Special Report: Sleepy in Seattle - Microsoft learns to mature

Apple sells hardware first, software second. Microsoft sells software first and hardly any hardware (let’s leave out the PC peripherals and Xbox). Why does the media insist on comparing them? Comparing Apple to Dell/HP/Lenovo/Asus makes more sense. Similarly, one should compare MS to Google/Oracle.

DougAnderon you missed the latest developments regarding Oracle.. now they are in the Hardware+Software business. Check out their new Exadata and Exalogic offerings. So do not say Oracle is a pure software player anymore.

Thanks Bill,

Well compiled presentation a good management lessons. Ballmer vs Jobs management style – Ballmer is good but thats not required now they need some one who can imagine what Google and Apple has never thought about.

Secondly breaking up of the company is so very important isn’t it. We are so used to the existing trend and never thought of breaking the company. Off-course, these actions only determine the share price in the long run, not the regular routine.

Thanks once again for this “thought provoking” article.

Comparing Apple and Microsoft is legitimate because there is an implied assertion that the market is rapidly changing and eroding Microsoft’s core business. For long term viability, Microsoft needs to drive the smart phone and tablet markets with their software as they did with PCs. They are failing badly at the moment.

MS has been producing junk software for years. It has never innovated. Its corporate strategy has been driven by stealing software and hiding behind a wall of lawyers. Companies and governments have been suing them for years for shady business practice. Ballmer is to many an idiot. In 15 years MS will be where GM is today.

Ballmer says “If I ever thought there was a day where the company would be better off without me, I’d leave that day,” Hey Steve! That day came several years ago. You were just not listening.

And Apple does just sell hardware. What makes Apple products so great is the seamless integration of the hardware and software. If Apple products ran Windows, they would be a piece of crap.

Apple will excel as long as Steve Jobs is there. He is the driver of innovation, and innovation is Apple’s forte. Microsoft tries to innovate, but fails 99% of the time. When Jobs is out of the picture, MS may have a chance, but not until then. MS’s problem is that it relies too heavily on its legacy products that have a foothold in the business market; that reliance will eventually lead to its downfall because foundational obsolescence will undermine its future products.

Microsoft has never been known for innovation. they take exsiting product ideas and try to make their own. It worked for the purchase of DOS way back when competitor reaction was slow. Innovation and manufacturing is so fast now, borrowing someone’s innovation is yesterday’s product by the time you get something out the door. Time for MS to focus on their domain skills instead of chasing innovators around all over the place. Its bad marketing and it takes away legitamacy of its core product and customer focus. They should learn the troubles their having from what they did to IBM and how IBM came out with a winning strategy. Some day Apple will be Microsoft today and yesterdays IBM if they start wondering all over the place building business machines.

Why hasn’t the stock moved in eight years, despite more than doubling profit and sales in that time? Is Microsoft really at the forefront of technology? Why can’t it invent popular gadgets like Google or Apple? Is Ballmer still the right person to lead the firm?

Microsoft is (was) from very beginning just a marketing company. They were NEVER innovative. Even MSIE is not their product. They bought Spyglass browser and then started to enhance it. Or, for example C# . Where did it come from ? They licensed JAVA from SUN, learned how JAVA works, SUN sued them because they did not follow the license agreement to the letter, SUN won 2 billion $, Microsoft came out with C# which is, basically a knock of SUN’s JAVA.
Again, Microsoft is just a giant marketing company which uses ALL the methods to keep its market monopoly.

Microsoft beware, you are entering a zone similiar to what happened to HP….good company but remember before the Compaq merger its stock went nowhere. It was not until Stanford told them to get off their butts or they will start dropping their millions of shares that HP did something. Microsoft is there today, no where in eight years for a stock price is without a doubt……………dead money.

There appears to be a lot of irrational behavior in the market these days. TIPs selling a negative yields, AAPL headed to $500, MSFT stuck at $23-$25 for 8 years. Yet bond markets will give MSFT 10 years of free money?

Take the names off the companies and look only at cashflows, market shares, market sizes, revenue sources … Microsoft has as much a public image problem as anything else. The company is not going anywhere (in the sense of going away), and sooner or later, the markets will appreciate its stellar financial performance and market position.

Most companies I could think of (Amazon?) that achieved huge valuations and multiples in the past – failed to gracefully navigate their way to reality without a stock price implosion.

All of its major franchises are going through 2010/2011 product cycle upgrades. Its Azure and cloud services look like they will equally dominate the future of cloud computing as its OS has dominated the desktop. MSFT continues to make inroads into other large and stable markets – enterprise software (IBM, ORCL, and SAPs space) …

If products, trends, and markets continue as they are today, the show will be on the other foot soon – for MSFT shareholders (versus some of those they are compared too).

GS was hocking subprime mortgages only 2 years ago… Shows what they know… lol. They are probably buying MSFT right now after downgrading them. Some things never change.

Really a fantastic piece. Measured and reasonable with solid analysis.

I do have to disagree with Hanson’s last word, however. I don’t agree that the stock market hasn’t matured in its perception of Microsoft.

Instead, the problem was identified earlier in the piece… Microsoft has yet to figure this bit out for itself. The market will keep the stock in limbo until Microsoft makes a decision. Become a pure enterprise plumbing provider, or chase the big consumer growth areas (and do it successfully)

Another problem giving investors pause is that the trends toward consumerization and industrialization are transforming the enterprise rapidly. The lines between enterprise and consumer are blurring and a pure play enterprise provider needs a hedge.

Oracle is a huge back end player. Cisco is unified communications and foundation networking. IBM, HP, Dell, VMWare, EMC… All of the big enterprise players have a niche be it in hardware, services or a combination of both.

The trouble at Microsoft is that the bulk of the revenue comes from a segment which is solidly in the crosshairs of the consumerization and industrialization trends and that is the client. Windows and Office are what appear to be in jeopardy and, because of the way Microsoft has chosen to run its business and investment strategy over the last two decades, these two businesses still provide the revenue foundation.

Today Windows 7 is a huge success because of the inevitable turn-over of the PC installed base. This trend is likely to continue, but the base of traditional PCs is also almost certainly going to be an increasingly smaller segment of the overall computing pie.

Investors are skeptical because the assumption is that the next billion devices are going to be in segments where Microsoft has not been able to demonstrate relevance. Compounding this problem is the fact that under this new paradigm there is a natural synergy with online services and the players who are demonstrating relevance are also crisp at providing the cloud ecosystem (Google, Apple, Amazon)

Microsoft has a traditional platform under siege, but and has demonstrated an inability to adapt or to provide a compelling answer. Instead it has tried to redefine the trends, or play catch up, unsuccessfully. Where there have been bright spots, they have either been hamstrung by internal politics, or out maneuvered by the competition.

There is still runway for course correction and recovery, but the stock price is a vote of no confidence in the existing leadership to make that happen – especially since there seems to be a tendency towards denial and repetition of the same mistakes. The backend business is solid and the products are good, but a Microsoft without Windows and Office as huge cash cows is a much different company and thats what the valuation is about.

There is nothing irrational about the valuations. The market is a vote in the future. The fact that Microsoft has a 90% share of a certain segment of computing, yet Apple has been able to catch, and now surpass it, not only in valuation, but ALSO in *revenue* and soon profitability… Or that Google “doing nothing” (as irrational critics like to say), has amassed a cash pile over $10B and captured a near monopoly share in the most critical future segment (internet monetization) in just 12 years are why these companies trade so high.

This is hard for big fans to accept, but “image” and the “names” have nothing to do with it to large investors. They’re not geeks. They dont care. They want to make money. Microsoft is an oil company that hasnt pursued alternative energy and the year is 2250 and we’re down to the last few drops of oil. The only difference is that computing isnt a physically limited commodity. The landscape of ideas is anyones game. What this means is that 90% share could theoretically evaporate in a cycle or two (and this has happened before time and again).

Unless a tech company demonstrates agility and a well hedged business, they arent going to be rewarded. Microsoft hasnt been demonstrating either in a meaningful way.