Microsoft plans smaller deals, 'independent' path

SAN FRANCISCO Thu Oct 18, 2007 6:31pm EDT

Steve Ballmer, Chief Executive Officer of Microsoft Corporation, speaks at the Web. 2.0 Summit in San Francisco, October 18, 2007. REUTERS/Kimberly White

Steve Ballmer, Chief Executive Officer of Microsoft Corporation, speaks at the Web. 2.0 Summit in San Francisco, October 18, 2007.

Credit: Reuters/Kimberly White

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SAN FRANCISCO (Reuters) - Microsoft Corp (MSFT.O) Chief Executive Steve Ballmer said on Thursday the company aims to pursue an independent path, focusing on up to 20 smaller acquisitions of $50 million to $1 billion each annually rather than mega-deals.

Armed with a cash pile of $23 billion, Microsoft has been rumored to be targeting acquisitions like Yahoo Inc (YHOO.O), or social networking phenomenon Facebook.

Speaking to the Web 2.0 Summit in San Francisco, Ballmer would not comment directly on any potential acquisitions, but he said Microsoft's current focus is the "independent path."

"If at some point it makes sense, maybe then it makes sense. But that's not where we are going. We are driving in an independent direction," said Ballmer in a question-and-answer session.

The CEO of the world's largest software maker said it is logical for people to speculate that main rivals would join forces to take on an industry leader. In this case, Ballmer was referring to dominant Web search leader Google Inc. (GOOG.O).

Microsoft historically has shunned costly acquisitions, opting to purchase lots of less expensive companies. But company watchers saw this year's $6 billion acquisition of digital advertising company aQuantive Inc as a change in strategy.

Due in part to the aQuantive acquisition, Microsoft CFO Chris Liddell has said the company will spend more this fiscal year in acquisitions than on research and development for the first time in the company's history.

Microsoft has said it bought 23 companies in the 2007 fiscal year ended in June. Of those, it reported 13 acquisitions valued at a total of $1.34 billion, including an $800 million purchase of voice recognition technology company Tellme Networks.

"We'll probably buy 20 companies a year consistently for the next five years," said Ballmer.

Ballmer, who joined Microsoft in 1980 at the request of his Harvard classmate Bill Gates, took the stage a day after Facebook CEO Mark Zuckerberg, who like Gates is a Harvard dropout turned technology wunderkind, spoke to the audience.

Both men were reserved in response to questions about reports that Microsoft is in talks to buy up to 5 percent of Facebook in a deal that could value the social networking company at $10 billion or more.

Zuckerberg and Ballmer both said: "We'll see." Ballmer also emphasized that the two companies have a "great" partnership in advertising.

Ballmer also restated the company's commitment to building a powerful Web advertising business and acknowledged that attracting users to its Windows Live search engine will be an important aspect.

Microsoft placed third in the U.S. Web search market with a 10.3 percent share in September versus 57 percent for Google and 23.7 percent for Yahoo, according to comScore Inc.

"The most valuable advertising real estate, in a sense, comes out of search," said Ballmer. "You're never going to grow a big advertising base, never going to attract a critical mass of advertisers if you can't be credible in search."

Another critical aspect of building a Web advertising power, according to Ballmer, is to build software that allows advertisers and Internet publishers to create a market where they can buy and sell advertising on video or mobile phones or on Web sites.

AQuantive gives Microsoft an important leg-up in that strategy, Ballmer said.

Shares of Microsoft rose 8 cents to $31.16 in Nasdaq trade.

(Additional reporting by Michele Gershberg in San Francisco)

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