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» Scoble explains Why Wall Street didn't believe Steve Ballmer from Don Dodge on The Next Big Thing
Robert Scoble wrote a story today Why Wall Street didn't believe Steve Ballmer. Robert believes Ballmer should communicate with the masses at conferences and other venues to explain the Microsoft story. Then the masses would influence, or validate, the... [Read More]

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Dennis Howlett

The last research I saw said that only 6% of investment analysts consider blogs an influencing fasctor. That may well have changed but even now I come across many tech companies that wouldn't know a blog if it slapped them in the face. Trade media isn't much better - at least in EU. Here, their more likely to be an extension of the publishing foghorn.

SR

Good point...by the way blogging is not a sandbox comparable to the investment sandbox..it is a large universe and any one can blog about his/her ideas...Scoble blogging about Finance/Stocks is a little bit like a O'Reilly author trying to explain the concepts of finance to a Wall Street guy (such as yourself)...you are absolutely right that MSFT is not comparable as a stock to GOOG or Apple..MSFT has graduated to a more respectable, old, venerable company standard while GOOG is the new kid with lot of potential and future...a time will come when GOOG too will go the MSFT way but that is a while away...

viinnie mirchandani

Jason, it would be similar to me saying "If Oracle wants to improve its image with customers it should do a better job briefing Gartner and Forrester". Buyers rely on many sources of influence - industry analysts being one, peer being input being another and slowly but surely input from technology blogs.

I am pretty sure institutional investors similarly do not just depend (and should not) on sell side analysis from Goldman and Merrill. So, Microsoft and other investor relations should be spending more time briefing technology investor oriented bloggers like you. If that is what he means by grassroots, I have to agree with Scoble.

But more than influence, as Bill says, it comes down to performance and execution. Microsoft's recent malaise has been around its product delivery and quality, not just image management.

Jason Wood

Chris,

Congratulations on the sellout at Gnomedex; I guess it's too late to sign up for me too. :)

Don,

Excellent followup, and nice to hear the candor coming from another Microsoft employee. People forget that the investment community was really buying into the MSFT message finally (see my post on MSFT hitting a 52-week high), because they WERE being shareholder friendly (more so than the other big tech companies) and they had shipped SQL Server, XBox 360, etc.. and Vista is coming (eventually). But, as you pointed out, it's expectations that need to be better managed on all fronts (partners, customers, investors).

Mr. K,

While I see your side of it, this is something I'm going to have to respectfully disagree about. Microsoft can still pay its employees and prospects plenty; and as an investor they are one of the most responsible software vendors in terms of not being piggish with options grants. People tend to forget that Microsoft can lure top talent...Ray Ozzie, Steve Berkowitz and Niel Kennedy were recent top notch hires, for example.

Jason Wood

Robert,

I don't disagree that MSFT needs to do more on the grassroots front, I just think you summarily overstate the impact of their failure to do so while understanding the true market forces.

But you're right I do have a problem with the Vista disclosure, it all comes back to meeting or exceeding expectations. Vista was supposed to drive a major EPS jump in FY07...and now, even if it ships on time, the incremental investments to combat Google are offsetting much of the potential EPS leverage.

Bill, nice to hear from you! You're absolutely right that Microsoft is trapped between value and growth; as are so many tech bellwethers of old. CSCO, DELL, INTC, MSFT are all trading at near historic lows (in terms of multiples) but are struggling to unlock the value of their franchises (i.e., attract value investors) because collectively they've not shown a committment to increasing shareholder returns in a slow growth environment.

All the best to you both,

J

Mr. K.

Here's another item I'd like to politely add: Apple and Google are attracting employees while MSFT lately seems to be struggling to give their employees a reason to work there. It's part positive branding, but think about how much additional cost MSFT has to endure to keep employees. Their stock hasn't gone anywhere, so instead of handing out options in lieu of salary, they probably have to come up with additional, likely expensive perks.

I can see a new graduate weighing a job offer at AAPL, GOOG, and MSFT and accepting less salary to work at an exciting place like APPL or GOOG.

Don Dodge

Great post. I agree with the numbers and agree with Bill Burnham that MSFT has transitioned to a "Value" stock but management still acts like it is a "Growth" stock.

I wrote a post on this communications fiasco. Here is an excerpt;

Microsoft management did a poor job of communicating to Wall Street, during the April 06 earnings conference call, that next year we plan to spend about $2B more than analysts expected. The stock price dropped more than 20% wiping out $55B in market value. Microsoft management was incredulous. How could Wall Street react in such an immature way? How could a couple billion in additional spending wipe out $55B of market value? It is all about communication...and how you clean up your messes.

Microsoft should have communicated a clear plan, ahead of the earnings call, for how we planned to "invest" the money in new business opportunities, and the expected time frame to see results. Instead, it was suggested to analysts during the conference call that they should add $1.5B to $2B to their spending estimates for next year. It was only later, after the severe stock market reaction, that Microsoft "scrubbed the numbers" and clarified that it would be more like $1B, and gave clearer guidance on where the money would be invested. Too late. The market has already decided that given all the delays with "Longhorn/Vista" that the payoff for this $1B investment could be much longer than expected.

How could $1B in investment cause a $55B reaction? It is actually a rational response. The initial claim was additional spending of $1.5B to $2B. Wall Street applies a P/E multiple to earnings. Well it works both ways, that P/E also gets applied to spending which results in lower earnings. The P/E was around 21 at the time, so 21 times $2B is $42B of market value. The remaining $13B of lost market value is probably over reaction that may disappear over time.

You can read the whole post at http://dondodge.typepad.com/the_next_big_thing/2006/06/scoble_explains.html

Chris Pirillo

He couldn't get into Gnomedex, anyway - we just sold out the main room. ;)

Bill Burnham

MSFT is caught in the "no man's land" between growth and value and rapidly headed towards value land thanks to the #s you cite.

I don't think Ballmer should spend 1 minute on Wall Street. Complete waste of time given that his company has plenty of sell and buy side coverage (not to mention has every move analyzed to death in the press/blogsphere).

MSFT has to focus on building break out products that drive capitally efficient earnings (as you suggest) doing anything else is a waste of time.

Probably a fool's errand given how big the company is to begin with, but it's better than wasting your time doing one-on-one's somewhere deep in the herd on Wall Street.

Robert Scoble

I agree with your suggestions too. But isn't it interesting that you don't think we've explained the Vista ship slips well enough? My friends who are tech geeks on the street say that too.

The slip happened cause we tried to put too many features into Vista without understanding the ability of our developers to actually get the work done. Worse, we were trying to build features on top of platforms that weren't finished yet. When the management figured out we were building a skyscraper on top of shifting sand they pulled the whole thing down and started over about two years ago.

We didn't explain what happened very well cause we didn't have a good story to tell while we were tearing down the skyscraper and restarting from scratch on a new foundation.

The thing is, if we had explained that well both the grassroots and you would have understood it.

The fact we didn't is one of my failures and something I wish I could have gone back and done more about.

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