Microsoft acquisitions: Its biggest hits and misses
Microsoft has spent a fortune snatching up other companies, and just dropped a cool $7.2 billion on Nokia's phone unit. Here's a look back on the company's biggest hits and misses in the risky acquisition game.
Microsoft has been buying up smaller companies since it nabbed the software that would become PowerPoint in 1987, but its most robust period of acquisition is undeniably the post-dot-com bubble years after Bill Gates handed Steve Ballmer the CEO position in January 2000. Between 2005 and 2008, the software giant snatched up more than 10 companies a year and set a company record in 2006 by buying a whopping 18. During Ballmer's 13-year tenure, Microsoft devoured 149 companies.
While not its largest acquisition ---- the company's of Nokia's device and services division this week comes at a troubling time for the big acquisitor. Ballmer has begrudgingly relinquished his role as CEO, , and Wall Street is disappointed in the Nokia decision, knocking 4.5 percent off Microsoft's stock Tuesday.
With the jury is still out on whether Microsoft's future will prove brighter now that it's swallowed up the ailing handset maker, it's important to take a look back at some of the company's largest and riskiest acquisitions, six of which come in above the billion-dollar mark.
- Purchased for: $1.375 billion
- Date: January 7, 2000
Not to be confused with Vizio -- the American electronics company most known for its television line -- Microsoft's acquisition of Visio was its largest to date. The roughly $1.4 billion stock swap brought the diagramming software, whose fourth iteration was one of the first applications to be designed specifically for Windows 95, under the Microsoft Office umbrella.
Thirteen years later, Visio may still be a lesser known Office application, but it's the company's preeminent flowchart software. It receives updates with every Office refresh and is still sold separately in standard and pro tiers, now as part of Office 365, and has sales in the hundreds of millions of dollars a year.
- Purchased for: $1.45 billion
- Date: July 11, 2002
After purchasing Great Plains Software, which made business accounting applications in 2001 for approximately $1.1 billion, Microsoft went one step further to solidify its business management software suite by purchasing Navision, a Danish company that made similar products but had higher penetration in European markets.
Both were bundled into Microsoft Dynamics, with Navision and Great Plains becoming two of its four software arms in the sector. While Microsoft did gain a valuable collection of offerings in the quickly blossoming enterprise software market, it had hedged close to $3 billion on its potential to snatch the lead away from competitors like SAP, Salesforce, and Oracle. Ultimately, it failed.
- Purchased for: $375 million
- Date: September 24, 2002
Known for churning out some of gaming's most beloved hits -- Battletoads, Goldeneye 007, and Donkey Kong Country to name a few -- UK game developer Rare was a somewhat puzzling purchase by Microsoft, which at the time had just made the risky foray into console gaming with the original Xbox the year prior.
After some of Rare's sequels to its legacy brands failed to move units, it began to look like it was yet another useless multi-hundred-million dollar video game expenditure, like when Microsoft had to shut down its in-game advertising company Massive that it bought for $280 million.
To the rescue was the Kinect motion controller in 2010. Rare was repurposed to focus on the Kinect, developing the commercially successful Kinect Sports.
Verdict: Hit ... eventually.
- Purchased for: $800 million
- Date: March 14, 2007
While it may have seemed like a promising purchase in 2007, a company that delivered Web-style searches for things like stock prices and weather reports via automated telephone responses was ultimately only useful in helping huge corporations cut costs by automating portions of their toll-free customer service lines.
Unfortunately, Microsoft bought it for approximately $800 million, only to see the entire concept of Tellme become somewhat irrelevant with the rise of the mobile Web, all despite the company's original business model being aimed at the kind of voice-assisted mobile search that we now get with Siri and Google Now.
For Tellme cofounder Mike McCue, it was a solid deal. McCue would take his earnings and established connections with investor big wigs like Kleiner Perkins to found the social magazine app Flipboard.
- Purchased for: $6.3 billion
- Date: August 13, 2007
Notoriously Microsoft's worst acquisition and most expensive blunder to date, the aQuantive purchase proved that throwing money at an online advertising business was perhaps the worst way to compete with Google. Microsoft bought aQuantive in 2007, and then turned around five years later and dropped $6.2 billion -- nearly the entire cost of the original acquisition -- in a writedown.
While competing with Google was and currently remains a rather fruitless game of catch up between the search titan and Bing, most of the blame can be heaped on Microsoft for thinking that advertising products -- and not search -- were the key to gnawing away at DoubleClick, Adsense, and Adwords. Growing Bing's market share, ultimately, is Microsoft's only promising ad strategy to date.
Verdict: Huge miss.
Fast Search & Transfer
- Purchased for: $1.2 billion
- Date: April 25, 2008
While enterprise search can be defined simply as a way of making all of a company's databases and internal networks searchable, it's complicated concept within a complicated market devoid of industry titans like Google and Yahoo.
Despite the lack of competitor interest, Microsoft saw apparent value in the market in 2008 when it purchased Fast Search & Transfer for $1.2 billion. While the Norwegian firm was charged with accounting fraud and raided by the police after the Microsoft acquisition for improperly reported revenue years earlier, the company's technology has bolstered the success of Microsoft's SharePoint collaboration platform.
- Purchased for: $8.5 billion
- Date: May 10, 2011
Skype was already nearly synonymous with consumer video chatting when Microsoft scooped it up in the largest acquisition in the company's history. Since then, Microsoft has integrated Skype into its Xbox platform, ditched Windows Live Messenger for Skype's messaging offering, and spread the service far and wide across smartphone operating systems.
In terms of growth, Skype's market share in international calls grew from 13 percent to 34 percent since the Microsoft acquisition, and its number of simultaneous users grew from 27 million to more than 50 million in roughly the same time frame. On top of that, its 2013 sales expected to hit $2 billion, up from $800 million two years ago.
So while early reports were skeptical -- with some critics questioning Skype's propensity to incur losses -- Microsoft proved that it could in fact grow the service tremendously and leverage its ubiquitousness within its own ecosystem, though profitability is still a concern.
Verdict: Huge hit.
- Purchased for: $1.2 billion
- Date: June 25, 2012
Microsoft was apparently looking for a social network element to add to its overflowing enterprise portfolio when it picked up Yammer, an internal Facebook-like service for companies small and large. It came in as an addition to Microsoft's Dynamics, Sharepoint, and Office 365 suites and was meant to be a way to drive up adoption of other Microsoft services.
One year later, Yammer's user base has grown from 5 to 8 million and sales of paid networks, Yammer's primary revenue source, are up 200 percent. But the business model is still antithetical to that of Microsoft's core model, which is sell wide-reaching access to services and products through contracts. Conversely, Yammer starts out as free and then tries to sell companies on other features, a freemium model for the enterprise that's been referred to as the consumerization of IT.
Ballmer harped on that freemium concept lovingly when the acquisition announcement was first made, saying "Yammer is a great adoption model and we want to pour more content into it." But it's unclear whether Ballmer's vision will come to fruition, especially given his early exit.