There were reports on Wednesday that Microsoft had acquired the maker of the Sunrise calendar apps for iOS, Android, Mac and the web for over $100 million. This follows Microsoft’s acquisition of email app Accompli for $200 million a couple of months ago. One of the most pointed responses to the latest acquisitions came from Om Malik, who wrote:
It is a pretty damning indictment that Microsoft had to spend hundreds of millions on front end apps for its own platform –Microsoft Exchange — and it should send alarm bells ringing. Exchange is something Microsoft understands better than most and it should in theory be able to develop good apps as front end for it. And yet, it has to go seeking help elsewhere. Mind you, this is not some new technology and neither is it a new market (like Minecraft) focused on a new demographic. In the mobile OS sweepstakes, Microsoft has been left eating dust by iOS and Android.
I’m not nearly so pessimistic about what these acquisitions mean for Microsoft and, in fact I’m rather optimistic in regard to what they say about the company and its strategy, for several reasons.
Fundamental misunderstanding of Accompli and Sunrise
First of all, both Malik’s post and a number of other reactions I’ve seen have latched onto the idea that all this is about endpoints for Exchange, which isn’t accurate at all. Look, for example, at the Outlook app Microsoft released last week. Yes, it connects to the Exchange app, as Microsoft’s OWA app did previously. But it does much more than that and does it well. In fact, it’s so much better as an iOS endpoint for Gmail and Google Apps mail that it’s replaced Google’s own Gmail app on my dock after just a few days. Perhaps it’s the Outlook name that’s thrown commentators off but this is not your father’s Outlook by any stretch of the imagination. What’s best about it is it bakes in functionality acquired through Accompli but isn’t just a rebadging of that app. I was a beta tester of Accompli and quite enjoyed some of its features, but it never made it off one of my secondary home screens or replaced my default email app. Neither Accompli nor Sunrise is an Exchange endpoint first and foremost, but Outlook on iOS is a service-agnostic productivity app. To the extent Microsoft is now a company about platforms and productivity, this sits firmly in the latter camp, connected only indirectly to Exchange, which surely sits on the platform side. And that’s the key here.
Recognition of failures
I see the acquisitions of these two companies not as evidence of failures only, but also as a recognition of past failures to adequately build both service-agnostic email apps in general and compelling productivity apps for third party platforms. Yes, Microsoft has failed at this in the past, and yes, its current Office version on the Mac is a poor substitute for the Windows version, with Outlook being particularly poor. But these acquisitions are a sign Microsoft is finally recognizing this and taking steps to remedy the situation. As such, they shouldn’t trigger despair but hope on the part of those who have faith Microsoft will do better. That Microsoft is willing to accept it perhaps doesn’t have the wherewithal to create these products, given the people and assets it has, is a positive sign, not a negative one, at this point in its history.
The difficulty of cultural change
That brings me to my next point, which is why Microsoft can’t build such products itself organically. It’s already demonstrated it’s capable of building a very good version of Office for something other than Windows in the form of the iOS Office apps. So what’s the issue? I suspect a large part of the problem is the goal people such as the Office for Mac team were given in the past, were likely about providing a reasonable approximation of the Windows experience on the Mac, rather than providing the best possible product for the Mac. That’s a subtle difference but an important one. With Windows as the centre of Ballmer’s universe, these products lived in an odd sort of limbo, extending the reach of Office but simultaneously making a rival operating system more attractive. In the Nadella era, such tradeoffs are supposed to be going away, but it takes an awful lot of work to turn such thinking completely on its head and it certainly won’t happen overnight. Microsoft could hire new developers to work on these apps, but as long as they report to Old School Microsofties, the transition will be stymied. Hence the attraction of bringing in the necessary people and products. Here are teams who’ve already built compelling apps optimized for precisely the platforms Microsoft wants to target, who come with none of the baggage associated with Microsoft’s history. It’s certainly no guarantee these teams will either retain their employees over the long haul or that they won’t eventually be absorbed into the Microsoft culture. But they may retain their separate identity long enough to get Microsoft through the transition.
A sense of urgency
The other thing these acquisitions hint at is a sense of urgency. I think, given enough time, Microsoft probably could develop some of these apps on its own. But it would take a long time and Microsoft clearly doesn’t think it has that time. The price tags on the acquisitions seem high for what Microsoft is actually buying, but I think that too suggests a seriousness and urgency about this effort. Microsoft doesn’t just want to get good at this stuff eventually, but to get good products out into the market now. And that’s also a good thing, because it again indicates an understanding at Microsoft of the magnitude of the challenges it faces and a willingness to do what it takes to overcome them.
A connection to “loving” Microsoft products
I wrote two weeks ago about Satya Nadella’s use of the verb “love” in the context of talking about his goals for Windows 10. As I said in that piece, the focus on Windows is misplaced (who loves an operating system?), but the basic idea is sound. Microsoft has survived and thrived over the last 20 years, not so much on the basis of being better than the competition, but on the basis of being ubiquitous and therefore being the default option in operating systems and productivity suites. The problem it faces now is it doesn’t enjoy that default position anymore on many of the most popular platforms and, to become relevant there again, it can’t rely on being good enough or doing what’s always been done. Instead, it has to be truly great on the different platforms it targets for development and that, in turn, requires fresh thinking. To me, this is the single biggest reason for these acquisitions. Microsoft needs to get people to actively choose its products and, yes, “fall in love” with them. And that’s going to be awfully hard to do with an incremental, evolutionary approach to existing products. It needs to reinvent existing products and invent entirely new ones. Sometimes that means buying teams that have already done so in a way that’s complementary to Microsoft’s business.
The downside to an acquisition-based approach
There is, of course, another side to this coin. All the things that make acquisitions make sense as a strategy for Microsoft have corollaries that could cause trouble. The acquired teams and products may come to be resented within Microsoft by those who have paid their dues and done their time on the core products. The attention lavished on them by management may cause conflict on the part of teams who’ve spent years developing products already in very wide use and who’ve never received such acknowledgement. And to the extent these teams are insulated from Microsoft’s culture, Microsoft’s culture will also be insulated from them, limiting their ability to spread their entrepreneurial spirit and inventiveness through the rest of the company. Acquisitions can’t be the whole story, either in terms of time or in terms of the vast scope of what needs to be done. No patchwork of acquisitions can create a cohesive set of products and services that feel like they’re designed and built to work together seamlessly. Acquisitions can, at best, plug gaps and accelerate efforts which ultimately need to be driven by the core teams at Microsoft. But despite all this, I’m more optimistic than most about what these two acquisitions mean for the company.