Does Microsoft have synergy in 2010?

“I am another frustrated shareholder. Is it time to consider breaking this company up?” one investor asked the CEO at the 2010 annual shareholder meeting for Microsoft Corporation held in Bellevue, Washington.

Shareholder meetings, routine events for the most part, can be interesting at times. They can be interesting for what is said and not said. They can be interesting, also, when they reveal interesting statements or terms such as ….. synergy.

Synergy can be a powerful word.

Synergy is often used by strategic managers and professors at business school. It is also employed in the science, medical and mental health sectors as well.

And even CEO’s at Microsoft Corporation use it at annual shareholder meetings.

I’ll have to admit, straight off, that I’m biased against the word. Probably this is because I was taught in business school that synergy actually existed, was a good thing and can be effectively used as a corporate strategic weapon at the right place and time. Years later I learned differently.

I learned that synergy is often very much over-used, is incredibly hard to measure and often distracts one from the real issues.

The problem, to me, is that when I hear the word synergy I hear a lot of things. And the real problem is that I hear a lot of things well beyond the economic truth.

Synergy?

It almost sounds like when Jim Mora (former Indianapolis Colts coach) said: “Playoffs! Playoffs? Playoffs???”

Or, when Alan Iverson (former NBA star) said: “Practice! Practice? Practice!!!???”

And here we have, once again, synergy used by another CEO trying to justify strategies missed and strategies not gone well.

Here was Microsoft CEO Steve Ballmer saying: the company is more valuable than the sum of its parts; its size makes it tough on the competition; and, the synergy the company has with its various product lines makes the company work better than people think. Yes, Mr. Ballmer used the word “synergy” at the shareholder meeting.

So, will Microsoft be broken up (like some of the shareholders wanted)?

Absolutely not. For many reasons. Two of which are: ego driven (Gates and Ballmer; they would never agree to this) and that they actually believe in the synergy and continued financial success that Microsoft is experiencing.

Microsoft, for the most part, is the monopoly winner in the market because it created an operating system (and related products) that benefited from network effects. When this occurs, you can charge monopoly rents, continually release new software versions (no matter the number of bugs) and self-perpetuate.

But all of that doesn’t mean your stock will go up or that you’ll have happy shareholders.

And, when you take a 10-year graphical look at MSFT you’ll notice that it has been pretty-much dead money during that time frame (current quote: $25.25 per share).

Why? Well, very briefly, no need to innovate, failure to adopt cloud computing and certainly very little synergy to make the share price dance.

Microsoft will certainly not be broken up.

Does Microsoft have synergy in 2010?

11/26/10