4.3.1 Key acquisitions
Microsoft has acquired 148 companies during the period 19872011. Microsoft made the first acquisition in 1987. The company acquired Forethought which developed presentation program which was later known as Microsoft PowerPoint.
In 1997 Microsoft acquired Hotmail for $500 million and integrated it into its MSN group of services. Since 1987, Microsoft have made five acquisitions worth over one billion dollars. These were the acquisition of Skype, aQuantive; Fast Search & Transfer, Navision, and Visio Corporation. In 2015, Microsoft completed 16 acquisitions which included Mojang Synergies AB.
In 2009, Microsoft acquired the technology assets of Interactive Supercomputing (ISC) which specialized in bringing the power of parallel computing to the desktop and making high performance computing more accessible to end users. ISC’s products and technology enabled faster prototyping, iteration and deployment of large scale parallel solutions. In 2009, Microsoft acquired Opalis Software, a Toronto based private company which was a leader in IT process automation software. Opalis became a wholly owned subsidiary of Microsoft. The synergy of the deal was that the acquisition brought together the deep datacenter automation expertise of Opalis with the integrated physical and virtual datacenter management capabilities of Microsoft system center. Table 4.2 provides the major investment made by Microsoft.Table 4.3highlights the major deals of Microsoft.
Table 4.2 List of investmentsa
Year Company
1994 TCI technology ventures
1995 UUNET, Vanstar, DreamWorks SKG, Wang, Digital Individual Inc., NBC
1996 Black Entertainment Television, MTel (SkyTel), Helicon Publishing Ltd., Tandem, Entex, Single Trac Entertainment Technologies, WebTV, VDOnet, Verisign, CMG, Proginet 1997 Digital Anvil, Comcast, First Data, RealNetworks, Navital, Apple Computer, eFusion,
TRADOS, Lernout &Hauspie, E-Stamp Corp, Wildlife Communications, Digital Sound Corporation
1998 General Magic, Accel Partners, Reservation Works LLC, Tut Systems, Avid Technology, Softimage, Road Runner, Pluto Technologies, OpenPort, Wireless Knowledge, Quest Communications, CMGI
1999 Banyan Systems, NTL, United Pan Europe Communications, Dialogic, Reciprocal, Audible.
com,ThingsWorld.com, Rhythms, Portugal Telecom, NorthPoint Communications, AT&T, TeleWest, Nexetel, @home solutions, WebMD, CareerBuilder, DEN,Wink
Communication, Concentric Network, Rogers Communication, TickMaster CitySearch, DSL.net, Global Cabo, United Global Communications, Fairmarket Inc., Asia Global Crossing, Akamai, USWeb, Telmex, Data Return, Teligent, Expedia.com, RadioShack, GigaMedia Ltd., Korea Thrunet Co, Equinix, Best Buy, DiscoverMusic.com, Commtouch 2000 Diagex, Yam Digital Technology, VerticalNet, Jato Comm, Keen.com, Corio, Intertainer,
CompUSA, Interland, CSI Inc, ITRAN Comm, Gilat, BroadBand Office, MyPlant.com, Radiant Systems, SRS Labs, Avande, RealNames, MBNS, Interliant, HomeAdvisor Technologies, Evoke, TITUS Comm, ContentGuard, CAIS Internet, Plural, SeaChange International, CommVault. Hitachi, Ameranth Tech, Digital Island, Futurelink, VenturrCom, Blixer, eLabor, Hutchison Global Crossing, Big Huge Games, Corel, US internet working, Chyron
2001 Cpa2biz, MediaWave, American City Business Journals, SMART, Extreme Logic, Ecompys, Blackboard, Commerce One, Telecom New Zealand, Sendo, Groove Networks, Amicore, i-Deal, Infolibria, KT
2003 Immersion Corp.
2007 Facebook 2009 N-trig 2012 24/7 Inc.
ahttps://www.microsoft.com/investor/Stock/InvestmentHistory/All/default.aspx.
Table 4.3 Biggest deals
Year Company Business Value in billion dollars
2011 Skype communications Telecommunications 8.5
2007 aQuantive Digital marketing 6.3
2000 Visio Corp. Wholesale drawing software 1.375
2002 Navision Software program 1.33
2008 Fast search and transfer Enterprise search 1.191
2000 Titus communications Cable TV 0.9448
2001 Great plain software Business management software 0.939
1997 Hotmail Internet software 0.5
2008 Danger Mobile Internet software 0.5
In 2012 Microsoft and Yammer Inc. entered into a definitive agreement under which Microsoft acquired Yammer a leading provider of enterprise social networks for $1.2 billion in cash. The purchase price consisted of goodwill of $937 million and identifiable intangible assets of $178 million. The acquisition of Yammer was aimed at adding a best in class enterprise social networking service to Microsoft’s portfolio of complementary cloud services. Established in year 2008, Yammer had more than five million corporate users at 85% of the Fortune 500. The acquisition of PhoneFactor in year 2012 helped Microsoft to bring effective and easy to use multifactor authentication to the cloud services and on premises applications.
In 2014, Microsoft acquired Mojang the Stockholm based game developer and the company’s iconic “Minecraft” franchise for $2.5 billion. The purchase price consisted of $1.8 billion in goodwill and identifiable intangible assets of
$928 million. “Minecraft” is one of the most popular video games with more than 100 million downloads on PC alone by players since its launch in the year 2009.
This acquisition provided value addition for Microsoft’s gaming portfolio across Windows and Xbox. In 2014, Microsoft acquired all of Nokia Corporation’s Nokia devices and services businesses for a total purchase price of $9.4 billion which included the cash acquired of $1.5 billion of the target acquisition. The acquisition was aimed to accelerate the growth of D&C business of Microsoft. In 2015, Microsoft wrote off $7.6 billion as impairment charge on Nokia acquisition which was nearly the full amount the company paid for Nokia’s smartphone business and patents. This write off was Microsoft’s largest ever write off suggesting that the acquisition was overpaid. Along with the write off, Microsoft also announced that it would lay off about 7800 employees working in its device division particu- larly the phone group. In 2016, Microsoft signed an agreement to acquire Xamarin, a leading platform provider for mobile app development. Xamarin have more than 15,000 customers in 120 countries which included more than one hundred Fortune 500 companies. Microsoft entered into definitive agreement to acquire SwiftKey whose software keyboard and SDK powers more than 300 million Android and iOS devices.
4.3.2 Acquisition of Skype communications
In October 2011, Microsoft acquired the Internet communications company Skype for $8.5 billion. Skype is the world’s leading provider of real time Internet video and video communications services and technology. Skype became the new division of Microsoft. Skype was founded in 2003. eBay Inc. bought Skype in 2005 for around $3.1 billion, but took a $1.4 billion charge for the transaction in 2007 when the acquisition failed to realize the expected synergy from the deal. Later in 2009 eBay sold 70% stake in Skype to a group of investors led by private equity firm Silver Lake Partners for $2.75 billion.
This deal was the most expensive acquisition made by Microsoft. But Skype was not yet profitable. Despite its widespread use, it has been slow to convert users into paying customers and generate profits. It had a net loss of $7 million in 2010. Skype lets people make free phone calls between computers or pay
pennies-a-minute to make overseas calls from traditional phones. Increasingly it is being used in the form of an application on smart phones to avoid paying higher fees to wireless carriers for phone calls.
In 2010, Skype had 170 million connected users and over 207 billion minutes of voice and video conversations.
Microsoft management believes that Skype acquisition is a perfect fit for Microsoft’s strategic vision to connect millions of people and provide then with innovative ways to communicate through PCs, phones, the Xbox and applications like office and Lync. Microsoft estimated to accelerate Skype’s reach to one billion users daily. The combination of Microsoft and Skype was expected to extend Skype’s world class brand and networked platform thereby adding value to Microsoft’s existing portfolio of real time communications products and services.
Plans were in place to integrate Skype into Microsoft devices and systems such as Xbox and Kinect, Xbox Live, the Windows Phone, Lync, Outlook, Hotmail, and Messenger.
Microsoft also expected to turn around its fortunes in the mobile phone market with Skype acquisition. Phones running Microsoft software were just 7.5% of the Smartphone market lagging far behind Apple Inc. and Google. This acquisition comes at a time when the technological growth is facilitated by the exponential growth of social network sites like Face book and innovative devices such as Apple’s iPad and iPhone reshaping the cell phone and computer markets.
One interesting fact to be highlighted in this acquisition is that Microsoft had planned to purchase Skype with cash held overseas, money that it could not otherwise bring back to the United States without paying repatriation taxes of more than 30%.
The majority of Microsoft’s roughly $50 billion in cash is held overseas.
4.3.3 Acquisition of aQuantive
In the year 2007, Microsoft acquired online advertising agency aQuantive for
$6 billion in a cash deal. Microsoft paid $66.50 a share which represented an 85% premium over the previous day share price of aQuantive on announcement.
The acquisition was a strategic move by Microsoft to strengthen its position against Google and Yahoo in the online advertising sector. The acquisition came after Google bought DoubleClick for $3.1 billion and Yahoo acquired competitor Right Media for $680 million. The deal was significant as many online services that Microsoft offers from software to video games were increasingly dependent on online advertising revenues Through the acquisition, Microsoft was able to better monetize inventory and sell display advertisements on third party sites. The acquisi- tion was done with a strategic aim to provide the advertising industry with world class advertising platform across devices and media. This becomes more relevant in the context that advertisement market is increasingly being shifted to the world of online and IP served platforms. In 2012, Microsoft undertook an impairment charge of $6.2 billion to account for its purchase of aQuantive suggesting the expected synergy doesn’t materialize.
4.3.4 Acquisition of Visio Corporation
In 2000, Microsoft acquired Visio Corp. which is the leading supplier of enterprise wide business diagramming and technical drawing software with an installed base of more than three million users worldwide. Visio’s product lines have become worldwide standard for graphical solutions in business. The products are available in 12 language versions and sold in more than 45 countries. The merger was structured as exchange of common stock where each share of Visio was exchanged for 0.45 shares of Microsoft. The deal was valued at approximately $1.3 billion. Visio and Microsoft had long term partnership relationship with respect to both Windows and Office Products. The Visio products were rebranded as MS vision and consists of Microsoft office application like Microsoft Project.
4.3.5 Navision acquisition
In 2002, Microsoft acquired Navision the Danish mid-market business applications vendor. The acquisition created a global business application team that focused on the mid-market sector with businesses having annual revenues between $1 million and $800 million. Navision was absorbed into the Microsoft Business Solutions division. Earlier Microsoft acquired Great Plains. The transaction was structured as a hybrid of cash and stock based on an offer of $37.1 per share with estimated transaction value of $1.3 billion. One of the major motive of the acquisition was to gain a strong hold in the business applications market especially in the European market. Approximately 86% of Navision revenue came from Europe. Through Navision, Microsoft got access to an extensive network of European partnerships.
Partners are considered to be a critical factor in selling to SME sector. Navision with its 2,400 Navision Solutions Centers had proven network in more than 94 countries.
4.3.6 Acquisition of fast search and transfer
In 2008, Microsoft acquired fast search and transfer, the Norwegian based enterprise search and business intelligence provider for $3.54 per share which totaled
$1.2 billion in value. Enterprise search software and applications help employees locate documents and other data often hidden deep inside corporate networks and databases. The acquisition was aimed to facilitate the growth of Microsoft in the high end search development platform.
4.3.7 Acquisition of Titus communications
In 2010, Microsoft acquired MediaOne International’s stake in Titus Communications, the second largest broadband provider in Japan. This acquisition was in tune with Microsoft’s vision for broadband deployment and voice, data, video convergence through a leading Japanese broadband provider.
4.3.8 Acquisition of great plain software
In 2000, Microsoft acquired great plain software basically for entry into small and medium business application market. This acquisition was also an important part of Microsoft’s strategy to deliver the power of the .NET platform to small and medium companies. The acquisition gave Microsoft the ability to give the medium to large enterprise customers “one stop shopping” under the Microsoft brand, with the combination of Windows 2000, Microsoft Exchange, Microsoft SQL Server, and Great Plains business functions.
4.3.9 Acquisition of Hotmail
In 1998, Microsoft bought Hotmail, the web mail pioneer for approximately 500 million dollars. This acquisition completed the lineup for Microsoft as the company was missing a search engine and free email on the MS Network portal.
The acquisition facilitated the Hotmail users to use various sites of Microsoft. Hotmail became an important component of the Microsoft Network of online communication and information services that Microsoft offers free to all Internet users; it includes sites for news, travel, investment, car buying, games, computing, and shopping. With this deal, Microsoft Network boosted its traffic substantially as Hotmail members were added to its collective sites. The Hotmail web centric email services complemented Microsoft’s family of email and collaboration clients. Hotmail was in need for new services for its members like personalized information, ecommerce, multimedia content.Table 4.4provides the major acquisition history of Microsoft.
4.3.10 Strategic alliances
Microsoft have a partnership with Yahoo! to provide algorithmic and paid search platform for Yahoo! websites worldwide. In the year 2015, Microsoft entered into agreement with AOL and AppNexus to outsource display sales efforts.