Microsoft's Acquisition of Danger Inc.

I read in the news yesterday that Microsoft has begun talks to acquire the maker of the Software platform that powers, among a bunch of devices, the T-Mobile Sidekick. I should have expected an acquisition along these lines; Microsoft's strategy over the last couple years has been to increase revenues via acquisition, not in-house innovation. Rather than dismiss this as an inevitable acquisition, I began thinking along a different tack - what's to become of the Sidekick 3 now that Danger is going to be a Microsoft company?

There is no doubt that Danger will continue to innovate under its new management, but it remains to be seen whether the eco-system that depends on Danger's s/w platform will continue to the latest and greatest s/w bundles from Danger. There is a possibility that Danger does some work exclusively for Microsoft; some of its work might be leveraged by the Windows Mobile team to improve the platform. Or the acquisition can go sour, and Danger will flounder under Microsoft. What gives me hope is the counter-example of an acquired company that thrived after merging with Microsoft. That counter-example is Bungie, a case in point of a team of individuals that worked wonders while under the Microsoft umbrella.

We might be headed into a new M&A path at Microsoft - the Juggernaut acquires a company yet lets it operate independently but under the auspices of the larger corporation. The guaranteed flow of capital investment spurs the newly acquired entity to innovate with renewed vigor, and Microsoft peppers the fruits of the new entity's labors in product lines that can directly benefit from the work. The rumor mills are rife with talk of Microsoft finally realizing that in order to succeed in niche consumer markets, it's not sufficient to have just a s/w platform strategy. The $$ lie in marrying cool software ideas with an appealing hardware device; a device with both h/w and s/w merits brings in not only revenues but invaluable mind-share. The Microsoft brand is already gaining traction in the consumer market via the successful launches of the X-Box and Zune. It remains to be seen if the company seizes this opportunity to make further inroads into the consumer electronics market, which at this point is ruled by Sony and Apple.

To quote the article:

Terms of the purchase were not disclosed. The founders of Danger previously worked at Apple as engineers before leaving to found the company. Some see this is a response to the Apple's recent success:

Tim Bajarin, president of Creative Strategies of Campbell, said the acquisition provides further evidence that Microsoft is mirroring the thinking of Apple, which has married software and hardware to make simple, fashionable consumer products like the iPod and iPhone.

"Sometime in the last two years Microsoft fundamentally woke up and realized that even though they're a software company, they had to use hardware to control their destiny"

Stay tuned...