Microsoft sizes up its competitors for 2013

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.