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Microsoft's new underwear costs $8.5 billion

Long ago I remember reading a beautiful story written by the famous writer Munshi Premchand. Roughly translated it was about a traditionally rich family in dire straits financially with a beautiful curtain. Puneet Mehrotra writes.

india Updated: May 11, 2011 20:56 IST

Long ago I remember reading a beautiful story written by the famous writer Munshi Premchand. Roughly translated it was about a traditionally rich family in dire straits financially with a beautiful curtain. Outsiders weren't allowed inside and the beautiful curtain gave the family dignity, security and more. From the look of the curtain everybody thought the family was doing well, safe and secure till one day the curtain fell.

The Curtain Falls
Yesterday as the news of Microsoft buying Skype for an obscenely high $8.5 billion it reminded me of that story. Call it a chronicle of a war or maybe adding to my own knowledge of how corporate wars are fought or maybe even a sadistic pleasure of seeing the collapse of the mighty and rise of a new underdog, Google, which itself has monopolistic designs and isn't Godly by any standards. Yet there is a pleasure in seeing the underdog's victory and a sadistic pleasure in seeing the mighty collapse. It's lust at its best of a dual pleasure of victory and loss. I think my Google versus Microsoft war series must have now crossed the century mark over the last 10 years I have been writing on them. As the emperors clothes are getting off, the show gets hotter. Well that is what I thought. Little did I know it was actually a Full Monty and Microsoft desperation for an underwear to hide the essentials would cost $8.5 billion.

The Real Enemy
Let's get this into perspective. Gone of the days of Bill Gates and shock and awe of Windows and anything that Microsoft touched turned into gold. Google, a startup, which started as a search engine has been probably worse than what Osama was to Obama or vice versa depending on the frame. The enemy at Redmond is Google and this guerrilla with risks only Google could take is today the mightiest challenge to Microsoft.

Fear is an amazing motivator, seemingly. Intention is always good, its motive is always success, well being and growth. Yet when fear and intention mix, it can be a lethal combination. Wars are always fought with this premise. Fear like lust can drive a man, an organization insane to heights which normally weren't possible. Worse is when the face is a good intention, yet the engine or the driving force is fear. The Microsoft Skype deal is similar to that.

What is Microsoft trying to achieve with Skype?
The big question is what is Microsoft trying to achieve with Skype. The value is $8.5 billion, which incidentally is also the biggest deal in the software maker's 36-year history.

No Profits
What's Microsoft trying to achieve through this deal? The deal definitely isn't profit or money driven for sure.
With 8 million paid Skype users are profits ever going to show? The answer is a big NO. With integration to various platforms and video calls are profits going to show. Well not for a long time for sure.

Controlling non-Windows entities
For long Microsoft has been working on this project. Two years I did a story titled "Microsoft Stripping to Seduce Linux" in which it was actually opening its code. Something that was impossible was now a reality. After Skype Microsoft says it will continue to support non-Windows platforms, it means getting into a territory where it always wanted and Google always resisted i.e. Android. Notably Android is literally the heart of Google's soul today and its engine of growth for future. Besides also getting to the territory of iPhone and Mac and its new version of telephony to be launched soon..

Microsoft's desperation on the www
Microsoft has always been a "packaged software company". In computer software Microsoft makes billions and that's is something nobody has been able to touch it so far. It is undisputed, the leader and everything one ever wanted to be in software. Things are different now. Until a few years the distinction between online and offline was clear and well defined. Then Google's new innovations, new application service models and rising Internet speeds blurred the distinction between online and offline. This is the exact time when the problems started at Microsoft in its bid to keep up the market domination.

Microsoft desperation to get it up on the world wide web is not new. Consider the $47.5 billion Microsoft offered to Yahoo! three years ago. Alas the deal didn't work out due to Yahoo! non-interest. Interestingly Yahoo! is worth maybe around a half or a little more. What really magnified this worth a while back only Microsoft can answer.

The Last Word
The frame is online. Microsoft's forte hasn't really been online. Microsoft is playing the game online with offline rules that were valid maybe 10-15 years ago but not any longer. What Microsoft desperately needs is an Engine for Growth to take it up the next level. For that to happen the motivator has to be not fear and buy something to cover that but pure innovation. Interestingly innovation comes when fear subsides. Windows wasn't really a better version of Dos, Google wasn't a better version of Yahoo search, Amazon wasn't a better version of century old Barnes and Noble shops and eBay was never a better version of retailer Walmart. Their intrinsic values spoke innovation, sparkled innovation and it made all the difference. Money isn't anyway a consideration for Microsoft. $8.5 billon wasn't. Might as well use it for innovating an engine for growth.

Puneet Mehrota is a columnist on business and technology