("Gates, Bill," 2007) the company is in fact considered a regional financial backbone, in the Seattle-Redmond area where its world headquarters are. The whole region and to some extent the whole world takes notice when Microsoft announces financial strategies and changes or when stocks rise or fall.
The software maker said it would buy back $20 billion through a tender offer set to be completed on Aug. 17. The company said that its board of directors has also authorized the company to buy back up to $20 billion worth of stock through June 2011. The company said it has completed the $30 billion stock buyback announced two years ago. "With our share repurchase programs announcement today, we reaffirm our confidence and optimism in the long-term future of the company and continue to execute on our strategy of returning capital to shareholders," Microsoft Chief Financial Officer Chris Liddell said in a statement. For its tender offer, Microsoft is using what is known as a modified Dutch auction, in which those who want to sell shares can indicate how many shares they want to sell and at what price. Microsoft said it will pay no more than $24.75 per share and not less than $22.50. The buyback offer, which is expected to begin Friday and run through Aug. 17, could see the software maker repurchase up to 808 million shares, or about 8.1% of all outstanding shares. (Fried, July 20, 2006, http://news.cnet.com/Microsoft-plans-massive-stock-buyback/2100-1014_3-6096631.html)
It must also be noted that Microsoft was embroiled in appeals litigation regarding the anti-trust lawsuit filed against it in 1999. The appeals were successful to some degree and Microsoft was able to restructure to meet the demands of the court, which applied a judgment against it, declaring it a monopoly in large part based on its proprietary software tactics. The restructuring included good faith actions such as shareholder equity improvement as well as many other fundamental changes, that protected Microsoft as well as the public from its exponential growth over the years. (Unites States vs. Microsoft Current Case http://www.usdoj.gov/atr/cases/ms_index.htm) Other changes that have appeared on the horizon for Microsoft include changes to their system that provide software as service, a function previously developed by other software and OS providers that allows users to share fundamental spaces on the web and elsewhere, and allies Microsoft with some partners that have previously been fierce competitors. Microsoft seeks with this move to build greater diversity in its offerings and grow in the direction that other service providers have, such as in the wealth of new marketing standards made popular by the world wide web, such as search functions and live applications.
In a series of presentations to partners and financial analysts last summer, Microsoft execs invariably emphasized that software as a service opens rich new opportunities to "monetize" the costs through online advertising. The foundation plank of all advertising is touching the most people and making sure that "everybody on the planet can participate in your software," Ballmer says. The global ubiquity of the web fills that need perfectly. The "Live" applications platform of the cloud is an ideal medium for targeting individuals and very small businesses, Ballmer says. "These are generally ad monetized apps, and because of that, there's synergy in sharing data and features among the apps at this level ... These are services like identity services, contact lists -- this is the layer where our social graph of your relationships lives, along with your presence and rendezvous, [and] communication services. Perhaps most importantly, our advertising platform lives at this level," he says. Customers, independent service providers, and Microsoft will share ad revenues. (Orr, 2007, p. 46)
In 2009 it remains to be seen if such tactics will also feed the growth of the company, as many previous competitors sought to provide such services as shared platforms, search and social networking capacities as fundamental tactics of growth parallel to Microsoft's previously proprietary standards and massive size and success. In other words other companies sought to support the software as service venue as a result of the need to compete with Microsoft as a monopoly. Microsoft felt no need to branch out in this way as its success was self sustaining. Yet, now Microsoft seems to need to be in a race to reformat the way they offer services, as the market tightens and people become less and less willing to invest in products by Microsoft simply because they are the only ones availed in the formats that exist. (Orr, 2007, p. 46) Though this does not have a great deal to do with stock buybacks it does create a full picture of the fundamental way in which Microsoft has announced the desire to make massive changes, during this period, including increased dividend payments as well as share repurchasing to bolster its position during some challenging financial and legal times.
Venture Capital Investment
Though Microsoft has long left the field of venture capital investment, one of the main reasons for the stock repurchasing tactic as well as the increased dividend payments has to do in part with Microsoft's history as one of the greatest proofs that venture capital investment can be successful. When Microsoft went public a great deal of investors were taking a marked risk in investing. These same shareholders, if they held on still feel the need to show returns on their investment that at least rival those they experienced early on, which were exponential.
Venture capital investors usually cash out after the rapid common stock price rise. Many move onto new venture capital investments. Most venture capital investments fail. Undercapitalization and the lack of entrepreneur stamina are often the causes. Sometimes the idea or product is not well conceived or not well received by its targeted consumer. Delays in achieving envisioned revenues sap the initial enthusiasm of investors and the entrepreneur. Initial funding is spent. More funding is required. 1 Investors may balk. The entrepreneur may simply tire. Yet the venture capital process continues because a few succeed. The successes are sometimes legendary in their extraordinary returns. Examples would be Apple Computer, Microsoft, Intel, WalMart, and Dell Computer. Failures seem to fade into the shadows of the successes. (Bolten, 2000, p. 93)
Venture capital investment is a fundamentally risky investment and yet those who invested in companies like Microsoft, that have shown considerable ability to turn a profit and keep their stock prices steady are invested in the continued growth of the companies they invest in. Though once a company has passed the venture capital classification this is often not possible to a same or similar degree. Windfalls created by stock purchases are rare in companies that are more established and yet core investors, still hang on to the notion that they will continue to see advances in payouts to a certain degree as the company continues to grow. The management of the company then must place heavy investment in keeping these shareholders happy as they seek to continue to grow their business. The balance is an essential aspect of any company that has been largely invested in by venture capitalists.
Beyond Venture Capitalism
Those who invest in Microsoft today do so because the company has passed the venture status period and is now a solid contender for continued growth. These new investors expect just as much as those from Microsoft's venture capital past, as they seek with substantial investment to securely hold and grow their own portfolios at a steady rate of return. In fact it the marriage of these two groups that likely spurns decisions regarding issues such as stock repurchase programs, as Microsoft seeks to reinvest cash profits in a way that supports the investors' interest in the company. No individual necessarily expects the windfall growth of the company, or all its conceptions and changes but as it has grown and developed into a "sure thing" for investors it has developed a reputation for continued stock growth and therefore payout. Microsoft, just as it has begun to diversify and challenge its old ways of doing things must also seek to demonstrate both publicly and privately that it intends to reward those who have invested in it, by sharing its success with them in dividend payments and by strengthening its stock with repurchasing and other strategies that have little if anything to do with the actual running of the corporation. In other words, regardless of any slumps in sales, which are comparable to massive growth, or restructuring that is contingent with litigation the stock must continue to grow and profits must be shared.
Bolten, S.E. (2000). Stock Market Cycles: A Practical Explanation. Westport, CT: Quorum Books. Retrieved August 29, 2009, from Questia database: http://www.questia.com/PM.qst?a=o&d=29180460
Fried, I. (July 20, 2006) Microsoft plans massive stock buyback, CNET News