It has been, to say the least, an interesting year so far for Microsoft Corp. Even as the company was rebuffed by Yahoo (ultimately abandoning its months-long effort to buy the online giant in May) its newest operating system, Vista, faced a curious rebuff of its own, panned by critics and consumers alike despite record sales. At the end of April, Microsoft’s quarterly results also sent mixed messages, beating expectations but with a notable dip in profits and a subsequent hit to the share price. Questions about Microsoft’s direction and its very identity seem to hover over the company as it continues to broaden its product mix, shore up weaknesses in its core software market, and carve out a viable Internet strategy. Microsoft’s diversification gives it no shortage of competitors, among them the formidable trio of Google, SAP, and Sony. All of which is just fine by CFO Chris Liddell, who joined the company in 2005 from, of all things, the forest-products industry. “Microsoft is the icon of my generation from a value-creation perspective,” he says. “Also, I love a challenge.”
First, were you disappointed that the Yahoo acquisition fell through?
Although [acquiring] Yahoo would have accelerated our efforts, we will continue with our three-part [online] strategy of innovative search technology, more user engagement, and more value for advertisers. The online advertising market is expected to double over the next two years, so we will focus [heavily] on it. [Note: This issue went to press just as Microsoft was floating the idea of a partial buyout of Yahoo.]
Microsoft’s diversification has intensified in recent years. Do you think the Street has a good sense of what Microsoft is all about and where it is going?
I think the level of understanding is very good. We’re covered by 33 analysts and there is certainly no rock unturned. They may vary with one another and with us in terms of how they regard each initiative we roll out, but in terms of understanding the big challenges we face I think we have a good dialogue with the Street. It’s something I’ve devoted quite a bit of time to.
Your latest operating system, Vista, has met with mixed reviews. Does the criticism say anything about Microsoft’s status as a software innovator?
The rate of adoption [for Vista] is in line with what we have seen in past releases, and stands at more than 150 million so far [as of May], and we see more good traction through 2008. We differ from other software companies in that we compete in more segments than any other, from the online world to enterprise software to entertainment. So we contend with Google, Yahoo, AOL, SAP, Oracle, Sony, Nintendo, and others. That requires a lot of innovation!
Speaking of innovation, last year you asked your finance staff to think more expansively by holding a “Think Week.” What was that about?
Bill Gates has done this for awhile, taken a week to go off and read papers submitted by employees that offer ideas for things we could do differently. So we decided to do our own version in finance, focusing on our future within Microsoft in order to stir up some great ideas and get people’s brains engaged beyond their day-today duties. And we got more than 200 papers, which is a very high strike rate.