Why Microsoft really, really, hates the cloud

Why Microsoft really, really, hates the cloud

Summary: How much will the cloud computing tsunami wipe off Microsoft's sales figures and market valuation by 2015? Settle back as guest blogger Louis Nauges, co-founder of Google Apps reseller Revevol, gives you his view of Microsoft's future financials.

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Guest post Louis Naugès has been a proponent of cloud computing and office automation for almost two decades and is co-founder of Revevol, the first authorized Google Apps reseller and one of the most successful. Based in Paris, he blogs for ZDNet France and has translated an abridged version of this recent post for publication as a guest post here. Read on for a controversial and eclectically illustrated perspective of why, for Microsoft, it may be more a case of 'all over' than 'all-in' when it comes to the cloud.

Why this title? Have we not heard from top-level Microsoft officials the praises of Cloud Computing, around their Azure solutions?

This text is anything but an anti-Microsoft pamphlet. It's an analysis — cold, objective and financial — of the potential impacts of the Cloud Computing Tsunami on the finances of Microsoft.

The Cloud decade has began in 2010; though it will take some time before we are able to visualize all its impacts, we can already see some first results:

Almost at the same time, Steve Ballmer gave a one hour long conference at University of Washington, explaining that "Microsoft has over 70% of its developers working on cloud solutions". In an internal email to Microsoft employees, he said that: "As a part of this, I request that you do the following:

  • Watch the speech on demand here
  • Learn more about our cloud offerings and how they relate to our overarching software plus services strategy here (unavailable outside Microsoft network)
  • Review your commitments to ensure you are landing our vision with customers and partners."

So, now, you have two opposite views:

  • Steve Ballmer's, which explains why Microsoft "loves" the Cloud.
  • Mine, which explains why Microsoft really hates the Cloud.

More: Microsoft's revenues threatened by the cloud ...

Microsoft sources of earnings in 2009

For over 10 years, Microsoft has tried everything to diversify: Xbox, BING search engine ... Xbox Image. Despite all these efforts, and tens of billions of dollars invested in R&D, the results have not been obvious.

The arrival of Ray Ozzie as the number two of the company remains one of the keys to the possible success of Microsoft on the Cloud. A long article in InfoWorld presents in a positive way efforts made by Ray, while remaining skeptical about his ability to counter Google.

This graph shows the distribution of Microsoft's earnings by product lines, over the past three years. These numbers don't lie! At the end of 2009, all Microsoft earnings came from historical products: Office, Windows desktop and Windows Server solutions. All other divisions around the Internet or gaming platforms are losing money or just balancing their accounts.

The US stock market has taken into account this situation; Microsoft is no longer regarded as a growth company, but as a cash machine. With quarterly earnings between $5 and $8 billion, Microsoft is still one of America's most profitable companies.

The performance of Microsoft's share price has not really been outstanding over the last 10 years! Today, at the beginning of 2010, it has lost value compared to January 2000.

This is even more striking when you compare it to Google and Apple; over the same period their share prices have respectively increased by 400% and 700%.

So why worry? In early 2010, the situation is anything but a disaster, as evidenced by the good numbers published by Microsoft at the end of December 2009:

  • Quarterly profits remain high, exceeding $8 billion.
  • Windows has more than 90% market share in PCs and Windows 7 is better accepted by the market than Vista.
  • Office is still dominant on desktops of every organization.
  • Windows Server has gained good credibility in the computing centers.

Yes, but ... the Cloud Computing Tsunami is announced! -- >

Impacts of Cloud Computing on the earnings of Microsoft

If you think Cloud Computing is a fad, a ripple of change, the remainder of this text will seem totally unrealistic. Otherwise, you should agree with most of my findings.

As shown by the previous chart, Microsoft still derives, in early 2010, the bulk of its earnings from the three lines of historical products. The migration of business organisations to Cloud Computing will very quickly drain these three historical sources of profits for Microsoft. This major "climate change" will reach its peak within a decade, but by 2015 we will be able measure its first impacts.

So, let's do a fast forward, to 2015, and evaluate the level of reduction of these three sources of earnings for Microsoft.

2015: Servers and Tools

All industrial players of Cloud Computing — Amazon, Facebook, Google, IBM, Yahoo! — use almost exclusively open source solutions to run their huge data centers: Linux, Hadoop, MapReduce, Traffic Server, HipHop, Cassandra ...

With Azure, Microsoft is the only major player in the Cloud that will continue to use proprietary solutions: Windows Server, SQLServer, .Net ...

In 2010, Microsoft has one of the largest group of developers trained in its solutions. In many organizations and software houses, they have successfully defended their skills, their 'certifications' and managed to slow down the Open Source movement. In 2015, a majority of 'legacy' applications such as large ERP and in-house developed applications will not have migrated to public Clouds. They will still run in private clouds, on the same technical solutions used in 2010 (let's not forget that Cobol still has a huge presence in 2010). In 2015, this 'tribe' of developers using Microsoft solutions will still be very strong; however, they will begin to suffer from aging as we have seen happen today for the 'tribe' of IBM mainframe experts.

The Server division of Microsoft will be the one whose earnings will be the least impacted by the move to Cloud Computing, as a majority of organizations will still be running Private Clouds on Windows Server and development tools from Microsoft. But the migration to public clouds of 50% of existing applications running under Windows Server and the virtualization of all remaining servers — combined with strong pressure on prices — will reduce by 60% the earnings from this division.

Earnings of the servers and tools division in 2015 will be 40% of its earnings in 2010.

2015: Windows Desktop

2010 has started well for the Windows Desktop division, with the successful launch of Windows 7, after the fiasco of Vista. Windows 8, the next version, could appear as early as 2012. Unfortunately for Microsoft, the launch of this 'last scion' of the Windows family will be a resounding flop, as demand for a fat OS will become minimal.

In 2015, to access the Cloud, 80% of "access tools" will be mobile devices: smartphones, tablets, netbooks ...

The lightweight OS that will equip these mobile tools are JoliCloud, ChromeOS, Android, MeeMo. They are all open source and free for manufacturers.

As we have already seen with the arrival of Netbooks in 2008, Microsoft was forced to discount Windows XP at a price lower than $3 to counter the Linux offensive. Faced with excellent and free Open Source solutions, Windows 8 and Windows Mobile 7 will no longer be competitive at their current prices.  To protect its market share, Microsoft will be forced to drastically reduce the selling price of these two OS to all manufacturers, even the most faithful such as Dell or HP.

Yes, in 2015 you will still have many PC running Windows. Yes, but ... they will be running mostly 'old' versions like Windows 7 and the new versions will be sold with much smaller margins than in 2010. So... the operational revenues of the Windows Desktop division will be reduced by 70% in 2015.

Earnings of the Windows desktop division in 2015 will be 30% of its earnings in 2010.

Yes but ... how much will Office drag down Microsoft? -- >

2015: Office

In 2010, about one billion people are using Microsoft Office, all versions included. In 2015, 200 million users still believe, sometimes rightly, that they need a very powerful desktop solution for their spreadsheet or presentations. They have kept their favorite version of Office, 2003, 2007 or 2010 and have not bought the new 2014 version, even at its discounted price of $37.

The other 800 million users continue to write, to make presentations, to use spreadsheets ... but they now use native Web based collaborative solutions, sold by Cisco, Google, IBM and Microsoft. The 2010 reference cost, $4 per person per month, pioneered by Google Apps, has been maintained while the level of functionality has made tremendous progress. For personal usage, only free Web solutions are used, and there is not one single person left on earth that's going to pay for social computing tools for messaging, calendar, word processing, spreadsheet, presentation, wikis, blogs and microblogs, sharing photos and videos ...

The Office division of Microsoft is the one that will suffer the most from the Cloud Computing Tsunami. Microsoft will be one of the main vendors with a $4/month solution. However, these Web solutions require substantial resources in infrastructure (all vendors provide 50 GB as a minimum) and will have a huge impact on the earnings of this division, which will be reduced by 80%.

Earnings of the Office division in 2015 will be 20% of its earnings in 2010.

Market value of Microsoft in 2015?

In early 2010, the market value of Microsoft is around $250 billion. Over the last four years, the operating incomes of each division were the following:

  • Servers: $1 billion
  • Windows: $9 billion
  • Office: $10 billion
  • Total: $20 billion

What is important are the orders of magnitude. For example, the average 'operating income' during the period 2006-2009 was $19.36 billion, but taking into account the losses of other divisions, I rounded up this number to $20 billion for all three divisions.

If the predictions I have made about these three divisions are reasonable, I can compute the following numbers for the operating incomes of Microsoft in 2015:

  • Servers: $1 billion x 40% = $0.4 billion
  • Windows: $9 billion x 30% = $2.7 billion
  • Office: $10 billion x 20% = $2.0 billion
  • Total: $5.1 billion

In summary, the annual earnings of Microsoft will drop from $20 billion to about $5 billion. A respectable number, but one that represents a decrease of 75%. As noted above, for ten years the stock market has looked at Microsoft as a cash machine, whose price is closely linked to its earnings. On these assumptions, I forecast that the market value of Microsoft should also be divided by four, namely:

Microsoft market value in 2015: 60 billion dollars.

Worst Case Scenario?

I know I will be attacked from all sides for writing an anti-Microsoft pamphlet, a 'finance fiction' story, for working on unrealistic assumptions ... and I am prepared!

Let's summarize the main lines of this scenario:

  • Cloud Computing will be the great wave of change for the decade 2010 to 2020.
  • Cloud Computing will undermine the existing main sources of earnings for Microsoft.
  • Microsoft will not be able to find sufficient sources of growth in this new Cloud Computing environment to halt a steep fall of its margins and earnings.

In my view, the first two points cannot be disputed. On the third one, I would be very happy to be proven wrong, but unfortunately what happened between 2000 and 2010 does not make me very optimistic about the ability for Microsoft to create lines of products and services capable of generating billions of dollars in new earnings in order to fill the huge losses of the three historical divisions.

Under these conditions, how can we expect a company like Microsoft to welcome with open arms a Tsunami named Cloud Computing which will sweep away three quarters of its earnings and market valuation?

It's hard not to excuse Microsoft for doing everything it can to postpone the arrival of Cloud Computing! There are no IT suppliers, whatever power they may have today, which can stop this powerful Tsunami named Cloud Computing.

Only the suppliers that will be able to anticipate, to adjust to this revolution will still be playing a key role in IT in 2020.

Not all vendors will have the ability to survive ...

Topics: Operating Systems, Banking, Cloud, Hardware, Microsoft, Servers, Software, Virtualization, Windows

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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151 comments
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  • The Public Cloud and Big Government

    To me the public cloud resembles elements of big government. Liberals say you must put all your trust in Uncle Sam, and Uncle Sam will take care of you. No thanks. Government is a necessary evil, and public clouds should be seen to some extent as such, and continually viewed with suspicion. I think MS' cloud strategy should be similar to those of democracies: individuals and organizations should strive to have their own private clouds (keeping as much power [in the form of private information] as possible in their own hands). I have no problem with public data for most everyone being hosted on public clouds. Even then, it would probably be better if public clouds generally offered back up services of customer data to their private clouds / networks.

    People must realize that private information is a very important component of their power and liberty. They should always strive to keep this in their own hands for their own well being. As long as this world is imperfect, people should never trust anyone or entity with private information - except those who they know personally and trust.
    P. Douglas
    • I agree

      I trust no cloud.

      And I fail to see why *any* business would
      trust private data to any Cloud solution except
      their own.... Take that a step further, I fail
      to see why *anyone* would trust a Cloud at
      all.... My data is *my* data, not Google's or
      Microsoft's, or Amazon's. It sits safely on my
      hard drive for me to use and enjoy. Why the
      heck should I upload it to some server for XYZ
      Corp. to hold onto?
      The one and only, Cylon Centurion
      • respectfully...

        You are a dinosaur. And I mean that respectfully,
        but blatantly.

        In 10 years people with your opinion will be in the
        minority- it has nothing to do with right or wrong.
        All it has to do with is that the changing
        environment is cloud computing, and all the children
        today that will be in their 20's or 30's ten years
        from now will have lived almost exclusively in a
        cloud and mobile computing world.

        It's not that your viewpoint is wrong. It's just
        irrelevant in terms of the future.
        danstermeister
        • yep and all credit card numbers will belong to hackers of cloud networks

          as well. Nothing will be private every a smart hacker will own everything. Corporate theft will be a thing of the present just give the cloud company a small amount they will just accidentally upload the data to the wrong company. And much much more.
          dougogd@...
        • You're assuming

          that all these children will have access to the cloud all their life. Maybe or maybe not?

          What happens when a country like China takes umbrage with the US and companies like Google and actively attacks the cloud? What about other terrorists that are also working on cyber warfare?

          Also keep in mind that storage continually drops in price to the point where having several TBytes on the local LAN segment is common, like it is now. While social networks ultimately depend on the cloud, applications and data can still be local with a very small cost in storage as the applications are free and take much less storage and resources than the current MS ecology.

          There is an element of truth to your claims provided nothing happens that drastically changes the landscape. However, cyber warfare is accelerating as fast as the cloud and that can be a real game changer.
          jacarter3
          • Yup.

            I have quite a few hard drives sitting on my segment. There is nothing wrong with having my data kept locally. It also keeps it safer by not having it sit on such a high profile target as a cloud server farm would be.
            Apps are also doing just fine locally, so I see no real reason why that needs to change, other than the fact that we can access them anywhere. But then again, if you have an Internet connection, it is too much trouble to download an install them to whatever device you are using.

            As for social networks, I have quite a few photos and videos uploaded there, but not everything. Not even close. To me, social networking is a way to KIT with friends, and share a few pictures or videos along the way, not a means of data storage.

            There are a lot of things that people aren't realizing here with this concept. To me, the important question no one is asking is why should we give up our hard drives, and trust XYZ Corp to hold onto everything for us? What happens to us then if the company should be hit with a network attack? What happens if the building comes under attack from a natural source that we are unaware of? What happens of they should go under? What happens with a change in management? Is our stuff safe, secure, and not being mined?
            The one and only, Cylon Centurion
        • respectfully...

          The "cloud" was done 30 years ago, then personal computers came out and mainframes disappeared. Replaced by stand alone computers with stand alone storage and apps. Going that far back into the past, losing your privacy, and potential loss of all your data due to loss of internet connection is a BAD idea.

          I'll stick with computers that I have access to, when ever I want my data I just have turn my computer on and there it is. Never having to worry about whether Comcast is doing maintenance on my internet connection, or if my router had decided to bite the big one. I have backed up the information on the computer to external storage on the off chance that my computer dies so that I have access to it even if everything goes balls up.
          BrewmanNH
          • By the same account...

            you would also prefer to have you own power station
            since you don't want to rely on the public grid. This is
            all nonsense. You trust your phone company to keep
            record of all your phone calls, most probably running
            and managed by IBM on their site. Ditto your bank,
            your health insurance company. etc.

            The cloud is nothing new and if you can trust IBM or
            Citibank, you should trust Google...
            prof123
          • Sorry, but I can't

            Google is just one company that seems to be hiding something. The way Eric Schmidt conducts business is rather creepy.
            The one and only, Cylon Centurion
    • I stopped reading

      when he says that Azure runs only proprietary .Net
      and SQL. Azure also runs PHP, Ruby and Python
      arunitc@...
      • proprietary solutions

        I am sorry if my text was not clear. I did not say that Azure was not able
        to run PHP or Python; I simply said that Azure was "built" on proprietary
        solutions.
        Louis Nauges
    • Great Comment

      Great comment P. Douglas. It has made me think.
      prime21
    • The Public Cloud and Oppressive Big Government

      To me the public cloud resembles elements of big government. Conservatives say you must follow our morals, believe in our god, don't drink, don't do drugs, don't gamble, don't have sex outside of marriage, don't speak up when the government gets involved in ill-conceived wars, don't make waves, believe that the world is 5000 years old, and increase government spending so our kids are screwed. No thanks. Government is a necessary evil, and public clouds should be seen to some extent as such ...
      K B
    • Sound reasoning...

      Sound reasoning and a wonderful read upon your disdain with the cloud and the concepts of security or the lack thereof.

      Thank you for sharing your thought-out view.
      Darth Malus
  • RE: Why Microsoft really, really, hates the cloud

    Considering that Microsoft back in the WEBTV days was looking at implementing the subscription model and seriously thinking of the thin-client model. The end user pricing will be on par with today's pricing minus the costs of manufacture and distribution. Note the absence of printed user manuals in the last decade.. The Offline Help now available has also been stripped down with the Online help being the most comprehensive.
    ve3ofa
    • and none of it truely help now unless you pay for it...nt..

      nt
      dougogd@...
  • Lies, d*** lies, and statistics . . .

    To quote sherlock Holmes: There is nothing more
    deceptive than an obvious fact.

    "These numbers don?t lie!"

    Nope, they don't lie at all. But then again - they
    only tell the business story, they don't tell what's
    happening behind the curtains, so to speak. To assume
    that market trends always follows Microsoft's long
    term goals is a questionable leap of logic.

    Just because they don't do well in online stuff
    doesn't mean they don't have a desire to get online.

    "If you think Cloud Computing is a fad, a ripple of
    change, the remainder of this text will seem totally
    unrealistic."

    Certain parts are, certain parts aren't. I [i]do[/i]
    think that cloud computing is important. I
    [i]don't[/i] think it will totally replace all forms
    of non-cloud computing.

    "The migration of business organisations to Cloud
    Computing will very quickly drain these three
    historical sources of profits for Microsoft."

    Interestingly enough, that statement does not agree
    with the graph you presented that ends in 2009 with
    Microsoft's cash cows skyrocketing right before the
    graph is cut off.

    Microsoft had tough yeah at the end of 2008 and at the
    beginning of 2009. But - both graphs also show a
    recovery near the end of 2009.

    You're right - the numbers don't lie. They haven't
    thrown in the towel, and the dip was only temporary.

    "So, let?s do a fast forward, to 2015, and evaluate
    the level of reduction of these three sources of
    earnings for Microsoft."

    Let's not. I don't think anybody is in a good position
    to make claims about 2015. Making a totally unbiased
    and accurate prediction is nearly impossible.
    [i]Especially[/i] from a blog that pretty much only
    exists to laugh at anything that doesn't agree with
    its "Software as Services" point of view.

    "All industrial players of Cloud Computing ? Amazon,
    Facebook, Google, IBM, Yahoo! ? use almost exclusively
    open source solutions to run their huge data centers:
    Linux, Hadoop, MapReduce, Traffic Server, HipHop,
    Cassandra ?"

    Rather amusing, considering Google isn't 100%
    forthcoming with the exact code they use to run their
    data centers, and that MapReduce is an algorithm, not
    an implementation. Some implementations are open, and
    some implementations aren't.

    "As we have already seen with the arrival of Netbooks
    in 2008, Microsoft was forced to discount Windows XP
    at a price lower than $3 to counter the Linux
    offensive."

    . . . and it worked, despite the fact that Linux is
    free. Lovely how you spin a success for Microsoft into
    a failure.

    . . . and guess what? Interesting things are happening
    with netbooks.

    Some of them are going up in price in order to add new
    features - and I bet also to increase profit margins
    that Microsoft can use.

    Others are adding phone plans - which makes them
    appear cheaper, but really cost more if you were to
    account for a 2-year contract. Another good way to
    increase profit margins without people noticing.

    When they first came out, the profits margins were
    pretty slim, yeah - but over time, they have become a
    bit more diverse, with some of them having a larger
    profit margin than others.

    I don't think Microsoft is going to do nothing. That's
    just not their style. Win or lose - they always try
    something.

    People have been predicting Microsoft's demise for
    years - I passed the point of giving people second,
    third, fourth, fifth, sixth, seventh, eighth, and
    ninth chances to prove Microsoft is really dying. I
    don't believe it anymore. You're crying wolf - again.

    "Faced with excellent and free Open Source solutions,
    Windows 8 and Windows Mobile 7 will no longer be
    competitive at their current prices."

    Open Source OSes on the desktop are hovering at around
    1% with the promise of getting to 50% in about 50
    years. They're not growing fast enough on the desktop.

    On the phone market, Microsoft isn't doing so hot, but
    with Apple in the game, not everything is really going
    the open source way.

    I consider the phone market to be anybody's game right
    now. I wouldn't even try to predict it.

    "Unfortunately for Microsoft, the launch of this 'last
    scion' of the Windows family will be a resounding
    flop, as demand for a fat OS will become minimal."

    In the meantime, phone OSes are adding features and
    boasting multitasking support - wait, where have I
    heard that? OH - when PCs starting becoming fat OSes,
    back in the early days of computing.

    Demand for a fat OS - is increasing in the phone
    market. Phones are boasting that they use real browser
    instead of a stripped down one. They're adding HTML 5
    support and other standards. They're doing more, not
    less. They're becoming more complex, not simpler.

    Phones are the PC, reinvented. Including the fat.

    "In 2015, to access the Cloud, 80% of 'access tools'
    will be mobile devices: smartphones, tablets, netbooks
    ?"

    When you're on the road, perhaps. But nothing beats
    the big screen and the big keyboard, though. Or the
    familiar interface of a Windows OS.

    "The lightweight OS that will equip these mobile tools
    are JoliCloud, ChromeOS, Android, MeeMo. They are all
    open source and free for manufacturers."

    Only heard about two of those (ChromeOS and Android),
    and ChromeOS isn't really out yet. Netbooks was a
    total flop for open source once Microsoft decided to
    move in. I say the jury is still out on that.

    "So? the operational revenues of the Windows Desktop
    division will be reduced by 70% in 2015."

    Doubtful. Possible, but doubtful. Phones and netbooks
    are nice for portability, but are really bad for
    serious work. They tend to supplement, not replace,
    the larger form factors like desktops and notebooks.

    "In 2010, about one billion people are using Microsoft
    Office, all versions included. In 2015, 200 million
    users still believe, sometimes rightly, that they need
    a very powerful desktop solution for their spreadsheet
    or presentations."

    Ah yes, the good ol' bait and switch - notice how he
    artificially creates a reduction in numbers by
    referring to the office suite as a whole in 2010, and
    referring to just one application in 2015. Not
    impressed.

    "They have kept their favorite version of Office,
    2003, 2007 or 2010 and have not bought the new 2014
    version, even at its discounted price of $37."

    I doubt the discount will be that much.

    Not to mention if it's 2015 and the theoretical 2014
    suite is only one year old, then duh, people are still
    going to be using 2014 for the most part. It doesn't
    take a rocket science to realize that it takes a bit
    longer than a year for people to pick up a new version
    of Office.

    "The other 800 million users continue to write, to
    make presentations, to use spreadsheets ? but they now
    use native Web based collaborative solutions, sold by
    Cisco, Google, IBM and Microsoft."

    Most of the other 800 million users will be using the
    rest of the Office suite, now that you've done the
    bait and switch again to refer to the entire suite
    again rather than a single product.

    Collaboration will be big, I'm sure - but whether it
    makes the numbers you claim it will make is anybody's
    guess. And I wouldn't count Microsoft out here, either
    - after all, they could make their own collaboration
    tools.

    "The 2010 reference cost, $4 per person per month,
    pioneered by Google Apps, has been maintained while
    the level of functionality has made tremendous
    progress."

    We'll see about that - software as a service didn't
    change the development model itself so much as the
    distribution model. It's still the case the larger the
    software, the more difficult it is to maintain.

    "For personal usage, only free Web solutions are used,
    and there is not one single person left on earth
    that?s going to pay for social computing tools for
    messaging, calendar, word processing, spreadsheet,
    presentation, wikis, blogs and microblogs, sharing
    photos and videos ?"

    We'll see about that. Google hit it big - with a
    search engine. The other social networking stuff
    Google has is just along for the ride, benefiting from
    the profits from the ads in the search engine.

    A lot of social networking sites are not doing so
    well. The search engine proved to be easy to monetize
    with advertising dollars. Other stuff, not so much.

    "The Office division of Microsoft is the one that will
    suffer the most from the Cloud Computing Tsunami."

    . . . and while we're at it, let's not confuse social
    networking apps with productivity apps. Just because
    somebody can tweet doesn't mean they stop using
    spreadsheets.

    "Market value of Microsoft in 2015?"

    Okaaaayyyyy . . . you have 2009 to the left, and 2006
    to the right. The smaller numbers are in 2006, the
    larger numbers are in 2009. So I see stuff is
    increasing if you read it in the chronological order -
    with the exception of a small dip in revenue, but no
    proof that it's a permanent trend.

    Statistics don't lie, but boy oh boy, they can be
    fudged!

    "For example, the average ?operating income? during
    the period 2006-2009 was $19.36 billion, but taking
    into account the losses of other divisions, I rounded
    up this number to $20 billion for all three
    divisions."

    So - taking into account [i]losses[/i] you claim other
    divisions are having, you end up rounding up to a
    larger number?

    Somebody needs glasses. Badly.

    Is this a joke? Seriously, this has to be a joke, I
    can't think you're serious anymore, is April here
    already?

    "If the predictions I have made about these three
    divisions are reasonable"

    . . . and I see no reason why they should be. Reason
    seems to have flown out the window long ago.

    "In summary, the annual earnings of Microsoft will
    drop from $20 billion to about $5 billion."

    If, for some strange reason, people stop using PCs in
    the house because they can use cell phones on the
    road.

    "I know I will be attacked from all sides for writing
    an anti-Microsoft pamphlet, a ?finance fiction? story,
    for working on unrealistic assumptions ? and I am
    prepared!"

    The first thing you have to do is to deny that
    Microsoft turned around in late 2009. Ought to be
    interesting.

    "Cloud Computing will be the great wave of change for
    the decade 2010 to 2020."

    Well, if your blog is to be believed, it's been the
    great wave of change for the past few years. Isn't it
    already supposed to be here?

    "Cloud Computing will undermine the existing main
    sources of earnings for Microsoft."

    Proof?

    You're right - the numbers didn't lie. But I don't see
    them supporting anything but a recent dip, followed by
    a recovery.

    A dip followed by a recovery does not a long term
    trend make.

    "Microsoft will not be able to find sufficient sources
    of growth in this new Cloud Computing environment to
    halt a steep fall of its margins and earnings."

    I think you underestimate Microsoft's resourcefulness.
    How many times have I heard this, only to see
    Microsoft respond and prove the naysayers wrong? Too
    many times to count.

    "The performance of Microsoft?s share price has not
    really been outstanding over the last 10 years! Today,
    at the beginning of 2010, it has lost value compared
    to January 2000."

    The stock plummeted around the time Microsoft was
    being accused of being a monopoly. Had pretty much
    nothing to do with "the cloud." The 2007 to 2009 dip
    was around the time of Vista, which had a bad rep.

    As far as I can tell - the stock market trends can be
    traced to Microsoft's own actions, not to general
    trends in other markets. I think you're dreaming the
    stock went down because of "the cloud."

    "In my view, the first two points cannot be disputed."

    In other words, you're biased and not backing down.
    Got it.

    "On the third one, I would be very happy to be proven
    wrong, but unfortunately what happened between 2000
    and 2010 . . . "

    . . . was the result of a PR nightmare and a very
    public court case. No, they didn't recover from that,
    and accusations of monopolistic behavior continue to
    this day, so I'd say they never really recovered from
    that.

    "There are no IT suppliers, whatever power they may
    have today, which can stop this powerful Tsunami named
    Cloud Computing."

    So a metaphor about a huge wave makes you right, eh?
    Yeah - reason [i]did[/i] leave this discussion a long,
    long time ago.

    Not too good for a joke, though. It came out as a
    rant. Need to work on that humor a bit.
    CobraA1
    • Yup

      I spent four days last week at Cloud Connect, the cloud computing conference in San Jose. It was a study in confusion.

      On the one hand, you had the open source, public cloud evangelists yammering incessantly about the inevitablity of everything going into the cloud and how ALL of HUMANKIND was being transformed by Twitter and the CLOUD!1!1!

      Then you had the lawyers, the insurers and the VCs all pointing out the need for integrated identity managment, control of enterprise data, management of catastrophic losses in the face of data aggregation and unplanned distribution (i.e., stolen or improperly released), and a matter of fact acknowledgement that the cost savings claimed by the cloud are not demostrable by most start ups - they just burn through whatever cash they get and spin up more servers.

      In short, some cool opinions vs. people coldly looking at the bottom dollar.

      Doesn't mean MS will come out on top, but since they can speak at length and in depth to all of these concerns, enterprises will listen and many will choose to go with what has proven reliable year after year. With pricing at or lower than Amazon's, MS is competitive and attractive to a wide range of enterprise operations.

      The cloud computing tsunami is about to meet the Dover Cliffs of established business.
      wafsd
    • What the article is saying...

      is that Microsoft's revenue is now, and has been, based on three high profitability of three divisions: Windows, Office and Servers. The profitability of these divisions will not be sustainable in the long term, due to migration from the desktop to other OS forms, such as the "cloud computing" paradigm. Further, there is no foreseeable replacement for those revenue streams available in the long term, since Microsoft has not been successful in trying to develop them, try as it may. Therefore Microsoft faces erosion of its cash cows, which will reduce its stock price, which is based not on its prospects for growth (of which there has been none for at least ten years), but on its ability to generate cash.
      Not a lot to argue with there. Yes, I know, there is the anti-Microsoft claque that has been predicting the downfall of that company for a long time. This isn't strictly that kind of view, it seems to me. The author is simply stating his view of the long term prospects for an enormous company. He states (and restates) that if Microsoft could replace the revenue streams of Windows, Office and Servers somehow, they could maintain their cash-generating abilities, but he doesn't see that on the horizon.
      And, I have to admit, he seems to be right. I'm sorry, but cloud computing IS here, in a nascent form; that's what netbooks are about, and the iPhone and Android OS's, and the upcoming iPad and other tablets (Wired has a very good article about this this month). Mobile computing is the new format, and the desktop will be left a minor portion of the market. So Microsoft HAS to not only succeed in establishing itself in the new market, BUT ALSO gain a near-monopoly status again, AND be able to charge its extremely high profit margins on those products. The author, and I, am skeptical that the current Microsoft will be able to meet those goals.
      smith930@...
      • But is leaving MS out as a potential huge cloud player a good idea?

        I think what Azure offers is actually the sweet spot for where cloud computing is at this time. The exchange and sharepoint Online offerings are a great place to start. There is a good chance that MS can replace any loss over the long run, which will be much longer than 5 years.
        You are correct, cloud computing is in it's nascent form and it will be far beyond 2015 before it is widely used.
        IT has not even nearly got SaaS down yet as a technology, let alone a useful one in the cloud. That needs to happen first. There are still many governance issues and technical hurdles.
        Technology in business always moves much slower than the cutting edge of consumer electronics and bleeding edge technologies.
        What is talked about on a site like zdnet.com does not appear in the mainstream business place for many years.
        We still have people using character based systems, for example our HIS vendor has an old character based version along with a client/server version. The old version is still used at most hospitals and shows no sign of becoming superannuated.

        Google is moving as slowly with it's Google Mail and Enterprise Apps as Micrsooft is with it's online ventures, such as Bing, which is actually picking up some momentum coming in with over 11% of the searches most recently. That is huge movement considering the grip Google has on it, and even yahoo.

        I think in reality and at the pace of business technology, the story should be about Google losing it's cash cow of it's Advertising monopoloy. It's their only real cash cow and who can say where the future of advertising is going and if Google can keep a monopoly on it?

        Maybe the story should be about Amazon? Look at Steve Jobs going after it's cash cow, books. I recall Jobs saying the Kindle would fail because people simply didn't read that much. He had some statistics that ended being proven wrong, so he's probably partially stealing that idea to save face in some megalomaniacal way.
        And Amazons cloud computing doesn't offer what Azure does, it's basically just acting as a hosting site with no real online offerings.

        It will be interesting to see how things play out, but I think 5 years and 70% loss of revenue is absurd. The last 5 years showed little change in business IT despite advancements in technology. In the world of SMB, we are still seeing people moving up to Server 2003/2008 from older technologies in numbers that would shock many people who think what is blogged about on zdnet is part of the current IT zeitgeist within the business world.
        Microsoft has 10 to 15 years to worry about losing 70%, even if it sat on it's hands and didn't put an great cloud offereing out there, nor rolled out the mostly positively reviews Windows 7 phone, in fact engadget and others had some writers giving great reviews and saying it's better than the iPhone.
        I've always loved the audio and video on the old Zunes, as much as they were out marketed by Apple, but the Zune HD and now this phone are making a lot of people sit up and take notice.
        If they can get office working well, it will be the defacto business phone, even though it doesn't have compatibility with the old winmo.
        But that is not a factor, they'd have to switch platforms anyway if they are going to abandon winmo....

        Too many assumptions in this piece.
        xuniL_z