Teflon - as an investor in MSFT (not speaking as a trader for the moment), I really wish I could share your unabashed enthusiasm over MSFT's recent deals in broadband.
Unless Billy and his boys have some secret plan, I simply don't see what all the fuss is about. Deploying that mountain of cash in the way they did may be advantageous compared to letting it sit and gather lowly interest. It may also be have some smart tax related consequences. But as a roadmap to the future, a clear potential revenue stream and strategic masterstroke - I just don't think it is obvious.
What exactly is MSFT getting? The Raging Bull article did not impress me. Surely, MSFT is after more than getting CE into a few more boxes. I don't believe MSFT will be able to pull off the kind of dominance for CE that it did for the desktop with Windows. The competition is in early, it is vigilant, and cable providers are wary of granting the kind of exclusivity that leaves them at MSFT's mercy the way Windows does in the desktop world. I for one take Armstrong seriously when he says "nonexclusive". The man has been consistent in that, and he may see it as in T's long-term interest not to let MSFT establish a stranglehold (assuming the regulatory agencies would even permit that in the first place). So, unless MSFT is getting a hell of a lot more for its investments, I am not sure the math works out if its just a matter of a few more units of CE pushed. NT server software to some of these providers may benefit a bit too. But will a 5% or so ownership stake really make such a substantial difference to the way IT will decide on product choices, and if the effect is at the margins at best, again, is that return commensurate with the investment? The case with T is a bit different, in that 5 billion is a substantial chunk of change, but what MSFT got in a CONCRETE way does not begin to add up - even if CE ends up in 20 million extra boxes, at $8-$15 a pop, is but a fraction of the 5 billion. Granted, MSFT gets stock etc, but that merely makes it an investment, and we're discussing how it supposedly promotes MSFT's agenda. My point is that it cannot be CE sales.
Also, let us not forget that the whole cable thing is a technological gamble of sorts. T is getting massive kudos for grand strategic thinking, and maybe rightly so. But the battle is far from over. Nothing says that cable is destined to be the vehicle of choice for broadband access. It does not necessarily offer any technological advantages vs DSL and other fiberoptic solutions - in fact, as a **two way** conduit of data, it is at a significant disadvantage at this point in time (cable is good at delivery, but not uploading - the technology to equalize two way flow has not been invented for cable as of yet from what I understand). Further, DSL, and telephonic based solutions have a devastating advantage over cable - they are far, far, far more widely available in infrastructure - potentially everywhere where a phone line exists. Statistics I have seen put that advantage to a multiple of 25:1 in the US (the most cable dense region in the world), and at overwhelming multiples world-wide (Europe is somewhere in between the US and the rest of the world). The infrastructure investment necessary to build out so much cable that it truly competes with phone lines is beyond belief - by common agreement, it would take decades for cable to catch up if it went ahead at full speed while phone lines froze. This doesn't even address other technological alternatives in wireless and sattellite based systems.
MSFT of course has also made investments in DSL and wireless (and B.G. himself in sattellite), but all of this leads me to believe that MSFT is simply hedging their bets - they know that broadband will be the way of the future in data processing, and they want to be involved, or at least not shut out. I don't think they have a *concrete* list of products that they'd like to roll out to take advantage of all this. Sure, there are exceptions, like CE, and there's been a lot of talk about the merging stream of audio/video/data interactive future, but no exact vision of how it would concretely translate into product lines, or how exactly MSFT would seize the high-ground... hardly surprising, considering all of this is just in the process of being defined on the ground - a process that is happening independently from any company's grand strategic designs.
Bottom line, as I see it, all these investments are hedging in nature. They may be very wise. But they are wise the way a purchase of a ticket to an event is. At the event, some kind of contest is being held for a secret prize. It is not clear that you will prevail, or even what the exact rules of contest are. And to top it off, it may transpire that the "prize" turns out to be an empty trophy, the way so many greatly heralded technologies turn out to be so often. All MSFT has done is purchased a ticket to the event.
In this "minimalist" view of the recent MSFT deals, it is hard to do handstands and cartwheels of delight over all the "recent activity".
I guess the future will show. But for now, what can be said that would *concretely* show that the "minimalist" view is merely a sign of massive ignorance? In other words, in *concrete* terms, what is the *maximalist view*? And please, something other than the Raging Bull puff piece (which other than empty assertions, broad generalizations and heedless overreaching is devoid of serious reasoning, and thin on concrete supporting data).
This is addressed to Teflon, but anyone is welcome to join in, as this is, I imagine, a rather large subject and we could use the benefit of everyone's knowledge and insight (Bill Gates, we know you are reading, so please join in <ggg>).
Morgan |
