Last week, Microsoft invested $300 million in a new joint venture with Barnes & Noble’s digital division.Microsoft has only done five of these equity investments in the last decade. It’s much more likely for Microsoft to acquire companies outright, or form deep partnerships (like with Nokia and Yahoo) without taking an equity stake.
But back in the 1990s, Microsoft invested in companies like a drunken sailor on a spending binge.
Most of them didn’t turn out so well, but a few did. Here’s a rundown.
Date: December 1995
Details: $221 million for 50% stake in MSNTV
Reason: Microsoft thought it needed partners in the traditional media business to help build attractive online services. Microsoft also invested in other content companies around the same time, including Dreamworks SKG and Black Entertainment Television.
Outcome: Fair. MSNTV is still around, and Microsoft has managed to build a high-traffic (if money-losing) network of Web sites, but it turns out that big content didn't end up ruling the Internet -- technology like search and social networking, and upstart do-it-yourself content like blogging and YouTube turned out to be mch more influential.
Microsoft sold its stake in MSNTV to Comcast and MSN last decade.
Date: September 1996
Details: Microsoft took a 'minority equity position,' but didn't disclose the investment amount.
Reason: To encourage the idea of delivering the Internet over TV, and to get WebTV to incorporate Internet Explorer.
Outcome: Bad. Seven months later, Microsoft bought the company for $425 million. It turned into Microsoft's first of many failed experiments in interactive TV.
Taking a $30 million stake in RealNetworks didn't prevent the two companies from becoming arch-enemies.
Date: July 1997
Amount: $30 million for a 10% stake (the company was then called Progressive Networks)
Reason: RealNetworks was founded by an early Microsoft executive, Rob Glaser, in 1995, and pioneered the delivery of streaming audio and video over the Internet. The companies were supposed to work together to define industry standards.
Outcome: Bad. The relationship quickly soured as Microsoft moved into direct competition with RealNetworks. Glaser testified in the Microsoft antitrust trial in 1998, and Microsoft sold its stake soon after that. RealNetworks later sued Microsoft for antitrust, and Microsoft settled with a $761 million payout.
Date: March 2000
Details: Consulting company Avanade was created as a joint venture between Microsoft and Andersen Consulting (which later changed its name to Accenture). Microsoft contributed $385 million in cash to the deal.
Reason: Most other big software companies, like Oracle, IBM, and SAP, have large direct sales forces. Microsoft does not -- it relies on partners to package its software into 'solutions,' then sell and support them. Avanade was an effort to make sure that there was a qualified partner to sell solutions based on Microsoft Windows 2000.
Outcome: Pretty good. Avanade still exists, and Accenture is a strong and important Microsoft partner -- for a time, Steve Ballmer sat on Accenture's board.
Date: May 1999
Details: Microsoft made a $250 million investment, but the deal also had a lot of complicated ad and technology-sharing portions.
Reason: Microsoft thought that online health information would be a big business.
Outcome: Bad. WebMD's stock collapsed in the dot-com bust, and the two companies dissolved their technology-sharing agreement in 2001. Microsoft later launched several other health-care products, but none of them took off.
Date: December 1999
Details: Microsoft agreed to buy $200 million in Best Buy common stock for a 2% stake. The companies also signed marketing and profit-sharing deals.
Reason: Microsoft was basically buying marketing placement for MSN Internet Access, and responding to a similar tie-up between AOL and Wal-Mart.
Outcome: Bad. By 2002, Microsoft was griping that the deal wasn't paying off. Microsoft is no longer listed as an owner on Best Buy's financial statements.
A $1 billion investment in Comcast may have helped the broadband revolution arrive sooner...but it probably would have come anyway.
Date: June 1997
Amount: $500 million for about 20 million shares of Class A stock, and another $500 million for a new class of stock (Class B) with some voting rights. Total spend was $1 billion.
Reason: To 'enhance Comcast's deployment of high-speed data and video services via its cable delivery network.' Microsoft invested billions in high-speed Internet access providers, reasoning that cheaper high-speed access would help it sell more computers. Good call. Microsoft also hoped to get Comcast and other TV providers to use its TV set top box software. That didn't work out so well.
Outcome: Mixed. Comcast did become one of the biggest providers of high-speed Internet access, but Microsoft probably didn't need to make this investment for that to happen -- supply and demand would have taken care of it. Comcast also briefly used Microsoft's TV software in the mid 2000s before abandoning it a couple years later.
Microsoft sold its stake in 2009.
Dropping $5 billion on AT&T was overkill, especially since a big part of the deal was supposed to be TV software for set-top boxes.
Date: May 1999
Details: Microsoft bought $5 billion worth of AT&T securities for a 3% stake. Back then, AT&T was a cable and Internet access provider, as well as a wireless telco and national long-distance provider.
Reason: To spur broadband Internet access development to help sell more PCs, and to get AT&T to use Microsoft's set-top box software.
Outcome: Mixed. As with Comcast, the broadband part of the plan worked pretty well, as consumer PC sales skyrocketed throughout the 1990s. But Microsoft never got its software into many set top boxes.
Eventually, AT&T sold the cable part of its business to Comcast, where Microsoft retained a stake through 2009. Microsoft does not have a stake in the current AT&T, but the companies do have business partnerships.
Spending $150 million to save Apple backfired, although Microsoft made a tidy profit on its investment.
Date: August 1997
Amount: $150 million 'in non-voting stock.' In 2000 and 2001, it converted those shares into about 18.2 million shares -- at a price of $8.30 or so.
Reason: The stated reason was to reiterate Microsoft's commitment to building software for the Mac, including Internet Explorer. The companies also signed a patent cross-licensing deal.
There's also been speculation that Bill Gates and Microsoft did not want Apple to go out of business because it would hurt Microsoft's antitrust case. (As it turned out, the government found Microsoft to have a monopoly in PC operating systems anyway.)
Outcome: Bad (although Microsoft presumably made a profit). Microsoft saved Apple from bankruptcy, and Apple has since gone on to eclipse Microsoft as the biggest and most important technology company in the world.
Microsoft has said it sold its stake some time in the 2000s, but never revealed how much it made from the sale. If it had held on, that stake would now be worth more than $10 billion.
Date: October 2007
Details: Microsoft invested $240 million for a 2.6% stake at a valuation of $15 billion.
Reason: Facebook was already using Microsoft's ad-serving technology, and Microsoft wanted to seal the deal. This deal gave Microsoft a temporary exclusive as Facebook's third-party ad provider.
Outcome: Great, so far. The ad deal has since been dissolved, but the companies have cooperated in a lot of other areas, like integrating info from Facebook into Bing search results.
From a straight investment perspective, though, this was a fantastic deal: Facebook will be valued somewhere in the range of $70 to $100 billion at its IPO, and Microsoft will sell between $117 and $230 million worth of its shares on that day, while still retaining a stake worth close to $1 billion.
(Dis)honorable mention: Microsoft also invested more than $5 billion in a bunch of other cable and telco companies
Although Comcast and AT&T were Microsoft's highest profile investments in the communications sector, it also invested:
- $2.3 billion into Telewest Communications, a U.S. cable company, in July 2000
- $500 million into Japanese telco NTL in Feb. 1999
- $405 million into Canadian TV and radio conglomerate Rogers in Aug. 1999
- $300 million into United Pan Europe, a European cable provider, in Jan. 1999
- $200 million into U.S. telco Qwest in December 1998. (The picture here is Qwest field, the old name for the stadium where the Seattle Seahawks play football, and where Microsoft holds its annual employee meeting.)
Plus many smaller investments. Microsoft also acquired a few cable and telcos outright, like Titus Communications for nearly $1 billion in 2000.
Reason: Like the bigger AT&T and Comcast investments, Microsoft's strategy was two-pronged. On one hand, it helped spur the buildout of broadband Internet access, which helped Microsoft sell more PCs to consumers. That worked.
But a lot of these companies were also supposed to use Microsoft's TV set top box software. That didn't work out so well, and Microsoft has completely failed to capture the cable industry, although the Xbox has finally given it a place in the living room.
Outcome: DISASTER. The value of these and related investments collapsed in the telco crash of 2001 and 2002, and Microsoft had to write down billions in the value of its investments during those years.
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