Why Can't Microsoft Close The Deal?

TechCrunch has another Xobni rumor this morning. This one says that Xobni walked away from a deal to sell itself to Microsoft:

But the deeper that Xobni got into the discussions, the less
comfortable it felt about its eventual fate inside the Microsoft
machine. The fear was that Xobni would end up nothing more than a
feature of Outlook. Microsoft wanted the entire team to move up to
Redmond, and was vague in its answers about what it had planned for
that team, or the product. In the end, the body language just wasn’t

This rings true to me because I’ve seen this happen before. Microsoft has trouble closing deals because when developers and entrepreneurs see their future inside of Microsoft, it often isn’t pretty.

It goes to the bigger question of the Yahoo! fight. Henry Blodget says Microsoft is willing to up it’s offer a couple bucks per share. But here’s something to chew on. If this was Google trying to buy Yahoo! (an impossibility for anti-trust reasons), this deal would have been done a long time ago.

Microsoft messed with the technology industry for a decade and it’s image in the industry has never really recovered. When Google talks about "do no evil", who do you think they were talking about?

#VC & Technology

Comments (Archived):

  1. stone

    My view of Microsoft has forever been tainted because of their unethical M&A practices. Fool me once, shame on you…The grudge I hold against them can never be erased. I’ve taken it so far as to now soley use Google Apps for my “newco”. We’ll see how far we can take it without hurting productivity.They like to “toy” with people. What they don’t understand is that good, hard-working people don’t like BS tactics. I hope I never sell a company to them and will never, under any circumstances, ever work for them.

    1. fredwilson

      That’s my point stone. There are many more like you out there

  2. CyndyA

    But if it was Google buying Yahoo, the ultimate fate of the company would probably have been the same. They talk a good game, and so far, everyone is still blinded by the “Don’t be evil” mantra that is quickly showing to not be as true as everyone thought.The reality is that Xobni walked, and Microsoft will probably hire or re-assign a few developers, build it themselves, and put Xobni out of business. It’s a feature, and who else will buy them if Microsoft doesn’t? This isn’t the type of company with an IPO as an exit in their future unless they completely re-invent themselves.

    1. fredwilson

      We’ll see. I think the xobni team is smart and nimbleFred

    2. Greg

      Agreed. We’ve heard endless stories about great startups going down the Google black hole. Grand Central…Jaiku…etc.

    3. Joe Conyers III

      Xobni is not just about outlook.They have done the hard part of figuring out the features that are best for this type of service. I think they chose outlook forthe large install base and users love to pay for free stuff t. Next they will port to popular online email services, thunderbird, and then mobile devices. Microsoft proved they have something of real market value. This is a social network that is anyone can receive value from without reputation repercussion or worry. This is a potential IPO if executed well on b2b side.If you look at the pictures of their office, you can tell they are ready for a long term fight. They have a big LCD screen showing stats war room style and what looks like a fun culture from their videos.Correct me if I am wrong but I remember Microsoft throwing around a 600 million user number for outlook. If Xobni went for 20 mil then they would get it for three cents per user. Gives an interesting perspective.

      1. CyndyA

        Joe, how quickly do you think Google could code something like this? Acquisition is faster, but isn’t the only option. And look at the IPO stats from the past two years; no one is going IPO without a product that sells. And when Google can build it themselves almost as fast as someone else can acquire it, striking when the iron is hot should be the MO for any of these companies.A big screen tv and a fun culture doesn’t always pan out. Lord knows there were a lot of those in 1.0.

        1. Joe Conyers III

          Cyndy, The idea that a big company will copy your product is always out there no matter what your going to do. They have managed to execute in a style that wasn’t disruptive to these big firms, but now that MS has made this offer they are on the radar. However even if Google, MS, or whoever wastes their time cloning their service they still have tons of other services to work with.They have shown with their Yahoo product they discover your social graph over multiple products. Imagine this for everything you use; when jimmy likes to get text messages over email or when sally is likely to be in the office. Xobni is much more than just an email plugin.Also if xobni’s yahoo product is in the can, they may be waiting to see if the merger goes through. This would instantly demand them a higher valuation. (http://www.techcrunch.com/2…Joe

  3. stone

    Yep. They’ve turned me into a sharp-tongued ambassador of dislike. Not good for them.

    1. fredwilson

      Stone you are a sharp tongued ambassador of msny things and I am so happy that you take the time to share your opinions with us even though I don’t always agree with themFred

  4. Ephraim

    Fred – not sure that I agree with you on this one. The Xobni and Yahoo situations are very different from one another. My impression of Xobni’s situation is that Microsoft is making a build vs buy decision here; the cost for MSFT to build Xobni’s solution and roll it out to a much larger audience is right around $20 million (give or take a few million). Xobni has a larger vision (which MSFT doesn’t value at this point) and doesn’t want to sell at that price yet. My prediction on how this one plays out is that MSFT builds their own version of Xobni and there is healthy competition between the Outlook feature and the standalone start-up.As for Yahoo, I disagree with you. Yang built the first great internet company and he does not want to see it acquired by a competitor. Sure, Microsoft is despised in the Valley (irrationally, I think); however, Yang would be resisting takeover attempts by Google, as well. As a sidenote, I’ve seen a lot more people in SV leaving Google than leaving MSFT recently.

  5. Craig Plunkett

    Its not always gloom and doom there. The MS Forefront team seems to be happy. They used to be Sybari Software with Antigen as their product.

  6. ethomaz

    I worked at Microsoft for a while, between 2002 and 2004. There’s no doubt there’s some good people in there. But I found their marketing and some of the more executive team to be lacking in common sense at times. I asked people about this one time, and was told that MS grew so fast in the late 80s and early 90s that they had to promote people to the executive ranks who were too young and unprepared for their new responsibilities. Those people were the ones “doing evil”, if you will, but not because they were mean-spirited, but because they were dumb and lacked foresight.Regarding Xobni, there’s no doubt they would be swallowed by the Outlook team. Lookout all over again, as it has been mentioned before. And to be honest, at this point Xobni would have to accept that if they went with the acquisition. But they do have the potential to do a lot more.

  7. khylek

    I think CyndyA is right. This is about a specific deal, and I don’t think it’s fair to make the comparison Fred is trying to make here.Google gets off far too easy. At least from the outside, it doesn’t seem like some of their acquisitions are being integrated at all – or are truly benefiting from being acquired by Google.

    1. fredwilson

      The point I am making is when I talk to entrepreneurs, and I spend a lot my day doing that, most would love to be bought by google at the right time and for the right price. Very few feel that way about Microsoft.

      1. khylek

        I don’t doubt you. I’ve been in that position more than once, and had the exact same thought. that’s partially because Google has a cache about it. MS is closer to IBM than it is to cool.What I took away from the post, maybe incorrectly, was that you are saying that MS is paying for their past (Microsoft messed with the technology industry for a decade and it’s image in the industry has never really recovered. ) I’m not really sure that is the case here based on the information you provided. It seems like they just didn’t want to be a feature of Outlook and turned down the deal. If they were afraid of MS’s past, they probably don’t get that far in the process, no?On a side note, I have seen startup leadership get too in love with their overall vision at the expense of the business. Being a feature in Outlook, as drab and unexciting as that might be, could very well be the best business move. One of the startups I was at was acquired by a large company, and the acquisition was hard (as I’m sure it typical). But the decision was the best for the company as a whole. Even though the overall vision was, at least to some extent abandoned.

        1. fredwilson

          Good pointI do think Microsoft has an image problem based on 90s era behavior and it’s still dogging themBut that might not be the only image problem they have with entrepreneursfred

      2. messels

        but isn’t that just more of a superficial image issue? you’d never guess that sergi was a super-geek now…not now that he’s a billionaire and has personal stylists doting on him all day.btw, yahoo could only wish to be purchased by google. i’m pretty convinced that msft and yhoo are two peas in a pod. company grew really quickly, bureaucracies formed and solidified, creativity and innovation died off…everything that made the winning combination vanished and in return they got a big pile of money.money in exchange for creativity.now that’s all those companies know. “our people aren’t coming up with anything very important…how can we fix this?…let’s buy someone else’s creativity!!” they then purchase the company and unfortunately what they mean by integration is annexation of the people, falling into another mental fallacy: transferability. “these guys were really doing some great work over at XYZ; let’s see what they can do on our search engine!” “duh” would be the only appropriate response to a thought like that.the problem is with the people at the top. not everyone is cut out to be a visionary leader and for a company to be really powerful it needs a team of visionaries, or at least one really, really charismatic, involved, and creative leader. meaning, most people shouldn’t be leaders.

      3. rick gregory

        But Fred, do they really think Google will make their product front and center? Dodgeball, Jaiku, Jotspot (yes, I know, re-released, but after a LONG time), GC…. Those are all examples of companies that have languished under Google.As for MS… you’re right about their rep but I have to wonder about the common sense of someone who was thinking of selling to a company with tens of thousands of employees and tens of billions in the bank and who still expected to be left alone or made a front and center piece of the company.Part of selling to a much larger company is that you almost always DO become a cog in a larger wheel. If that’s not what you want and you’re after more than the money… why even start talks with someone huge?

  8. Sebastian

    This is the reason why Microsoft won’t be able to become a big player in the industry unless they buy established players. Live Mesh is a fun synchronization tool but a lot of people would wouldn’t host their data in Microsoft’s data centers.Consumers wouldn’t because they basically hate Microsoft. (I know exactly one person who really likes Microsoft; he’s a Microsoft business partner.)Companies wouldn’t because they remember the stories of how they crushed their competition in a lot of areas. You’ll never know – probably your product or your business contacts are interesting to Microsoft. Many businesses would believe Microsoft would access this data.Microsoft lost the internet, unless they just buy established companies. Yahoo, Akamai, etc. – these are things Microsoft wouldn’t be able to create on its own, and they’d probably lose a lot of users if they bought them.

  9. awilensky

    As if the company can’t find out what to do with the 20 billion in cash that the transaction would incur. It’s ridiculous. You can launch an empire with that money, acquire willing victims, rather than boat anchors that are so unwilling.Forget the stock part of the transaction – the cash man, the cash…what are these guys thinking…? Make your existing and under performing on-line channels work, throw a minuscule amount of that cake at it.Gawd. What an uninspiring story…Where is the creativity? Is this what the best minds in Redmond can come up with? It’s as if they fell ass backwards into the money and don’t know what to do.Meanwhile, back at the ranch, yahoo should hold out and continue to quietly work on their ubiquity platform.

  10. JB

    I’m disappointed at how those commenting seem compelled to distill this situation into 140 character simplification.I’ve been to Redmond, worked with “the boys” on a number of efforts, and once they asked to acquire one of my companies and I turned down their offer; yet, I lived. Fred is largely correct; MSFT too often struggles with how to help the entrepreneur transition their affection for doing great things, to doing great things for the Mother Ship. I suspect most large companies struggle with this problem and it would be interesting to study the success of entrepreneurs post acquisition.Clearly, there is more here than meets the eye; the proposed return on capital invested is too low for the Xobni investor. Flip the situation on its head and you might conclude that MSFT was trying to make a build vs. buy decision; and perhaps they were, but couldn’t MSFT make this work for 50% to 100% more? Probably, so this suggests to me that something else did not sit right.Xobni did not make this decision unilaterally, so there is a better than even chance they can improve on the MSFT offer through a combination of organic growth and a newly motivated buyer.The “it’s a feature or it’s a market” argument oversimplifies the debate to the playground version of “my developers are better, faster, stronger, and smarter than your developers,” which carries only moderate import.In this situation, both companies missed a good opportunity, probably in some part due to inexperience, to take messaging to the next level of integration and use.The market has an unmet need that Xobni begins to address and where need exists, there are investors to be made whole. Tough luck Xobnies, but good luck!

  11. Qwili

    My advice to Xobni, Sell and run! These guys are beats they will make a copy of Xobni and make you history, remember Netscape.

    1. fredwilson

      Didn’t happen with lookout. In fact the bought lookout when it was a good outlook search tool and now that they own the technoogy outlook search is awfulFred

  12. winterbear

    The current M$ is such a silly organization… they are so past their sell date.Nothing they are doing is cutting edge. All their apps are in dire need of a refresh, their dev envoronments are all out of date or stupid. All the free open source apps are much better than anything they are peddling. Their products like vista are a disaster and they have over used their market power so that anyone that buys a cpu that requires vista is going to be very sorry soon.The EU is going to sue them for 10 billion every quarter from now on… hard to make any money when that happens. None of the smart young people will go to work for them and all the oldsters have either been burned or wont work for them out of principle.Everyone who wrote xp or vista is gone… only the worst people still work at the company because everyone else has moved on.Anyone who is till paying microsoft any money is either a fool or a sycophant.Anyone who is stiill working on any kind of ms certification is cluesless and I feel sorry for them.i predict that they will be gone “soon”… but it may take 10 years for the msft to stop being trade on the stock exchange but i think someone who hates them is going to buy them and just put a bullet in their head. To be a real company you have to sell something someone wants. When everyone hates you its hard to be a successufl business. When everyone hates you, you can go away very very fast.

  13. loupaglia

    Really two stories here: Xobni and Microsoft M&A practicesAs far as Xobni, there must be more than meets the eye here or the long-term Xobni strategy isn’t clear to at least me. I simply don’t get the walk-away on this. Yes, Xobni can extend itself to ALL types of inbox providers just like Plaxo has for address books. But, overall, they are a feature of the Outlook inbox and Microsoft is buying the feature.Have to love the confidence from the Xobni team and perhaps it is case of sellar’s remorse. From an outsider’s perspective (which is all I have), selling seems like a good return this close to launch.