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A Cynical, Contrarian View on Microsoft

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Turning Skype into yet another utility in a bloated operating system is not the play they need to make.

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A lot of buzz has been generated about Microsoft's (MSFT) deal to buy teleconferencing service Skype for $8.5 billion. A good bit of it has been positive. It's being heralded as a breakthrough for Microsoft: a realization that people want to communicate for little to no cost and they'll want to do it from a computer.

I, frankly, am not so convinced. I don't see this play as groundbreaking. Or Earth-shattering. Or revolutionary. Heck, it won't postpone Judgment Day, which we all KNOW is coming this Saturday, May 21. No, I see this move by Microsoft as being yet another defensive move: off-key, back on their heels, a day late and a dollar short. And I haven't even made any jokes about a blue screen of death when you launch Skype from now on. Oh wait, I just did.

But here's why I think this is the case: Everyone knows Microsoft is, if nothing else, the dominant software company for desktop computing. With its operating system, its Office suite, the server based products for email servers, databases and other products for companies, it has a near stranglehold on computing done by large companies and other large organizations. The old saying used to be you could never get fired for buying IBM (IBM). Well, that's pretty much the case now in enterprise computing with Microsoft, with some exceptions for companies like Oracle (ORCL) or NCR (NCR), who makes the Teradata database system. But those are niche exceptions. Microsoft is pervasive in big companies.

So if a company can be so well-regarded in one space, why is it so uncool online? Because Microsoft is older. Plain and simple. And I don't mean the company per se, but its culture is older. Professor Conor Sen and I talk a lot about Apple (AAPL) and while Apple has been around for just about as long as Microsoft, the fact is Apple is a younger company where it counts: on the inside. So while Google and Amazon (AMZN) are in fact, younger than Microsoft, Apple transformed itself to become a web2.0 company by changing its culture. This is something that many people feel Microsoft has not done.

It strikes me that Microsoft does two things quite well: enterprise data and gaming. The XBox 360 is an awesome platform and their database software and other analytics they're trying to embed in their products (think of all the fancy things Excel can do, in spite of its quirks and nuances). If you could combine the visual technology used in gaming to enterprise data, you'll be the king of the hill in the enterprise data space for the next decade and possibly longer. We are dealing with larger volumes of data and that data is getting richer and more complex all the time. Yet we're still supposed to analyze it with the existing tool set that exists in the business intelligence (BI) space? Give me a break.

We will need better tools to work with this ever-growing, ever-evolving landscape being created from everything we do and everywhere we go. When we check-in via foursquare, when we like something on Facebook or buy something on Amazon or eBay (EBAY), we are creating more data for others to sift through. It's a combination of geographical, consumer preference, social network and device data that's being generated here. And this is just one example. There are countless other examples where data can be intersected and aggregated into something useful. In education. In healthcare. In finance. It's everywhere.

Data is the crude oil of the Information Age and it will be up to someone to be the next ExxonMobil (XOM) or Chevron (CVX) or BP (BP) and turn it into something that we can use. Something that can improve our lives, but that's based on the lives we live today.

Microsoft has a place in that space, but turning Skype into yet another utility in a bloated operating system is not the play they need to make. No, the consumer's internet has passed them by. But that doesn't mean they don't have relevance in a new age that's dawning around the use of data.

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No positions in stocks mentioned.
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