Microsoft's Mundie Talks Long-Term Strategies

Microsoft will do the groundwork for online search and advertising with or without Yahoo, company exec Mundie says.

LAS VEGAS-Craig Mundie, Microsoft's chief research and strategy officer, said long-term research and development will carry the day at the company, despite mounting competition from the likes of fleet-footed Google, Yahoo's reluctance to accept Microsoft's $44.6 billion acquisition offer, and longstanding intimations from industry watchers that the software giant has lost its edge.

Mundie spoke Feb. 26 at the Goldman Sachs Technology Symposium in a question-and-answer format with Goldman Sachs analyst Sarah Friar. Mundie's main contention-reflecting his job function-is that Microsoft's steady drumbeat of long-term innovation represents the bigger picture for the company and for the industry as a whole, despite what appear to be bumps in the road.

"I think this comes from Bill [Gates'] own intuition that you're not just a one-trick pony, that you have to sustain this core research over period of time," Mundie said. "While it's a relatively modest part of our overall R&D budget, we do have Microsoft research and we do incubate new businesses. I contend that where most companies fail is, when they start to feel the margin pressure, the easiest thing to cut is the long-cycle R&D. They cut the R out of D. They start to farm it out. But it doesn't get you where you need to get when you're at our scale."

Mundie said research and development in computer science is the opposite of research in, for example, biology and pharmaceuticals, where federal funds and academic research are plentiful and companies are able to easily acquire research from academia. In contrast, academic research in computer science has fallen behind industry research over the past 10 to 15 years, Mundie said.

"Today computer science sadly has devolved in the university environment to be a lot more about training people to use the computers we already have, rather than what the computers should look like," he said. "So industry has to do that for itself. Today, notably Microsoft and Intel are carrying a disproportionate amount of the world's cost to figure out what computing will look like."

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Mundie said Microsoft's contentious bid to acquire Yahoo is just one example of the company's appetite for R&D.

When asked whether the Yahoo purchase would be more about technology or about people, Mundie said the reason Microsoft believes it has synergies with Yahoo is that there are a lot of redundancies in R&D between the two companies. The rationale is that with two R&D teams devoted to developing search engines or advertising systems or other components, the world doesn't need both. At the same time, according to Mundie, for Microsoft to develop state-of-the-art online search and advertising capabilities without Yahoo, "it's just a lot longer grind if we end up doing it on the ground," he said. "But we'll play the ground game if we have to."