For IT vendors, technology comes in two flavors: homegrown and brought into the portfolio from the outside. In Microsofts case, we usually consider most of its efforts "homegrown"—with "home" being the R&D conducted around the globe in the companys many labs and offices. Still, Microsoft has a wallet fat with cash and has been on a buying spree over the past 12 months.
At the annual Microsoft VC Summit, held May 11 in Mountain View, Calif., just a short drive from the Silicon Valleys venture row, Redmond product teams presented the companys vision and strategies to analysts.
According to Don Dodge, director of business development for Microsofts Emerging Business Team, the company over the past year has made 22 acquisitions, totaling nearly $1 billion. This compares with just nine acquisitions the previous year.
"The acquisition pace is likely to accelerate," Dodge predicted.
The 22 purchases, ranging from storage (String Bean Softwares WindTarget iSCSI SAN technology) to mapping (GeoTangos three-dimensional interactive maps and Vexcels remote sensing technology), span 12 groups within Microsoft.
MSN gained the most outside technology with eight purchases, including technology in VOIP, Web searching and analytics, advertising, and mobile services. Security was also a hot spot.
A week after the conference, Microsofts Security, Access and Solutions Division announced it would buy Whale Communications. Whales primary product is its Intelligent Application Gateway, an SSL VPN supporting performance acceleration and security for a long list of enterprise applications.
"Microsofts sweet spot is companies with revenues between $50 million to $200 million," Dodge wrote in his "Next Big Thing" blog, pointing out that the acquisitions typically fill in holes in Microsofts product road map.
"About a third of the companies acquired were not yet VC funded. We are doing our best to identify great engineering teams and unique technology early in the process," Dodge said. "We form partnerships, help them get started with Microsoft, introduce them to VCs, and sometimes that results in an early acquisition. That is not the ultimate goal … but sometimes it happens."
However, Microsofts investor relations department appears to see the technology acquisitions history a bit differently. For the same 12 months, the investments/acquisitions page (microsoft.com/msft/invest.mspx) lists only 11 deals.
Ed Sim, a founder and managing director at Dawntreader Ventures, reflected on the conference and gave a short list of areas to watch for Microsoft acquisitions in fiscal 2007. Sim said Redmond executives have targeted five areas: the consumer market, open source, software as a service, Office 2007 and mobility technologies.
Sim said Microsoft is looking to buy more engineering- and technology-focused companies versus sales-and-marketing-oriented businesses.
As I try to find the method to Microsofts acquisition madness, I wonder about Microsoft Research. For a company spending in excess of $5 billion in R&D, Microsoft should have more concrete products to show for its research efforts.
However, if some of the recent Microsoft TechFests—where the companys researchers show off their latest projects—are an indication, the researchers dont seem to be under much pressure to productize the fruits of their efforts. Many of the projects (at least the ones shared with the public) seem more focused on fun and novelty than bettering Microsofts bottom line.
Sure, there is a place for research for researchs sake. But one would think the companys research labs and incubation greenhouses could turn out some of the technologies for which Microsoft is currently spending big bucks.
Mary Jo Foley is editor of the Microsoft Watch newsletter and accompanying blog (www.microsoft-watch.com).