Microsoft buys users on whopping scale

Microsoft top management has a good reason for their recent agonizing buying spree. Everyone and his dog know that Windows and Office cash cows will be dead one day, and the day is coming fast. Microsoft is really trying to make a move into online, cloud, and mobile – the most promising categories dominated by Google, Facebook, and Apple.

Apple… was a marginal company only a few years ago. Apple passed Microsoft in market cap in 2010, passed Microsoft in revenues in October 2010, passed Microsoft in profits just recently.

Meanwhile Microsoft pays a fortune to buy users from Yahoo, then from Nokia, and now from Skype. That’s right – Microsoft is paying billions just to get the users, not valuable technologies or products (not entirely with Skype, but mostly so).

Every business school teaches that this strategy is not going to work. If you purchase users with low ARPU from someone, the users will continue to bring low ARPU to you. If you try to charge them more, they will flee to your competitor. Those business schools will soon have an excellent case study to support the claim that the strategy is bad. The chart below shows how Microsoft Online Services Division has been doing for recent years. If you have trouble summing those columns up, here is the summary: the Online Division is losing $2.5b per year. Surely you have no trouble picking the trend.

microsoft online division is losing a fortune every month

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One Response to Microsoft buys users on whopping scale

  1. […] that’s just embarrassing. You would think with all the money Microsoft throws to buy users, they’d get higher in the online search game, not lower. Congratulations to the Yandex team […]

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