6 companies Microsoft should buy

17th Feb 2009 | 10:16

6 companies Microsoft should buy

Forget Yahoo, Microsoft should buy these firms instead

LoveFilm, Spotify and Kelkoo

Microsoft isn't short of cash, and it recently - and unsuccessfully - offered to buy Yahoo for $44.6 billion.

The idea was to catch up with Google, but the big G isn't the only firm doing well in areas where Microsoft isn't. So perhaps Microsoft should widen its net.

From video and music to shopping and social networks, we think these six firms should be on Microsoft's shopping list.

1. LoveFilm

The future of video is downloadable, so why is the UK Video Marketplace on Xbox 360 so rubbish? The service would be brilliant if it actually had anything worth watching.

Enter LoveFilm. It does movie downloads from major movie studios, but while it rules the DVD rental market it might not have the muscle to remain a big player when all our movies come via broadband.

The Xbox 360 has the audience, Microsoft has the muscle and LoveFilm has the movies - although if it did buy the firm, it might need to ditch the games rental service. Rentals make game developers cry, and Microsoft needs to keep developers loyal to the Xbox.

2. Spotify

From the MSN Music Store to the Zune, Microsoft's attempts at beating Apple have been largely unsuccessful. Spotify could change that and give Windows Phones a much-needed boost.

If Microsoft were to buy Spotify for a few hundred million and develop a decent Windows Phone version (and maybe stick it on the Xbox, too - why not?) it'd be a compelling alternative to both Apple's iPhone/iTunes combination and Nokia's interesting but confusing Comes With Music service.

Mark Mulligan is vice president and research director of Forrester Research. "Mobile is a massive opportunity for Spotify," he says. "Pandora and Last.fm have shown that mobile streaming can be a genuine alternative to portable downloads, and can free streaming services from the chains of the PC. However, mobile networks have some distance to go before they'll deliver a seamless experience."

Money could be Spotify's weakness. "Spotify's growth is coming from its free ad-supported offering, which is far from fully utilising its ad inventory and which is not yet pulling tier-one advertisers," Mulligan says. "That will come with time, but the possibility - probability? - remains that every new ad-supported subscriber that Spotify acquires is an additional cost. If so... can they ramp up their ad revenue more quickly than they burn through their investment money?" If they can't, being acquired by a big, rich firm could start to look very attractive indeed.

3. Kelkoo

Kelkoo is the third biggest ecommerce site in Europe, and it has the largest ecommerce advertising platform in the UK and Europe. With 8.5 million monthly users, 4,000 affiliates in the UK alone and content from 41 of the top 50 UK retailers, it's one of the most important websites around.

Yahoo bought Kelkoo in 2004 and sold it again to private equity firm Jamplant in 2008 - and rumour says Yahoo got a quarter of what it had originally paid. Microsoft could easily make Jamplant an offer it couldn't refuse, folding Kelkoo into a portfolio that includes cashback firm Jellyfish (already integrated into Windows Live Search) and shopping/product reviews site Ciao.com. Forget chasing Google in search: comparison shopping is where the money's at.

Xobni, Palm and Facebook

4. Xobni

Xobni's Outlook plug-in delivers excellent search and statistics, and it also grabs additional information from services such as LinkedIn and Facebook. The platform could link Outlook with all kinds of things such as customer relationship management software or other business applications, and owning Xobni would enable Microsoft to ensure that it developed for Outlook and Outlook alone. Techcrunch says that Xobni has already rejected a "sub $20 million" offer from Microsoft, but in the current economic climate another (lower) offer might be more warmly received.

5. Palm

Buying Palm would bring the Pre's designers to Windows Phone, and it would annoy Steve Jobs, too: the current team includes Jon Rubenstein, former vice-president of Apple's iPod division, and former Apple developers' champion Chuq Von Rospach.

Andrew Kitson, senior analyst with Juniper Research, suggests that a Microsoft smartphone would be a nice thing to sell in Microsoft's forthcoming retail stores. Should it be a Palm? "The question comes down to cost," he says. "Would it be more cost-effective to buy an existing player such as Palm, or to just develop a handset family and brand internally?"

As Kitson points out, the Pre is a business device where Microsoft needs a cool consumer phone, and making Palm's WebOS work seamlessly with Microsoft products might not be easy. "It might be better to come up with a new iteration of Windows Mobile - but if they dump the OS, what's the point of buying the business?" Microsoft needs "to come up with a really exciting, definitive and iconic device to capture imaginations, much like the iPhone did when it first appeared. Now everybody's emulating the iPhone. Does that sound like the Palm Pre?"

If the Pre doesn't sell truckloads, Palm's days may be numbered. "Somebody's going to buy it before it goes under, or they might wait until Palm expires, stroll in and buy the assets they really want at a knock down price," Kitson says. "But it could take a couple of years [for that]. Can Microsoft wait that long? Not with Acer, Dell et al piling into the market."

6. Facebook

While Facebook isn't making enormous sums of cash Microsoft has deep enough pockets to finance it indefinitely and use it to boost other Microsoft services such as Windows Live Messenger, Live Mesh and so on. All that user data is a potential money pot, too: it's not searchable by traditional search engines, so whoever has access to Facebook's profiles, details and connections can offer advertisers and searchers something that Google can't.

Microsoft already has a small share in the site, but Facebook boss Mark Zuckerberg shows no sign of wanting to sell his baby. If he changed his mind Microsoft wouldn't need $15 billion, though: according to leaked internal documents, even Facebook doesn't think it's worth that much. The real figure, Associated Press reports, is $3.7 billion. Microsoft could find that much down the back of the sofa.

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