Microsoft Corp surprised industry observers yesterday with the acquisition of business diagram and technical drawing company Visio Corp, which goes somewhat against the grain of its recent acquisitions and investments. Visio, a long-time partner which Microsoft will acquire via an exchange of common stock valued at around $1.3bn, is still primarily in the packaged software […]
Microsoft Corp surprised industry observers yesterday with the acquisition of business diagram and technical drawing company Visio Corp, which goes somewhat against the grain of its recent acquisitions and investments. Visio, a long-time partner which Microsoft will acquire via an exchange of common stock valued at around $1.3bn, is still primarily in the packaged software business and doesn’t fit the profile of the recent strategic deals that Microsoft has been signing up for in the broadband communications and web markets.
Microsoft, however, says its core Windows and Office markets are still tremendous businesses and that the Visio acquisition fills a long-standing hole in the Office line, adding diagramming and visual communications to the words and numbers-based products it already has. Visio, based in Seattle, Washington and in close proximity to Microsoft’s Redmond headquarters, will become a division of Microsoft’s Business Productivity Group under Bob Muglia, and Microsoft says it will be immediately (though modestly) accretive. The deal isn’t expected to close until at least the end of the year, however.
Visio, it appears, approached Microsoft over the deal. Jeremy Jaech, president and CEO of Visio said that his company had noticed that customers are changing the way they buy software, with more corporate volume software licensing than box sales. That was the ultimate driver of the deal, said Jaech. He said that although Visio had been adapting its business model to the new trend, it could do so much faster as part of Microsoft. Almost all Visio customers are also Office 2000 customers, and we’d like that to be true the other way around as well, he said. Bob Muglia said that Visio’s product was currently under- penetrated in the marketplace, unlike Word and Excel, and would give Microsoft’s direct sales force something more to sell. The sales force will help expand sales of Visio’s products internationally, where Visio itself had far less presence, and also increase sales to larger customers.
Visio 2000 is a new product line, and the company had begun making investments in server-side technology and experimenting with web-based sales and customized software through its eVision initiative. The company currently gains 50% of its revenue from the computer professional market, with 25% to 30% from general business and the rest from technical drawing. There is little overlap between Visio 2000 and CAD packages such as AutoCAD, although Visio did enter the CAD market in 1998 with IntelliCAD, supposedly an alternative to expensive and complex CAD program and compatible with AutoCAD’s DWG drawing format. Sales of IntelliCAD have been declining recently, however and it doesn’t appear to be an important part of Microsoft’s plans.
The Visio Professional high-end business for the visualization of networks and business processes is more vertically-oriented, somewhat similar to Microsoft’s Project business. Visio Enterprise adds to that database and software modeling technologies from two companies acquired by Visio in 1998, Kaspia Systems Inc and InfoModelers Inc. Microsoft said it had no plans for immediate changes to Visio’s business, but did say it could see new opportunities longer term for the integration of word, numbers and visual tools. For the time being, Visio 2000 will be a separate but complementary product to the Office 2000 line.
Founded in 1990 and with an installed base of three million customers, Visio has 700 staff, 450 of them in the Seattle area. It filed for its IPO in 1995, and has built its annual revenue up to around $200m. A large number of staff are expected to become Microsoft employees, and Microsoft will maintain Visio’s current offices in Seattle. Others will be offered new positions within Microsoft.