The situation? Microsoft has picked up Aquantive, an end-to-end advertising firm which was birthed just before the first bubble popped in the late nineties for a redmond-ian sum of 6 billion dollars and change.

The issue? Microsoft paid almost 100% more than what Aquantive was valued at. The day before the purchase was anounced.

The explanation: Well, Microsoft has big pockets, there’s no doubt about that. Mat Ingram jokes that they probably make $6 billion every month — I’ll go one further and say that its probably the rough equivalent to what Mr. Gates finds in his cushions every year.

Nevertheless, its not an insignficant sum — why bother paying so much? Is Microsoft *really* that insecure about the online ad race that it would pay such a gi-normous premium in a bidding war for Aquantive?

Well, it might be.

On the other hand, while everyone is either contributing to the cacophony about the purchase, or perhaps, remarking about how desperate Google is, or how this is going to be a year of acquisitions, or in a typically intelligent piece, how we can look to vertically integrated models of advertising now, I think one angle about this purchase is how it speaks to Microsoft’s intended goals for the future.

And that can be found right in an article by cNet who goes one further than most of the conversation by actually going right to Microsoft and Aquantive for a quick interview.

In that interview, there are a few delicious tidbits, most importantly these statements made by Kevin Johnson of Microsoft’s platform and services division:

… we are deeply committed to building a great advertising business. This investment in the monetization capability for our future services is key. They are stronger on the buy side, as you point out, and they have a foundation on the sell side (technology for Web site publishers). As a company we’ve made a strategic bet that we are going to shift more and more things to this concept of software plus service, where we complement our software offerings that run on intelligent devices on the edge of the network with services delivered over the network. Many of those services will be monetized through online advertising.

*my emphasis, ‘natch

With Microsoft’s push to move out Silverlight in recent weeks, coupled with the purchase of Aquantive at almost twice its valuation *and* these sentiments, its hard not to believe that in spite of Ballmer’s unfathomable blustering, Microsoft isn’t standing still while Google moves forward on all fronts.

I mean, if I was Microsoft the idea of Google buying up large swaths of dark fibre and building data centers in secret — all so it can move data more efficiently and effectively without telco’s or 3rd parties because its betting on software-as-service … well, that’d still give me the heebie jeebies.

On the other hand, Microsoft seems to acknowledge, if not words, then with these kinds of actions, that the future of software isn’t going to be off-line, and that the future is going to be online — if not some mixture of online and offline services. And that those services are going to require some kind of freemium model. And that to make sure that its able to recoup it capital losses, it will require some kind of advertising model while users are using the free versions.

And if that is *in fact* the case, you can bet that we haven’t seen or heard the last from Microsoft in this arena, and I am actually *quite* interested to see what kind of on-line versions that it has planned for its bread and butter applications.

Particularly now that it can create really rich online experiences with Silverlight — which, is I think one edge that Microsoft has over Google. Not that Google couldn’t use Silverlight (or Apollo) itself … but that would seem a little, well, unseemly, wouldn’t you say?

Some news bubbling out of eWeek, by way of Allan Stern at CenterNetworks, that Google likes to acquire smaller companies at a fairly prodigious rate — about once per week. Eye-popping and somewhat reflux-relieving if you’re a startup, but not at all surprising if you’ve been following Google. In fact, I’m surprised that a recent interview in Wired has fallen so beneath the radar that its ignored commentary, especially since Eric Schmidt pretty much outlines, in broad strokes, Google’s Masterplan to Conquer The World.

If you’re interested to know where all these acquisitions are going towards, understand why its gone so far beyond search, and why its spending huge amounts of capital to build data centers in secret — coupled with large tracts of dark fibre, I suggest you read it.

To summarize, Mr. Schmidt goes on to discuss how:

• Advertising revenue is its primary source of revenue, but they’re looking to expand in a big way
• That “big way” is through Google Apps, which is a suite of potentially enterprise ready online applications
• Google is building a huge number of data centers — much of it unpublicized — to make sure that it has the infrastructure ready and capable and redundant to handle all that online data
• Eric Schmidt believes that the future of all information processing, handling, and manipulation will be done online.
• Google’s acquisition of YouTube, apparently, has nothing to do with becoming a media titan, and everything to do with serving more ads on a different kind of medium
• Google wants to serve as the ultimate swiss-army back-end for any and all kinds of hardware front ends — including, and especially, Apple.
• Google’s aim is to has four faces: A search engine, an online applications service, a supercomputer, and a brand.

While there are interesting tidbits around the Viacom suit and YouTube, the interview is really about the future of software, and how Google is betting that the future will be a software-as-service model.

All debates aside, IF the future of software is all remotely hosted software, and if we’re moving towards a future which is ultimately platform agnostic, then all this business about data centers should scare the Hell out of Microsoft — and in fact, anyone who is still a stakeholder in the dominance of off-line applications.

After all, Google isn’t just putting its resources towards building great online applications that mimic offline ones. Which, let’s face it, is what this business about buying-a-start-up-a-week business is about: acquiring assets, which, will hopefully pay off in terms of software that they can integrate into their current suite of offerings.

No, the scary part is that Google is putting money — Scrooge McDuck amounts of it — into acquiring, building, and *owning* the architecture so that it is physically and literally able to make their SAS dreams a reality. So that they won’t be beholden to any one telecom or other company as to their infrastructure. So that they’ll have the type of granular control that, with its engineering pedigree, quite frankly, makes total sense.

I’ve been a Microsoft Apologist from the beginning. I lept in front of the “Microsoft is Dead” meme early and often. But if the real future of software is online, remotely hosted, and software-as-service, then Microsoft has a lot of catching up to do. Google isn’t just moving ahead one one front — but a whole bunch of different fronts at once, up to and including acquiring physical assets to hedge their bets.

Which explains why Eric Schmidt refuses to answer to Ballmer’s asinine comments about Google being a one-trick pony. I mean, if that’s the best assessment Microsoft has of its competition, its in real deep trouble.

Well, not in as many words. But as a follow up to Microsoft’s contracts stipulating that new PC’s to be sold in 2008 will *only* be allowed to ship with Vista, it seems like Dell is intent on making IdeaStorm more than a pretty “Digg Clone”. Ideastorm, for those not following the story, is a relatively recent site which aims to allow Dell’s users to vote up or down, pertinent customer service issues. One popular issue is to have pre-installed Linux.

The issue around not eliminating XP? Almost 13 000 votes.

Well, its one thing having a forum to listen to customer complaints, and its another thing to act on them. Dell, much to its credit, is acting based on their customer’s opinions. In response to the 13 000 votes, Dell is keeping XP as an option on new PC’s in 2008, it would offer the operating on a few models of Inspiron notebooks and two Dimenson desktop PC’s [update: looks like this is for customers in the US only].

Its unclear exactly how this will jive with Microsoft, as my prior understanding was that it was written into their contracts with PC makers that Vista would ship with new PC’s in the next year. Or, whether, as some commenters had mentioned in a prior post, that this was all a smokescreen on behalf of Microsoft in the first place. I think if its the latter, we should see an announcement world wide and in more than one vendor. If we don’t, it may just be the first example of Dell having the stones to stand up to Redmond — on behalf of its customer’s no less.

You might have preconceived notions about Dell’s hardware (as I have), but you’ve got to give them credit to keeping an open mind by not only implementing some crowdsourcing techniques, but actually acting on it in the face that these notions “might” seem counterintuitive. Case in point, a research vice present at Gartner was “baffled” as users usually want the “latest and greatest”. Which is a funny statement, given the way that Vista has been roundly avoided by the online community at large.

Paul Graham, VC, and one of the many men behind Y Combinator, has pronounced that Microsoft is Dead. Well, if this isn’t one heckuva piece of linkbait. And on a quiet April weekend, its probably going to reverb until Monday, thanks to getting Techmeme’d.

I suppose its easy to hate Microsoft. There are lots of legitimate reasons to do it. You’ll find yourself in pleasant company as most of the tech community seems to have a bottomless well of hate for the blue beast out of Redmond.

But is it “dead”? Please.

Yes, yes … I recognize all of the arguments that Mr. Graham’s making, including the primacy of Google, the importance of Ajax in disencumbering applications from the desktop, the critical importance about the penetration of broadband access, and how Apple’s resurrection “proves” “people” don’t need Microsoft.

I can simply simplify these arguments for you, though: “I believe that online web applications have killed Microsoft” A little too literal? Fine. I’ll even grant you that Mr. Graham might even be saying Microsoft is “rendered impotent”, or “no longer relevant”.

Of course these sentiments are not surprising from a VC who is backing small nimble startups who are writing (or trying to create) the next great web application.

The problem, however, is that particular assertion is flawed.

Hey, I like free applications as much as the next male in the 18-34 demographic. I use Google’s Writely Docs, Gmail, and admitted yesterday that Apple’s getting me excited. But to link online applications with Microsoft’s demise is wholly premature, if for no other reason that while its true TODAY, Microsoft has so much cash and Microsoft’s Windows is the de facto standard for businesses and consumers, that it has a commodity that almost no other tech company has.

That commodity is time.

Mr. Graham’s right in one sense. If they don’t turn things around and translate the awareness of the shifting realities of technology (because they surely are aware of these changes) into real changes, then Microsoft WILL die.

But that will only happen when people and businesses are no longer using Office and Windows. If left to its current state of change, when do you think that will be? 5 years? 10? 15?

Prognosticating is best left to psychics, but I think that the time frame that its being measured is in *years*. While we can debate how successful Microsoft has (or not) been in its non-core businesses, there is still time to turn things around, and Microsoft has more time today than any other company.

Furthermore, they have the cash to do desperate things to buy themselves more time. Like discounting their latest OS or core products to ridiculously low prices. Of course, tactics like that will be shortlived attempts at best, however, and clearly a better strategic change in its course is what’s needed.

So, Microsoft has Time. And time will ultimately tell what they do with it, and if they have the internal will to make the necessary changes to right their current course, no matter how bloody, dramatic, or even cannabalistic they might be.

So, there’s a small blurb about Bill Gates saying in a particularly long winded fashion that yes — he would trust Vista with his life, because its secure and stable enough to “run life support” systems.

Well, I can’t help but chime in with my own opinions on this.

At the hospital where I’m currently working, they use a electronic records system that is also integrated into the imaging systems, where you can view imaging stuff “on-line”.  That is, unlike my medical school days, you can actually read Chest X-rays, CT scans, and even MRI’s at almost any desktop that has the electronic records system.

Pretty cool, no?

I thought so initially.  After all, I spent the majority of some entire rotations in medical school running between the ward and x-ray department finding, and retrieving chest films.

What’s funny is how I came across Bill Gate’s own comment about running “life support systems” on Vista.  First of all, that’s not really how “life support systems” work — they don’t run, as far as I know, on operating systems.  They’re self contained machines that help patients breath (ventilators).

However, what IS true is that most hospitals that I’ve worked at DO use Microsoft XP.  And most hospitals DO have some kind of electronic record.  And if you’re interested in talking about stability, MOST are just fine.

What is quite funny — but not in a “ha ha” sort of way — is how at SOME facilities, when using specific programs to view x-rays or CT scans, the program sort of hangs.  You DON’T get the blue screen of death, but I find myself using the alt-control-del solution to try and close the program process — and eventually get hit with the “this program isn’t responding” window.

Imagine that. 

Trying to read a chest x-ray, or review some imaging with other colleagues and *that* window pops up.

“Whoops … better restart the whole program!” (looking sheepishly).

I’m not sure if its fair to dump on Microsoft; I’m not sure if that kind of thing is a Microsoft or OS level issue.  Maybe its a program level issue.

But if it IS an OS level issue regarding stability of programs and so on, its funny how Billy G would state that he’s confident it could run life support, when it has a difficult time running much more mundane programs (mundane being a relative word).

So, perhaps you were like me in thinking “Why is Google extending its long tail AGAIN by branching out into yet another non-core competency area?” While its price is competitive, $10 per private registration, its not at a price point that is going to convince anyone to suddenly switch providers. So what gives? Why bother? Is it merely to add another little bit of digital swag that the Google faithful will buy into? (literally?)

I don’t think so.

(Well, maybe on the last one)

The reason why Google may be getting into Domain Registration may not be to “out GoDaddy GoDaddy” (although I wonder what the “Google Girls” would look like), but rather, the introduction of these services is to create the infrastructure for a more complete package of services. What might that complete package be? Well, although it is currently be offered piece-meal, or a la carte at the moment, one wonders whether or not Google is secretly trying to compete with Microsoft.

WOT?

That’s right. Microsoft.

Microsoft had announced to limited fanfare about a month ago exactly how it would compete in the Office “live” arena; and it wouldn’t necessarily be with web enabled productivity tools. Rather than directly compete with the likes of Writely and Google Spreadsheets with its own Word, Excel and so on (although they may still be coming out), Microsoft is entering the small business arena with a complete web hosting package for small businesses.

Could Google be eying a similar prize?

(more…)

BURP!: Microsoft has officially established a beachhead in the homes of consumers – beating poor Stevie J to the punch; with the upcoming announcement of high definition downloads to your XBOX360 for both movies and television, Microsoft officially trounces Apple’s iTV attempt … which isn’t even launching until next year. Somehow, Microsoft has given Netflix AND Apple a metaphorical kick in the krotch — beating them both with both deals with major content providers AND the hardware hookup to your high def set.

BURP! Microsoft’s virtual earth has rolled out of the door — and right by me. It looks cool from all the reviews I’ve seen, but like some stubborn DRM’d music player refuses to play nicely with other browsers (such as Firefox, both the boon and bane of my surfing experience). Mat Ingram seems to like it – but from what I also see, it only supports a few major American cities off the bat. Not a deal maker enough for me to migrate to MSIE 7.0 to view pretty pictures.

BURP! The Zune was released last week — am I the only who thinks it looks hot? And has anyone seen videos of the interface? It teh rocks! Fanboyish drool aside, it does seem like Microsoft has screwed its currentl customers of MSN Music Store, as, remarkably, Zune does not support its Microsoft’s own PlayForSure. Sounds like they’re really betting the boat that a) the Zune is going to be a massive hit and b) the number of current subscribers / purchasers of music from MSN Music store are either i) blogospherically impotent and / or ii) will be happy purchasers of the Zune and/ or iii) will be content to not port over their music to the Zune