Microsoft naysayer bandwagon gets crowded

Microsoft naysayer bandwagon gets crowded

Summary: The guest list for Microsoft's alleged funeral is long. Over the weekend, blogger Paul Graham stirred up a Techmeme hornet nest when he declared Microsoft dead.

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TOPICS: Microsoft
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The guest list for Microsoft's alleged funeral is long.

Over the weekend, blogger Paul Graham stirred up a Techmeme hornet nest when he declared Microsoft dead. Today, Goldman Sachs removed Microsoft from its "conviction list," the equivalent of a super-duper buy list.

The Goldman report was spurred as analyst coverage was handed from Chris Sailer to Sarah Friar. Long-time Microsoft analyst Rick Sherlund recently left Goldman.

In the report, Friar talks about the end of Microsoft's dominance. Friar didn't change estimates and kept a "buy" rating so the hubbub may be a bit overblown. Nevertheless, it's worth examining her key points since they seem to be so prevalent these days.

"Product upgrade cycles should provide strong revenue and profit growth in the next 12-plus months. Normally, this would make us view the stock as a must-own. At the same time, these launches may also mark the end of an era, as changing technology and business models seek to diminish Microsoft’s hold on the desktop, which in turn significantly depletes the cash cow."

Friar is partly making the all-too-familiar case that Microsoft's best days are behind it. She hedges her bets in the report outlining both the bull (shares are cheap and there's a big product cycle) and bear cases, but notes the risks facing Microsoft. The big question: Why are so many folks worried about Microsoft?

It all seems a bit premature. Sure Google may be sexier--just ask the Microsoft employees that are defecting and burning bridges on the way out--but can you really say a company with $28.8 billion in cash is on the downswing? I can't.

Among the key worries raised in Friar's note (and brought up elsewhere too):

It's over after Vista. Friar wrote that "Vista may be the last big operating system developed by the company."

Reality: Possibly, but highly doubtful. Microsoft is already pondering the next Windows. And my hunch is people will probably buy it.

Microsoft needs markets that can move the revenue needle. Friar noted that "size matters for Microsoft. With FY2007 revenues estimated at over $50 billion, Microsoft needs to focus on markets and opportunities that are needle-moving."

Reality: Dead-on. The issue: It's nearly impossible to move the revenue needle with new markets. The solution: Microsoft needs to pull an Oracle and acquire companies to build out its online advertising business. Microsoft needs to buy DoubleClick, Yahoo or both.

Microsoft will be hurt by Linux, Apple and software as a service. Friar notes that desktop Linux could become "increasingly attractive;" Apple "continues to perform well in our IT spending survey;" and SaaS requires Microsoft to "shift gears to embrace new business models."

Reality: All of those risks are very real. But the time frame is key. Realistically, it may take another decade for those aforementioned risks to dent Microsoft. Also keep in mind that Microsoft has already moved to spin open source into mixed source by teaming with Novell. By then, the landscape could change or Microsoft may figure out how to counter those threats.

Microsoft can't be nimble enough to compete with Google. Friar said that "Google is a competitor unlike any Microsoft has seen before. Google’s dominance in search, deep pockets, and “cool” factor make it a serious competitor to Microsoft as it strives to obsolete the desktop operating system."

Reality: Being nimble is a big concern for Microsoft, but the company still seems as competitive as ever. In addition, Google remains a one-trick pony with nearly all of its revenue and profit tied to keyword advertising. Google can nibble at Microsoft's Office juggernaut, but if Microsoft does the same in online advertising it's going to hurt Google more. Nimble is nice, but being massive isn't so bad either.

Microsoft's messaging stinks. Friar notes the frustration on Wall Street with Microsoft's messaging.

Reality: Microsoft's messaging problems go beyond Wall Street. Does anyone really know what the Live brand is about?

Overall, Microsoft does have its challenges, but it's way to early to write the company off. To me, these Microsoft worries would be much more credible if the company was resting on its laurels. That doesn't seem to be the case.

Topic: Microsoft

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55 comments
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  • I agree

    Saying "Microsoft is dead" is like saying "the Earth is square".

    Chanting that all day doesn't make it so.

    Microsoft may not currently have the momentum and power that they once enjoyed. That doesn't mean they are down for the count.
    dragosani
    • Microsoft - the IBM of today?

      At one time IBM was the computer industry. It is still a massive player and cannot be disregarded, but in the early 90s IBM posted horrendous losses. It refocused, recovered and moved on.

      The situtaion now is that IBM's PROFITS for 2006 were comparable to Microsoft's total TURNOVER in 2006. IBM's total turnover is nearly twice that of Google and Microsoft's combined. So apparently "ailing" companies can be turned around.

      Some figures for those who are interested
      [pre]
      IBM Microsoft Google

      Turnover $91bn $44bn $11bn

      Profit $38bn $13bn $3bn

      All figures 2006 rounded to the nearest billion

      [/pre]
      bportlock
      • Regime change

        I get the feeling that Microsoft isn't going to see the hard times that IBM did. They have already been refocusing.

        I feel that Microsoft needs a regime change. It is long past time to retire the old guard. <cough> <cough> Ballmer <cough>
        New fresh blood could do a lot.

        Microsoft is hurting themselves far more than the competition is. They have become the large slow corporate conglomerate that they used to so mock.

        They have been caught red handed many times using illegal or just plain poor business practices. Fixing that should be priority one. Only a regime change is going to do this.

        I personally would love to be having the hard times that Microsoft is having right now.

        Double digit billions in profit is hardly dead.
        dragosani
        • That's what saved IBM

          [i]"I feel that Microsoft needs a regime change. It is long past time to retire the old guard. <cough> <cough> Ballmer <cough>
          New fresh blood could do a lot."[/i]

          At IBM, John Akers and the old guard went and Lou Gerstner came in. Gerstner was not even an IT bloke. His former company was Nabisco.



          [i]"Double digit billions in profit is hardly dead."[/i]

          I never said it was
          bportlock
          • I should have been more clear

            [i]I never said it was[/i]

            I did not mean for it sound like you did.

            [i]At IBM, John Akers and the old guard went and Lou Gerstner came in. Gerstner was not even an IT bloke. His former company was Nabisco.[/i]

            Exactly
            dragosani
          • :-)

            dragosani wrote: [i]"I did not mean for it sound like you did."[/i]

            No problemo!
            bportlock
      • IBM has better % ...

        If you look at IBM versus Microsoft and Google you'll see that IBM is the leader with 41% profit to revenue, Google is 33%, and Microsoft is at 29%. IBM and Google are able to generate more profit on less revenue, which is of course is better.

        If Microsoft's revenue stream, which is mostly the OS and Office, was to decrease it could have a dramatic impact on the earnings model. So the way to attack Microsoft is to decrease the intrinsic value of Microsoft OS and Office applications to zero.

        I think Microsoft needs to shift their model or they're in a big heap of do-do.
        MisterMiester
        • They are trying

          Microsoft is shifting with...

          XBox
          Live!
          mobile service
          Zune

          The problem is they keep following existing markets. This in many cases like the Zune severally stunts the potential.

          Instead of constantly playing follow the leader how about something [b]new[/b]?
          dragosani
          • They are failing

            XBox 360 - Wii is almost at today's total 360 sales levels for the past year. This is with constrained supply and only having 6 months of sales times.

            Live - What is it? Most use Google for search and skip MS. Most don't use MSN or MSN Messenger.

            Mobile Service - ??? WM is a POS.

            Zune - Flop in every sense of the word.

            The ONLY market MS dominates in is the OS and Office world. And the more people experience OS X and Linux, the less MS stuff will be sold.

            Remember not long ago it was a 1-2-3, WordPerfect, Dbase, Novell world. We're due for a paradigm shoft.
            ITGuy04
          • lol

            I said they were trying.

            Didn't say it was going as planned. :)

            When a company that has been stuck doing the same thing for this long isn't going to find it easy to diversify.
            dragosani
          • Windows Mobile Reboot

            Two of my coworkers have cell phone PCs based on Windows Mobile. They have to reboot their phones (remove the battery and let it discharge) at least once a week.
            JJQ1000
      • IBM differences from Microsoft.

        IBM sells software and services on hardware (FUD in the past)
        MS sells software licenses with FUD
        IBM software is of good quality
        MS software is bad quality (forced by marketing decisions)

        MS business is more volatile than IBM's
        (it can become irrelevant more easily)
        MS's shareholders have reason to be less confident than IBM's
        That is why MS is so afraid of Linux and the stock market -
        they are real threats.
        miyojim
  • I've been telling you all along

    that M$ is going down and I'll be there with a nail and a hammer to close the coffin permanently.
    Linux Geek
    • Son

      It's Bill's world and we're all just squirrels trying to get a nut. The sooner you "Linux geeks" acknowledge that we operate in a heterogeneous world and that it's not going to change anytime soon (if ever), the better off we'll be.

      The correct question always has been, always will be, "What are the application's requirements and what hardware/software stack will solve that best?'

      <geesh>
      Nobody_really
      • The antithesis to heterogeny makes hackers' lives easier.

        Somehow, paying support staff is preferable to these all-in-one toddler systems that are broken from the start and on top of that make it easy for hackers to break through.

        Heterogeny is the ONLY way; it hinders hackers.

        There is NO SUCH THING as easy security, a no-support product, or pretty much anything else execs smoke in their pipes. :(

        Funny, I'm in a way supporting Linux using the same reasoning you mentioned while denouncing Linux...
        HypnoToad72
  • The MS challenge

    appears to be where are they going to go in the future. Is it time for them
    to start looking at something besides Windows, like Apple did with OE X?
    That would probably give MS a shot in the arm, but their a$$ is still stuck
    in backward compatibility.

    I think that over the next 10 years MS will simply slug along, picking
    corporate revenues and EOM sales for cheap boxes.

    Linux is going to be their most successful, but Apple is going to continue
    to grow in the consumer market and, to a small degree, in business
    markets - small to medium size companies.

    Overall, I think that MS has become rather dull. Remember back in the
    days when 95 was released and there were long lines at midnight to buy a
    boxed copy? Vista had a few customers waiting in line, but I bet that the
    first 12 months of Leopard's boxed sales will be greater than the first 12
    months of Vista's.
    Ken_z
    • Beyond the vista, I see a Leopard stalking!

      http://www.computerworld.com/blogs/node/5144
      Intellihence
  • Conventional narrative.

    The negatives about Microsoft's future have been written before. None of them have come true, none are starting to come true, and one has to be vigilant to espy a way they might come true.

    Doesn't matter. The discussions about Microsoft's future difficulties will continue. Narratives are difficult to uproot.

    Finding a reason is speculative, but let's try:

    - Success continued too long is boring
    - Credit is given those who identify a new success early.
    - Software produced and sold the same old way is boring.
    - Software philosophy like college idealism is enjoyably nostalgic.
    - Revenge for Microsoft's past browbeating of competitors, even partners.

    Any others?

    The one factor which can't be included is current performance. Profits keep increasing, Microsoft keeps entering new markets successfully, and competitors have more obvious difficulties.

    But no one will receive credit for writing that the past winner will continue to win more than ever.
    Anton Philidor
    • Excellent analysis.

      "- Success continued too long is boring
      - Credit is given those who identify a new success early.
      - Software produced and sold the same old way is boring.
      - Software philosophy like college idealism is enjoyably nostalgic.
      - Revenge for Microsoft's past browbeating of competitors, even partners."

      Excellent analysis.
      georgeou
    • Ah, but...

      ...there's a new wrinkle: When all else fails, use government power to take on Microsoft. Don't underestimate the willingness of competitors to subjugate themselves to governmental interference in the name of bringing down the behemoth.

      Carl Rapson
      rapson