Microsoft sizes up its competitors for 2013

Microsoft sizes up its competitors for 2013

Summary: In its most recent 10-K, Microsoft notes that it faces "intense competition across all markets" for its products and services. So which companies keep executives in Redmond awake at night?


Reading a company’s annual 10-K report can lead to unexpected insights. But comparing the contents of this year’s report to that of the previous year is even more useful. That’s how I was able to spot some of the trends I highlighted yesterday in my post, “Microsoft's radical new business plan is hidden in plain sight.”

For this follow-up, I’ll share some of my tricks of the trade and let you follow along as I use Microsoft’s own software and services to analyze the contents of its SEC filings.

A 10-K report can be overwhelming. Microsoft’s recently filed 2012 10-K, for example, clocks in at more than 53,000 words. Accountants and financial analysts can dive into the numbers to see which business units are struggling and which ones are growing. But for strategic analysis I like to concentrate on the general discussions in the opening sections.

Under the Business heading, for example, Microsoft discusses how its overall business is organized. After a broad introduction, you’ll find a section headed “Operating Segments”:

We operate our business in five segments: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. Our segments provide management with a comprehensive financial view of our key businesses. The segments enable the alignment of strategies and objectives across the development, sales, marketing, and services organizations, and they provide a framework for timely and rational allocation of development, sales, marketing, and services resources within businesses.

That’s followed by a detailed discussion of each of the five business units. I’m interested in the “Competition” section of each one. Who does Microsoft see as its competition as it heads into FY 2013? And how has the competitive landscape changed since last year?

To answer that question, I used Microsoft Word 2013 to create and save a pair of documents containing the text for each of the five “Competition” sections from the 2011 and 2012 10-Ks, respectively. Next, I used one of my favorite features in Word to combine the two saved documents into a single new document with deletions and insertions highlighted.

In Word 2013 (as in Word 2010), this feature is on the Review tab:


Click that command, specify the two documents you want to combine, and you get a neatly redlined document like this one. I saved the document as a PDF and posted it in the Public folder of my Microsoft SkyDrive account so you can see what it looks like. I used custom formatting to highlight additions in red and show deletions in light gray: 


A few takeaways:

  • In the Windows & Windows Live Division, the key competitors remain “alternative platforms and devices, mainly from Apple and Google.” Last year’s 10-K expressed concern that mobile devices would “reduce demand for PCs,” noting that "User and usage volumes on mobile devices are increasing worldwide relative to the PC.” That language has been struck this year, replaced with a relatively lengthy section that spotlights how Windows 8 and the Windows Store respond to that threat by “enabling an even wider range of devices that run Windows.”
  • The lineup of competitors in the Server and Tools Division is mostly unchanged from last year. No names were added to the long list of companies that compete with Microsoft in the enterprise space; Sybase was removed from the list of competitors that offer competing “database, business intelligence, and data warehousing solutions.”
  • The description of the Online Services Division removes Yahoo! from the short list of competitors, which now consists of “Google and a wide array of websites and portals that provide content and online offerings to end users.” One noteworthy addition: Microsoft now cites its “deeply-integrated social recommendations” as a key differentiator of its online services.
  • Judging by the changes in the description of the Microsoft Business Division, WordPerfect has finally slid into irrelevance. Corel is no longer on the list of “competitors to the Microsoft Office system,” while Cisco and SAP are new additions. Cisco, in fact, gets a detailed shout-out: “Cisco is using its position in enterprise communications equipment to grow its unified communications business.” You can also see a preview of the sales pitch for Office 2013 in this new section: “We believe our products compete effectively based on our strategy of providing powerful, flexible, secure, easy to use solutions that work well with technologies our customers already have and are available on a device or via the cloud.” (There's that device-plus-cloud theme again.)
  • What’s remarkable about the final section is how little has changed in the description of the Entertainment and Devices Division. Microsoft’s failed Mediaroom product no longer merits any discussion; it's been displaced by the Xbox as the preferred TV delivery vehicle. In its place, the recent acquisition of Skype gets a brief mention.

Did you spot anything I missed? Leave your feedback in the Talkback section below.

Topics: Software, Apple, Enterprise Software, Google, Microsoft

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  • What are your thoughts on Microsoft's future?

    Thanks to a bug in our content management system, it's impossible to leave comments on my previous post. So feel free to add your feedback on either post here.
    Ed Bott
    • Thank you Ed

      I checked several times to see whether you have opened the previous article for comments. It was a great article.

      Your and MJF's articles (especially those which are similar to criminal analysis) are the only reason I visit zdnet.

      I always enjoy reading your articles. It is very much appreciated.
  • The cat's out of the bag now...

    Microsoft's radical new plan is to Xerox the Apple business plan (and to a lesser extent, Google's). Who could have guessed? Having recently discovered the "hardware/software ecosystem," Microsoft will confidently march directly into the teeth of its major competitors as the third mover, relying on its market savvy to Zune, err, zoom to the top of the pile. Brilliant!
  • 10-Ks / 10-Qs

    Read them? I had to typeset them. The company's disclosures fit into 8 double sided pages of 8 point type, so it wasn't that bad. Even something like that yields joy. As I was working with drafts from the Auditing Accountant, I had the occasion to go to the CEO and point out how if one number was true, another number couldn't be.

    A point about these 10-K risk discussions is that they are not written to be predictive and much is boilerplate. You understand this, so I'm mentioning for fellow readers. I don't think any of us would have considered Corel a serious threat last year, but there they were included.

    And being words published as per regulations for a document providing guidance to current shareholders and possible investors, these things are written to foreclose future law suits if any clearly visible competition results in material decrease in stock prices.

    So, three years back - I speculate - there was a discussion of the music player business, a notation that others were succeeding, and a conclusion that management is addressing the issue with the Zune Music Player. Issue and response disclosed. No suit. (Well, the ZMP never moved the stock price one way or another, so it would have been a moot issue.)

    A fascinating test would be to see when Google and search appeared in the 10-K. Since their advertising dominance in a tangential area of computing did not reduce Microsoft's stock price in any appreciable way, and since only Google really understood what it was trying to do ten years back, even if it first appeared when it became obvious is sufficient for the purposes of the attorneys and accountants preparing the 10-K.

    Or maybe in 1999, there were disclosed risks about Stanford graduate students possibly upending the computer world. I would be impressed and have to rethink how far I'd run with 10-K information.
    • Correction

      I revised a sentence but didn't rewrite it completely.

      In paragraph 5 "..even if it first appeared when it became obvious is sufficient for the purposes..." should be "even a first appearance when it became obvious is sufficient..."

      While I'm sure there were good reasons to not bring Edit into the new comments design, I clearly miss it.
    • A little more prescient than you think

      Google appeared for the first time as a competitor in 2003.

      The Zune was disclosed for the first time in 2007 - five years ago, not three.
      Ed Bott
  • PC Competition from Devices

    I'm entranced with my first tablet, a Google Nexus 7, but it won't delay planned upgrades to my Windows development PCs this year nor my planned purchase of a Windows Phone 8 and Surface tablet when they're available. Tablets are great for consuming content, but even with a keyboard and mouse, they aren't suitable for productivity apps/knowledge workers, IMO.

    New and improved devices will slow growth of the PC market, but won't destroy the desktop/laptop infrastructure.

  • Linux threat neutralised?

    Look at Netcraft hosting stats or indeed the market share of Linux or BSD derivative iOS in the Smartphone markets. It's about as neutralized as the red Indians around Clusters Last Stand!
    • Neutralized as in

      Nobody really uses it for desktops, or much beyond web servers. In the desktop and corporate backbone, it's still mostly Windows, by a far margin.

      from a profit standpoint, it doesn't seem to be impacting on Windows sales to any real degree.
      William Farrel
  • Microsoft, the sleeping giant

    Ed, I wanted to comment on your previous post, but as you point out, we can't.

    You note that Microsoft tends to perform best when it's back is against the wall, per se. I would agree for the Microsoft of 15 years ago, but I'm not so sure that's the case today. I recall the drastic changes Microsoft made during the mid-to-late 90's concerning the Internet. Microsoft's main target for Windows NT 4 and Windows 95 was to take out Novell Netware. The Internet was not a consideration.

    However, Novell became secondary when Netscape rose to fame and fortune and Microsoft quickly overcame the issues and ended up "winning" the browser wars with IE 4 - 6. I would say this example perfectly exemplifies your statement.

    I don't know if I'd say there are any more recent examples of this. I would not classify XBox as such, nor would I say that Bing has been an overwhelming success like IE. We might argue that Windows 7 was a big turn-around from Vista, but really I would say not. Windows 7 is more or less a much bettr and re-branded Vista (Vista was perfectly fine in it's later incarnations any way). Likewise, Microsoft was competing with itself with Vista anyway.

    Did Microsoft destroy Linux on the desktop? Or, did Linux make itself irrelevant due to compatibility issues. Arguably, Linux is a serious contender in the server space. Right?

    Microsoft has changed dramatically internally. They're no longer the company they once were. Infighting within management, workers lost to other companies, etc. Are they even capable of really turning "it" on when it matters most now?

    I for sure wonder. I look forward to seeing what next year holds.
  • Microsoft sizes up its competitors for 2013

    Microsoft is just adapting themselves for future technology. This is a good thing.
    Loverock Davidson-
    • And Lovie Dovie should adapt himself for future technology

      By getting a brain transplant.

      Think mommy will do it?

  • It will be interesting to see if this works...

    It sounds as though Microsoft is looking to move to a much more Apple-like model of integration. That model has worked well for Apple, but there are two obstacles that might keep it from working for Microsoft:

    1. Apple is very good at being Apple. If Microsoft isn't as good at delivering the same kind of seamless experience, they will go nowhere.

    2. Apple may have already gotten all the customers who want an Apple-like experience. There are also some people who want a more open computing experience and resist Apple for that reason. If Microsoft abandons that part of the market, some of those people will abandon Microsoft rather than accepting the invitation to the walled garden. And some may switch to Apple on the grounds that if they have to live in a garden they might as well pick the prettiest one.

    The open question: how many customers will Microsoft lose? If 5% of the market leaves Microsoft, the higher profits of a closed system will compensate. If 50% of the market leaves, Microsoft will be in trouble. Ironically, Microsoft's choice to follow this path may be the one thing that can finally make Linux a success on the desktop.
    • South postpones rising again for another year

      C'mon, nothing is going to make linux (as we have known it) a success on the desktop.

      Android is another story. Literally hundreds of millions of people have become familiar with Android as a result of its success on phones. The tablet thing hasn't gone so well, but now we're seeing decent $299 Android tablets, and I expect them to sell a lot better than the $500 Android tablets did.

      There will be plenty of Windows application vendors who will see incremental money in porting their wares to Android and iOS. As that happens, more and more customers become potential targets for an Android or iOS tablet, or an Android or iOS laptop. They know Android, they like it, and now it has the apps they want. Bingo.

      It's impossible to predict how much "blowback" there is going to be from the phone market, through the tablet market, and into laptops and desktops. But it won't be zero. I think it could get to twenty or thirty percent of the home market.

      Next year one billion Android devices will be sold. That's a lot of people seeing an OS that isn't Windows. Microsoft really screwed up in letting Andoid and iOS escape into the wild. This isn't going to be like stamping out Linus Torvalds and his merry band. This is going to be war with guys who have Serious Money.
      Robert Hahn
  • which processor competitor use?

    Guess who didn't believe w8 will 'fail': Qualcomm, nVidia, Texas... pairing with Samsung, Asus, Toshiba, Lenovo ... ;)
    They have put A LOT of effort$ on the plattform pre-release to GA.
    Guess their boards are foll... guess we are clever...
    who's right? ;)
    ans M$ (Ballmer ;) hasn't stated it wanna crunch the market in the 1st year. Actually, wanna sell 'only a few' MILLIONZ of units at all. Nothing so hard to these partnered guys.
    Don't understimate LIVE MESH as well, nor Office 365 and Excelin'from your pablet everywhere ;) Or, 'are you still struggling to exchange your weird spreadsheet or presenttion formats with that colleague that has only a PC'?
    • R U Using a SmartPone or tablett?

      Mebbe this is a goood ilustratian of why it not good for small scrrens and kyb, and good some to use laptops to proof whatwe send... al tleast we can read beofor sending.... Have a great day while at the beach!!
  • Formation

    The 10-K filing, general industry trends and the restrictions in MSFT's product announcements do indeed make their strategy transparent.

    1. On the consumer front MSFT intend to copy the APPL model: the target architecture is a locked down device (vertical integration = locked down removing consumer choice); rake off from digital media passing through the platform (revenue from services integrated with the hardware and software platform = tax); a freeze-out of competing products (secure boot, browsers, Flash if it suits, extensible architectures like JAVA) with special treatment of MSFT's own products (Office).

    2. On the business front MSFT intend to follow VMWare and AMZN into the cloud. (If more hardware is being planned it would not surprise me to see something like a deep MSFT-INTEL partnership, for INTEL has to protect itself from the rise of ARM, just as MSFT has to protect itself from AAPL).

    3. To tap into the BYOD trend and complete the lock-in MSFT are preparing bundled offerings: so Office with an ARM tablet; integration of Skydrive with Office; integration of business Office features (Sharepoint, Exchange, Lync) alongside consumer offering (Office 365). The surface tablets. Sales will be via business and consumer subscriptions rather than packaged products.

    The idea of a low powered consumer device linked to a MSFT-controlled cloud fills me with dread. I'm not worried about base functionality ... but control of costs will be entirely in the hands of MSFT; choice and flexibility will be lost; the interoperability which has characterised Windows (and indeed the rise of the PC and the Internet) will be gone forever: surrendered to MSFT, AAPL, GOOG and AMZN silos. These four companies are forming up like the storm centres in the film The Day After Tomorrow. (Forever = I will be dead before the next turn of the wheel, once this cycle is complete, the last cycle ending with the demise of IBM).

    The king is dead, long live METRO.
  • Nice Reverse Engineering

    As an accountant I used to write annual report commentary like this.
    I would start with last year's report in Word's mark up mode, delete the stuff no longer applicable (in red strikethrough) and add new stuff (in bright blue) to produce a first draft. This would be reviewed by several layers of management until a final version was agreed.

    I like the way you reverse engineered the process.
  • What word?

    "In Word 2013 (as in Word 2010), this feature is on the Review tab:" Ok, and... So?
    Oh, forget it! already found a how-to in Openoffice and Gdocs.
  • Linux isn't neutralized, just absorbed.

    Ed: Good job of reading the tea leaves! In the first half of your article, you wrote: "Linux may be neutralized as a competitive threat, but Apple and Google are formidable, even existential competitors." Apple OSx & iOS, Google Android & Chrome and Amazon Kindle OS are all derivatives of Linux/Unix. Of these three competitors, Google is the only one following Microsoft's business model of an open ecosystem in which other hardware and software companies can develop and independently market products for the ecosystem. Google even open-sources its OSs! Google is also doing the most to make its products and services compatible with Microsoft's. Apple and Amazon, on the other hand, try very hard to control everything within their respective "walled gardens."

    I predict that Microsoft is up to the challenge, and its new products will stimulate its OEMs and software developers to continue bringing new devices and services to market. The business- and personal-use Windows PC and server lines of business still dominate the market and won't disappear in the foreseeable future, it's just that the portable device market share will grow. By incorporating Windows and MS Office compatibility into its whole range of products - from smartphones to tablets to PCs - Microsoft is creating a seamless, integrated ecosystem that is a semi-open environment, encouraging third-party innovation.

    This inter-operability is extremely important: I work at an organization in which our IT department wastes its best minds with BYOD users who want to make their Macs, iPhones, iPads, Android phones and tablets compatible with Windows. This unnecessary squandering of resources will create pressure on such users to "Bring Your Own *WINDOWS* Devices."