Monday May 10 9:18 PM ET
Behind the MS-Nextel deal
By Charles Cooper, ZDNet
In the great cyber crapshoot, also known as the Internet, Microsoft Corp.'s Greg Maffei is placing big bets as the software leviathan considers life after the PC.
Up until now -- and for the foreseeable future -- Microsoft (Nasdaq:MSFT - news) has derived the bulk of its revenues from selling software and Internet services revolving around the personal computer. But Maffei, the company's chief financial officer, is pursuing an investment strategy as Microsoft looks to the next era of computing when more people use handheld devices, cellular phones and interactive pagers to access the Internet.
Less than a week after agreeing to a $5 billion investment in AT&T (NYSE:T - news), Microsoft said Monday it planned to make a $600 million investment in Nextel Communications Inc. (NASDAQ:NXTL - news), which will offer a co-branded wireless Internet portal.
The latest move comes against the backdrop of investments in so-called infrastructure companies -- including stakes in Time Warner Inc. (NYSE:TWX - news)'s RoadRunner Internet service, Comcast Corp. (Nasdaq:CMCSA - news) and a handful of European telecommunications companies.
Microsoft's wireless ambitions
That interest was very much in mind when Microsoft made its investment in AT&T, which will use Windows CE in as many as 10 million digital set-top boxes for the company's cable users. Or as a report issued by Zona Research put it, "Simply put, Microsoft is spending money to make sure they aren't left out in the hallway with Grandma."
The Nextel investment amounts to about a 5 percent stake in the wireless provider, which last week ended talks to be acquired by MCI WorldCom (Nasdaq:WCOM - news). The cash infusion will enable Nextel to expand its infrastructure and enable its 3.2 million phone customers to tap into sundry services by going through Microsoft's MSN Web site. Later this year, Microsoft intends to roll out a wireless portal accompanying the next big upgrade of MSN.
Uneven track record
"The challenge for Microsoft will be to deliver," said one industry executive who asked to remain unidentified.
To be sure, the company has struggled to build a great interactive television system, a great Internet portal or a great operating system for devices (Windows CE). And now it needs to deliver wireless services.
"So they have great deals in place -- the job now is to do something they haven't [done] to date -- namely, to deliver great products and services in these spaces," said the executive.
In the near-term, insiders say, Maffei has a more immediate interest: making sure that Microsoft gets a good return on investment. At the end of its March 31 quarter, Microsoft had $19.2 billion in cash and short-term investments.
"We basically consider this as R&D," said one official. "One of the nice things is we don't feel the need to invent everything here."
"We very much think the device boom is real," the official continued. "I wouldn't say it's a paradigm shift so much as a further shift to a Web-based, high connected model." |
