Wednesday, June 8, 2011

Microsoft

Remember when FLG wrote this back in March?:
Microsoft, to take one example, wastes so much money getting into new businesses looking for growth that FLG thinks shareholders would be better off just milking Windows and Office and call it a day.

And then this:
FLG's opinion is that once Gates setup the initial operating system agreement, then it set the foundation for a monopoly for a really long time. Everything Microsoft has done outside of that is to pour money into endeavors trying to catch up with other people.

Well, via Reihan, FLG found this post by Arpit Gupta:
Basically, Microsoft has been earning monopoly rents based on intellectual property that locks in network advantages. Yet Microsoft’s comparative advantages really extend only to the sort of monopolistic domination embodied in their control of OS and enterprise software. Their subsequent ventures in all other areas — Bing, the Zune, .Net, etc. — have on net been catastrophic failures that have cost the company billions of dollars. Microsoft persists as it’s in the interests of Microsoft executives to control as much market; not to deploy capital efficiently.

[...]

Just now, Microsoft decided to spent $8.5 billion on Skype for no good reason.

To be clear, this is an agency problem not limited to Microsoft. CEOs, especially ones with elite MBAs, are loathe to say, "Hey, I can't find opportunities to generate returns in excess of the market internally here at this company. So, basically, I'm going to manage this place like a cash cow and return most of the money to shareholders." No, MBAs are ambitious, confident people who almost by defintion think they can add value through their management prowess. In many situations, FLG thinks they probably can. In other situations, like when running a mature business, it would be in the interest of shareholders just to have the money returned to them so that they can find other opportunities in the market rather than having some jackass CEO flitter away their money.

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