Bill Gates's Quiet Shopping Spree
There are the usual corporate investment binges, and then there is the one under way at Microsoft Corp., a company with $8 billion in cash and a yen to buy. In the past year, the most powerful company in the personal computer business has quietly added a new tactic to its considerable arsenal: In addition to a huge internal research and development effort, it is snatching up technologies--or getting an inside peek at them--through acquisitions and investments.
In 1996, in a major push little noticed by outsiders, the software giant bought or invested in 20 companies--nearly double the pace of its dealmaking in 1994. Microsoft executives are hush-hush about the exact amounts they put up in each deal but say they spent about $1.5 billion during the past three years, and that nearly half of that money was expended in 1996.
The sum barely dents Microsoft's cash hoard. But the sheer volume of deals has catapulted Microsoft into the top tier of all corporate investors, according to researchers VentureOne, and has pushed it way ahead of rival Netscape Communications Corp., which did eight deals last year. Says Charles Federman, chairman of mergers- and-acquisitions advisers Broadview Associates, which has been involved in five Microsoft transactions: "I see no other company in this industry that is moving as aggressively and with as singular a purpose."
BUYOUT SHUTTLE. Credit the Internet. The frenetic pace of technological development on the Net means products are churned out in as few as three months instead of two years. Indeed, three years ago, Microsoft rarely made an acquisition, relying instead on its R&D machine. Now, it maintains a five-person corporate development team working on deals full-time to fill in its Internet gaps and bolster its product line. "The Internet is a huge influence," says Gregory B. Maffei, Microsoft's treasurer and chief dealmaker, who oversees the team. "It's partly Internet time. It's partly that the Internet has created new opportunities. And there are lots of new small companies."
Few of them unexplored by Microsoft. In the past couple of years, Microsoft executives have shuttled across the globe analyzing hundreds of companies. They have settled on 20 this year, many of them crucial to their Internet strategy. Last January, for example, Microsoft bought Vermeer Technologies Inc., a pioneer in World Wide Web publishing software, for what insiders say was $130 million in Microsoft stock. Today, Vermeer's FrontPage authoring system is key to Microsoft's Internet effort.
Another notable deal: In September, Microsoft took an estimated 5% stake in WebTV Networks Inc., a hot startup that delivers the Internet via television. The transaction included an agreement for the companies to adapt Microsoft's Internet Explorer browser for TVs, countering Netscape's TV push through spin-off Navio. Insiders say Microsoft Chairman William H. Gates III personally invested in WebTV, as well.
NEW BLOOD. Microsoft is as anxious to get the masterminds behind the companies as the companies themselves. That's especially true in the Internet arena, where talent is in tight supply. For instance, Microsoft isn't certain it will keep all of the products that come with its Nov. 20 purchase of Macintosh software maker ResNova Software Inc. But it sure wants ResNova's five developers. Says Microsoft Senior Vice-President Brad A. Silverberg: "New blood brings in exciting new ideas."
To better the odds of wooing the best and brightest, Microsoft created a four-person "new ventures" human-resources team 14 months ago. On the day a deal is announced, team members arrive and talk to each worker one-on-one, with the idea of identifying concerns and eliminating them--all in three to five weeks.
Microsoft quickly homes in on what it will take to get workers to move to headquarters in Redmond, Wash. Then, the company flies the employees, their families--even parents--to Seattle for tours. They are ensconced in swank lodgings such as the Bellevue Club while Microsoft connects them with real estate agents, medical specialists, and schools. Microsoft has gone so far as to ship one job-hopping developer's belongings from five separate cities around the U.S. For another, it dismantled an airplane and trucked it across the country. "We think of them as employees from the get-go. It's just good business," says Denise White, who heads the team.
So far, it's successful. In the past 18 months, Microsoft has added about 250 people, mostly key developers, to its ranks through acquisitions. Entrepreneurs on the receiving end say the acquisition process--from first contact to the arrival of moving vans--has been distilled to a science.
"CLARION CALL." Take NetCarta, Microsoft's most recent acquisition, announced on Dec. 10. NetCarta is a Scotts Valley (Calif.) maker of WebMapper Web-site management software. It was having some success in the market but needed a heavyweight partner for marketing and distribution. Majority owner CMG Information Services began shopping the company around and got nibbles from IBM, Microsoft, and Netscape. Microsoft swooped in, offering $20 million, and quickly nailed the deal. One key condition: Co-founder Rory Stark had to agree to move to Redmond.
CMG CEO David Wetherell knows from experience that Microsoft once moved a lot slower. The last time he faced Microsoft across the negotiating table is now legend at Microsoft--as a lesson in what not to do. It was May, 1994, and CMG owned Booklink, a browser that caught the company's eye. But Microsoft dawdled, dragging negotiations into November. And its $2 million offering price was low. Result: The weekend before it hoped to close the deal, America Online Inc. zoomed in, offered $30 million in stock, and walked away with Booklink, which for a time was its key browser technology. Says Silverberg: "It was a clarion call. That woke us up."
By now, the computer industry is all too familiar with an awakened Microsoft. And Maffei sees no letup in Microsoft's investment pace in 1997. "I see people like us continuing to buy technology to fit into what we have, fill our holes, and expand our product lines," Maffei says. In other words, so long as the Internet is in overdrive, expect Microsoft to just keep buying--and buying and buying.