Microsoft Reeds 'Em and Reaps

Boardrooms can be pretty stuffy places. Even at Microsoft (Nasdaq: MSFT  ) , the cast of characters includes a wide array of former Microsoft executives, Harvard professors, and chieftains of old-school telcos, pharmaceuticals, and automotive giants. So what's Reed Hastings doing in a place like this?

The opinionated Netflix (Nasdaq: NFLX  ) CEO was added to the Microsoft board last night. An appointment is typically just that -- an appointment. After all, if you look at the pedigree papers of existing board members, it's not as if Microsoft has teamed up with BMW to code engine operating systems, or worked with Merck on inoculations to eradicate computer viruses.

This particular combination intrigues me, though, and not just because I've been a Netflix shareholder for nearly five years. This kind of move may have greater implications down the line. Since I'd much rather start rumors than fan them, here are some questions I'd love to see answered.

Will Netflix begin renting video games?
Netflix has repeatedly insisted that renting video games isn't a feasible model. The games cost too much, are damaged too easily, and often grow obsolete too fast. However, if that's the case, why are companies like Gamefly and GameZnFlix doing it? And since Blockbuster (NYSE: BBI  ) already rents video games at its stores, isn't it really just a matter of time before it adds software titles to its Total Access program?

By sitting on the Microsoft board, Hastings will be helping to shape the future of the company behind the Xbox 360. Launching a year earlier than its Wii and PS3 rivals, the Xbox 360 currently has the largest installed user base of all of the next-generation consoles.

Can being on boardroom terms with Microsoft's top brass open up the bargaining table for cheap access to Xbox titles? Despite the annual nature of sporting titles, you can probably still make some decent coin in renting out the original Halo, now nearly six years after its initial release. Wouldn't it be something to see a Netflix video game rental service launch along with the release of Halo 3?

Will Microsoft grow more Web-savvy?
Some will argue that Microsoft rules in cyberspace. Internet Explorer is still the most popular browser. MSN is one of the most trafficked portals. Live is a serviceable search engine, even if it's way behind Google (Nasdaq: GOOG  ) and Yahoo! (Nasdaq: YHOO  ) . Fresh releases of Windows Vista and Office 2007 blend nicely into online functionality.

So what can Microsoft learn from Hastings? Plenty. Keep in mind that Netflix took something as simple as a mail-order DVD rental service and grew it to 6.3 million subscribers by tapping into community intelligence. With data-crunching acumen that learns more about members with every flick they borrow, Netflix was Web 2.0 when the rest of us were still mastering Web 1.0.

Can you imagine what that kind of application could do for Microsoft's nascent video-sharing site? Can the often dry Microsoft online concoctions benefit from the warm ingenuity of the Netflix interface?

Will Netflix deliver digital rentals into the 360s, at least?
Now you're talking. Microsoft is already delivering games and video content through its 360. The console's 20-gig hard drive may seem limiting at first for full-length features, but it's enough to get started (and bigger drives are part of the evolutionary plan).

In a world where digital delivery may grow commoditized, Netflix needs alliances like this. It won't be long before studios cut out the middlemen and begin serving digital purchases directly to the consumer. Now is not the time to tiptoe quietly.

Is Hastings being groomed to lead Microsoft?
Probably not. This isn't the kind of appointment -- like Berkshire Hathaway's (NYSE: BRK-A  ) move to tap Yahoo!'s Susan Decker for its board -- that leaves you scratching your chin with tantalizing possibilities. Microsoft promotes from within.

Hastings isn't really there to rock the boat, but he isn't there to take the wheel, either. In fact, if you look at Hastings' philanthropic past and penchant for education, he may remind you a bit of Bill Gates. So don't expect Hastings to watch over Microsoft, even if he one day rises to serve as the board's chairman. It's not going to happen. Still, the next time you're stuck for an icebreaker at a cocktail party, toss out the possibility like a Molotov cocktail and see what kind of reaction you get.

Like a circular disc in a rectangular fold
Still bored with Microsoft's board? You shouldn't be. Someone like Hastings, who's been active in his community and within his state's educational system, isn't likely to phone in his Microsoft get-togethers.

Whether it's just good rumor-mill fodder or the start of a significant relationship, Hastings has come a long way. It's not every day that a high school math teacher in Swaziland grows up to rub shoulders in the boardroom of the world's largest software company.

Microsoft and Berkshire Hathaway areInside Valuerecommendations. Netflix and Yahoo! are activeMotley Fool Stock Advisorpicks. Try any of our Foolish newsletters free for 30 days.

Longtime Fool contributor Rick Munarriz wonders if boardrooms will ever get so interesting that companies sell courtside seats. He does own shares in Netflix. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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