Microsoft gains strategic advantage

US-listed software provider Microsoft had a reputation for ruthlessness against potential or actual rivals that was well-deserved.

But Microsoft also has an uncanny ability to take corporate venturing stakes in potential or actual rivals that helps them survive and thrive, such as computer group Apple or maybe bookseller Barnes & Noble.

It is an odd juxtoposition from a market behemoth reflecting the old saws of keeping your friends close and your enemies closer and my enemies’ enemies are my friends, as well as more benign strategies for helping markets and ecosystems develop so you remain core to their success and part of the conversation as to how they develop.

But it is tricky to use corporate venturing to help pull these ideas off unless the senior managers are fully aware of how transitory market leadership in technology can be and how difficult it is to jump to the next wave of innovation to keep the company growing.

Rumours still do the rounds – from impeccable sources if unconfirmed by officals – of how Microsoft chief executive Steve Ballmer called up neo-con politican Dick Cheney to help it crush nascent rival Netscape during the height of the browser and open source software wars in the mid to late 1990s.

While US tech companies and government worry about trojans hidden in foreign software and hardware to allow their governments access, foreign companies feel the same about many American businesses.

As social network Facebook says in its regulatory document ahead of its expected flotation on May 18: "We would also face competition from companies in China, such as Renren, Sina, and Tencent, in the event that we are able to access the market in China in the future."

China’s government is not so keen on having an uncontrolled (or they fear foreign government-controlled) forum for its citizens as potentially offered by Facebook, short-message service Twitter and their peers – as evidence by their use by dissidents in the Arab spring last year.

Microsoft’s role as the backbone software for most personal computers has given it market dominance more nascent companies, such as Facebook with its 900 million users, wish they could emulate.

And Microsoft is helping Facebook try and achieve the sort of dominance it already holds. According to news provider Fortune, Ballmer pushed through the deal to buy 1.8% of Facebook in 2007 for $240m at a reported $15bn valuation against internal oppostion and despite subsequent negative press reviews.

Microsoft and Facebook have since cooperated on advertising technologies; the social network might buy its investor’s search engine, Bing; and agreed not to take each to court as part of a $550m deal for Facebook to buy 615 patents that Microsoft had originally acquired from AOL (the eventual buyer of Netscape’s browser many moons ago).

As well as these strategic connections between the company, Microsoft could on paper reap a useful $1.15bn for its shares in Facebook after the latter’s flotation on the Nasdaq stock exchange, expected May 18.

While Microsoft mostly eschews such minority equity stakes, it has had a long and usually successful history in such dealmaking – notably buying 150 million shares in Apple in 1997 when Steve Jobs returned to the company and as a tool into developing its Office suite for the Mackintosh computer.  (Microsoft exited its Apple holding in 2001 along with dumping most of its venture portfolio during the dot.com implosion and a turn to a broader development of the ecosystem through its Bizspark and other programmes under Dan’l Lewin.)

More recently, ie last week, Microsoft acquired 18% of Barnes & Noble’s new subsidiary developing the Nook electronic book reader and quasi-tablet computer. While some press reports pointed to Microsoft’s hard-ball tactics to take the Nook subsidiary stake, they also congratulated the software provider on the move, as well as positive reviews for the Windows-based operating system (and Skype voice-over-internet-protocol subsidiary) for Nokia’s new Lumia phone.

Microsoft is obviously prepared to back an underdog as a way of pressuring those threatening dominance in areas that might affect it longer-term, such as Amazon, Google and (now) Apple.

The Facebook initial public offering, therefore, will be a testament to Microsoft’s ability to see strategic issues and ways to remain relevant to these nascent entrepreneurs in a way few, if any other tech company bar IBM, have been able to emulate.