Goldman Sachs Conference: Microsoft Sees Broadband

Rising above recent sniping, Microsoft (MSFT) CFO Greg Maffei focused his keynote breakfast address at the Goldman Sachs Investment Technology Conference on a vision of the future.

Broadband. That was the message sent to a packed room of muffin-munching and coffee-guzzling fund managers, most of whom -- at one time or another -- have owned Microsoft shares in their portfolios.

"The Internet is going broadband," Maffei said. "New services and applications will be a key part of business models, and Microsoft aims to deliver software services to a host of networks and devices."

That news is exactly what worries the rivals circling Microsoft's wagons. At a lunchtime session on Tuesday, Roger McNamee of Integral Partners started the assault: "Microsoft [stock] goes up and up, but Windows has nothing to do with the future." According to McNamee's analysis, the future will have less to do with Windows and more to do with the Internet.

Alan Kay, vice president for research at Walt Disney (DIS) spent his entire Tuesday dinner keynote address showing investors what they were missing by sticking with Windows. He captivated the audience with a lot of cool graphics, editing and drawing programs. Then he surprised them by admitting that everything he had just demonstrated was done on a Macintosh computer without any Microsoft software. The software he was using was an open source software called Squeak. Open source software -- also called freeware -- such as the Unix-based operating system Linux has been gaining momentum recently as users become more and more frustrated with company-manufactured software like Windows, he said.

"All the things you've seen tonight, including the graphics, browser, editing and kids programs, are all in one megabyte," Kay said. "How many lines of code is in Microsoft Word alone?"

But even though Windows may crash at least once a day, fund managers can forgive Microsoft as long as it continues to make money.

This fact explains why Maffei was given an easy time, even while money managers questioned him about Microsoft's unprofitable Net ventures. Responding to the current brouhaha over the Internet and the recent consolidation in the portal business, Goldman Sachs analyst Rick Sherlund questioned Maffei about Microsoft's Internet business -- specifically, its portal site, Microsoft Network, or MSN. "If the standard is not making money, then I would say we are in line with the standard," Maffei quipped.

Maffei said that, although MSN is not making money and probably will not in the near future, the portal remains such a small item on the company's overall balance sheet that he is not worried. MSN is part of a bigger, longer-term strategy for Microsoft; the company will continue to invest in the Internet.

But don't expect Microsoft to start paying hefty premiums for rival portals. Though Maffei believes Internet portal space will become increasingly competitive and consolidation will continue, he also seems amazed at the lofty valuations that money-losing Internet companies are garnering these days.

Maybe that's a sign that Internet bubble is about burst. After all, if Microsoft's pockets aren't deep enough, whose are?

>To order reprints of this article, click here: Reprints