Chris Mendez in For Managers

What Is Microsoft's Strategy?

Microsoft's recent announcement to purchase LinkedIn for $26.2B has made some noise with everyone asking, "Why would a technology company buy a business-branded social network?"

So far, the best explanation comes from this Microsoft consultant who explains Microsoft's thinking from a strategic, Mergers and Acquisitions (M&A) point of view stating, "Ten years ago, people bought companies for their R&D, for their engineering, for their hardware. Five years ago, it was for the users, for the content. Today it’s for the data. Data is king.” — Florin Rotar

Thinking through this a little more deeply, I began to wonder what other strategies Microsoft must be employing to justify building a hefty M&A budget.

Parallel, Interlocking Strategies

It seems like Microsoft is actually conducting parallel strategies aimed at finding new business streams, changing consumer opinion, changing developer opinion and proving it can remain innovative.

Here are a few strategies I can see so far:

  1. Acknowledge and accept bad decisions and move on. This is where I really applaud Microsoft. They're not afraid to make mistakes, learn from them, act accordingly and move on. Although purchasing Nokia may not have been the best decision in hindsight, its clear that Microsoft did try to enter the mobile marketplace.

  2. Continuing building out the Azure cloud infrastructure in terms of both scope and reach. Learning from their previous mistake with mobile, I think Microsoft has done an excellent job studying Amazon Web Services and becoming an infrastructure service to apps worldwide. This is where Microsoft's strategy of "copycatting is innovation" will succeed.

  3. Continue changing public opinion through free offerings, smart PR and "good will." I must admit, their investments in creating positive brand equity are starting to pay off.

  4. Continue changing developer opinion by providing them with good tools, flexibility to integrate their own tools, embracing open-source, and reducing headaches. This is where I've seen Microsoft change the most. In fact, the change is so dramatic that I still cannot believe it. I mean, here is a company who's initial strategy for evil actually has it's own wikipedia entry. I would love to hear from the senior officer responsible for changing culture.

  5. Maintain existing government and business contracts.

  6. Find new government and new business contracts.

  7. Acquire data (from companies like LinkedIn) to help managers improve strategies #2-6.

  8. Continue acquiring new technologies (and talent) to help process data and ultimately help management make decisions that reinforce strategy #5.

  9. Continue innovating and discovering new business streams. For example, it seems that Microsoft is currently looking into building a Marketplace for SaaS apps similar to companies like MashApe. Through AWS Lambda, Amazon is similarly working on a serverless ecosystem.

Gold in the Cloud

It's pretty clear that cloud business is big business. Between 2011 and 2014, Microsoft earned $1B of worldwide revenue (through Azure services). This is still minuscule compared to Amazon Web Services' staggering $1B/year in profit.

Regardless of whether Microsoft has reached the scale of AWS, what's clear is that cloud-based businesses are the future of software licensing and online advertising.

Wealth in an Ecosystem

"History doesn't repeat itself, it rhymes." — Mark Twain

Microsoft has always understood the power of ecosystems. Back when they were selling Enterprise Servers, one of their best investments was in fostering a strong developer community. The best tech ecosystems always have a strong developer community.

I sort of see the LinkedIn acquisition as a way for Microsoft to find both potential customers and talent for their ecosystem. It's also a way for them to move beyond failed attempts at acquiring Facebook and integrating Yammer.