I complain that the software industry spends way more in SG&A, dividends, acquisitions than it does R&D, so how can I not compliment Microsoft's plans to significantly increase R&D spend. Rick Sherlund at Goldman thinks another $ 2.4 billion just in 2007. Microsoft recently announced it was going to buy $ 3.5 billion worth of hardware from China over the next 5 years. Ray Ozzie recently told Fortune the company was going to spend "staggering amounts".
Wall Street hates it - or at least hates this surprise when they were counting on R&D from the last few years to show up in product revenue. The stock dropped 11% yesterday. But buyers should celebrate - this means Microsoft is investing in a huge grid, and that will allow it to offer all kinds of SaaS - not just to compete against Google and Yahoo. Also, it will potentially be positioned to offer hardware as a service (HaaS). More than Google, if I was an apps or infrastructure outsourcer I would be worried.
There is a big IF in all this. Microsoft's R&D payback has been slow and tortured around so many initiatives recently. Who's to say this new burst is going to be used efficiently?
But from the buyer community, here's a thank you for Microsoft.
Update: Dennis Howlett adds his perspective.
Update: May 31. Ballmer tells investors Microsoft was making "big, bold bets" by spending on projects including the MSN Internet unit. He said Microsoft planned to hold onto its cash, which is now about $34.8 billion
