Thursday, March 19, 2009

Microsoft + Facebook + netbook = World domination (again)!

I'd imagine Microsoft is still stinging, years after letting the Google opportunity slip through their fingers. That's always an unfortunate possibility for companies who adopt the wait-and-follow approach to innovation. Although Microsoft did switch gears significantly and invested in Facebook in October 2007 before it ran away too. Based on the deal terms (a 1.6% stake of $240 million), it would appear there was more value to Microsoft than just the equity position. But I've come up with a strategy for Microsoft to get ahead of the curve this time, one that could return it to it's World domination position.

It's no secret that Facebook's growth is stellar, projected Worldwide at 5 million new users every week! Facebook is in some ways becoming to social networking what Google is to search. And that is what makes a phenomenal opportunity to Microsoft if they get ahead of this one. Less than 25% of the World's population are Internet users. For many of those users, Microsoft could service using their current roadmap. But what about the remaining 75%? Several trends taken together, paint a pretty clear picture of how to capitalize on this massive wave of Internet newbies.

The first trend is towards ultra-cheap netbook like devices. The more inexpensive they are, the more appealing it is to subsidize them with service oriented revenues, thus accelerating their availability. A related and second trend is a move towards pushing applications and data to the cloud. Microsoft has already jumped on this bandwagon to extents, both with lightweight browser-based versions of Office apps, and with its Azure platform. And a third trend is that to many users, social networking is becoming a central 'platform' of its own.

Putting all of this together, my idea for Microsoft is to 1) buy Facebook right now, 2) get extremely aggressive about producing (through ODMs of course) the most insanely cheap netbook-like device imaginable, 3) market these devices to emerging markets with high Internet adoption potential (they're not displacing existing business anyways), and 4) grow the next billions of users on the platform.

If you look at Google's Android platform and its potential to be put on ultra-cheap devices (like say a netbook sized tablet-shaped device with only a soft-keyboard), the above may sound very similar. But there's something importantly different about what I'm proposing. The Android strategy seems to be riding the commoditization curve downward, penetrating new markets as the technology improves and more importantly as the cost to manufacture decreases. In a previous blog, I proposed a way to get in front of this, and produce an extremely inexpensive device that would serve the low expectations market which includes those who are starting at zero. As those users and their related economies grow, they could then purchase more capable devices, and at the same time, economies of scale would keep even those new purchase prices low. So in essence, I'm proposing the opposite trajectory as Android, i.e., start with masses of people who are just barely able to get connected, and work backwards to reach people who are farther along over time.

Microsoft has the resources to put a big push behind technologies, such as higher-refresh no-power screens, like those on e-book readers. Those would be a huge help in reducing battery requirements, and thus reducing production costs. Every such reduction accelerates the feasibility of a subsidized model, which ultimately means devices could be given out en masse, in order to grow the next billions of users who provide service revenue and user base. Why play catch up in established search, when you can own new search, LBS, social networking, software as a service, e-book sales, media sales, etc? Ultimately, service revenue is where it's all going. Why not prove it out in non-competitive markets? Make Facebook the first experience users ever learn. It's obviously sticky. That could be a huge advantage to Microsoft.

Forget $100 netbooks. Make $25 devices and subsidize them to $0. If the device doesn't do its own processing, a lot of components can be scrapped. At any rate, school systems would be a great place to seed these devices...

Disclosure: no positions

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