Monday, August 5, 2013

MSFTs New Office Suite

Microsoft’s new office suite:
Knowledge work has changed; it has become more oriented around communication, and less focused on document production.

Spreadsheets have become automated dashboards
Word documents have become living texts published on the web.
Powerpoint presentations have given way to live and recorded video talks.

The new office suite is made up of collaboration tools, not just new versions of solo-worker focused productivity apps. These types of apps are on the decline. The next 'word-processor' will probably look a lot more like Quip than like Word. Microsoft is refreshing its brand and cash cow boldly and correctly.

Ray Ozzie was ahead of the curve by bringing Groove into Microsoft and focusing on collaboration. Groove was just a little bit too wonky too early, and Ray did not have time for Microsoft style internal executive competition.

One aspect of the consumerization of enterprise technology has been the ability of workers to cherry-pick a set of the best products for their needs. This trend has created best of breed brand names with network effect businesses. These important companies rightly command premium valuations.  

Microsoft has not shied away from placing large, accurate bets on acquisitions at non-consensus price levels. This strategy is going to pay off in a positive way for Microsoft’s continued leadership in its core markets.

Microsoft knows that, going forward, enterprise buyers will not settle for inferior copies of excellent and widely used category-winner software like Skype andYammer.

In the productivity market, Microsoft is executing on the investment thesis that only a few winning technology companies really matter, and those are worth a significant premium to their also-ran competition. The antilog M&A strategy is buying runners-up and market failures with good technology and teams and banking on pushing those products out through the acquirer's bigger channel. With app switching costs low, and network effects available to category winner collaboration apps, there is no reason to expect that losing collaboration products will suddenly outcompete winners due to a change in ownership.

This is the one strategy that a large, cash-generating incumbent can employ to avoid business disruption by new innovative startups: Buy the category-winning product and brands.

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