Latest Buys Reflect Acquisition Strategy

Microsoft’s two latest acquisitions-U.K. game developer Rare and network security company XDegrees-offer some new insight into the company’s acquisition strategy. As outlined at its 2002 Financial Analysts’ Meeting in July, Microsoft acquires companies for one of several reasons: to rapidly grow its customer base in a new market, to acquire a key technology, or to get employees with expertise in a strategic business area.

Acquisition Strategy Explained

According to Microsoft Chairman and Chief Software Architect Bill Gates, he and CEO Steve Ballmer regularly consult a spreadsheet that lists hundreds of possible acquisitions and look closely at 30 or 40 of these candidates on almost a daily basis.

With acquisitions of larger companies, Gates said, Microsoft’s primary concern is the difficulty of merging the codebase of these companies’ existing products with the Microsoft codebase. This helps explain why Microsoft often acquires companies, such as Visio and Great Plains, that are early adopters of strategic Microsoft platforms and technologies. Gates also said that Microsoft thinks carefully about its ability to retain the employees of the acquired company. Given these challenges, Microsoft only acquires larger companies if it believes they will help it enter or quickly increase its customer base in a new market.