets. At the same time, several members of the European Parliament proposed a European version of the measure, taking the accompanying controversy global.

Now policymakers seem far less certain that global Internet freedom will be served by imposing harsh mandates on Internet companies that provide crucial services to customers in repressive regimes. The bill has not been reintroduced in the U.S. Congress this year, and earlier this month, a top European regulator, European Union Telecommunications Commissioner Viviane Reding, dismissed the notion of Europe passing its own Global Internet Freedom Act, saying that she was not convinced that “hard law” was the best way to address the issue.

For Internet executives who feared that hard-line regulatory mandates might force them out of many countries, Reding’s comments came as welcome relief. But celebration is premature. Threats to Internet freedom are growing and lawmakers’ concerns about industry’s role remain rightly high.  Those who choose to misconstrue Reding’s remarks as a free pass on this important issue do so at their peril.

Now is the time that Internet and technology companies must step up and take on the very challenges that the Global Internet Freedom Act was intended to address in order to ensure that their services and technologies do not become tools for surveillance and oppression.

Lest companies argue that the problem is too big and complex for any one company to make a difference, there is a responsible way forward. Late last year, a diverse coalition of leading information and communications companies, major human rights organizations, academics, investors and technology leaders launched the Global Network Initiative, which seeks to provide a framework to help information and telecommunications companies chart an ethical and accountable path forward through the growing demands from countries to take actions that infringe on the freedom of expression and privacy rights of their users.

For Yahoo’s Yang, news keeps getting worse

Eric Auchard

Nov 14, 2008 12:43 EST

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Jerry Yang’s elevation to chief executive at Yahoo Inc after a long period of decline at the Web pioneer had the air of a fairy tale where the noble prince grows up and restores his kingdom’s faded glory.

But Yang has worn his leadership like an ill-fitting coat since coming to power last year, appearing reluctant to make the dramatic restructuring moves analysts and investors have long considered vital to get Yahoo to reaccelerate its growth.

Yang made no concessions to the growing chorus of angry investors and media pundits calling for his ouster at a Web industry conference in London this week.

Avoiding questions about Microsoft’s recent rebuff to renewed merger talks between the two, Yang posed for photos in front of dancing singers in oddly chosen surgical costumes singing “Staying Alive,” the never-surrender disco anthem.

It was the kind of goofy humor cultivated by a company that turned a yodel into one of the biggest brands in Internet media but lately has seen little go its way as it attempts a turnaround in the midst of a 15-month-long downturn in online advertising.

In his speech to the Internet Advertising Bureau, Yang reiterated plans to boost Yahoo’s audience and drive more advertising sales. But his underlying message was of deeper and deeper gloom for his company and the Web industry.

Principles for a better Web

Reuters Staff

Oct 30, 2008 06:12 EDT

 By Colin Maclay, Acting Executive Director, and Caroline Nolan, Research Associate, Berkman Center for Internet & Society at Harvard University

More than one billion people are online, with three times that amount connected via mobile devices, just one indication of how integrated digital technologies are with lives and livelihoods around the globe. While governments have for the most part encouraged these developments, they are increasingly aware of technology’s capacity to disrupt existing power structures and accordingly ambivalent. As governments seek to control information and online activities, private actors – information and communication technology (ICT) firms in particular – are increasingly called upon to assist in those efforts.

Many of us mistakenly assume that Internet governance doesn’t touch us, and maybe it doesn’t – what expression is allowed on the Net and whether your personal information is shared with law enforcement is often governed less by law and more by practice. As Jonathan Zittrain and John Palfrey have long argued, companies providing technology services are important Internet points of control  and are under great pressure to comply with local laws and practices, which can be at odds with international standards, corporate values, and social norms.

Facets of these corporate dilemmas have been explored by the OpenNet Initiative, the Citizen Lab, Chilling Effects, and other keen observers like Rebecca Mackinnon, but we are just beginning to understand the scope of this rapidly evolving problem.  Most of us remain more familiar with a few infamous incidents in certain countries than with the real challenges arising with less fanfare across the world. The emergent nature of global technologies, business models, and government responses makes these complex problems particularly difficult for law to address effectively , at least in the near term.  These networked, distributed issues require a dynamic approach, capable of evolving and scaling alongside the problem, and ideally ahead of it.

Launching this week, the Global Network Initiative is a multi-stakeholder effort – grounded in a set of guiding principles, supported by implementation guidelines, and a governance, accountability and learning framework  – that establishes a robust, responsive platform for participating companies, NGOs, investors, academics, and others to work together to protect and advance the rights to free expression and privacy in the ICT sector worldwide. The launch represents the empowerment of a coalition that can support companies as they resist governments that seek to enlist them in acts of censorship and surveillance in violation of international standards.

This ground-breaking approach was developed with Google, Microsoft, Yahoo!,  Human Rights Watch,  Committee to Protect Journalists, Research Center for Information Law at University of St. Gallen, Switzerland FIR, School of Information at University of California-Berkeley, Calvert, F&C Investments  and other organizations – hopefully, with many others introducing still greater diversity to come. Our varied views and experiences can be challenging, they push - and allow – us to consider the problem and approaches to it across multiple dimensions, ultimately helping us to balance aspiration and reality (or near term progress with long-term success) in a way that no one sector would likely achieve.

The actions of (and expectations for) companies will evolve over time. Early commitments center on responsible decision-making, specifically developing the capacity to anticipate and address concerns relating to privacy and expression.  Among other steps, companies will form cross-functional leadership teams and train employees; conduct human rights impact assessments before entering new geographical or service markets, developing associated strategies to mitigate those risks; and encourage participation in GNI by relevant partners.