Not to mention those were small companies in 2000. For Microsoft stock to have increased 1200% (as Google's did) it would have probably had to grow into some very significant portion of the world economy.
Obviously Microsoft hasn't outperformed over the past 10 years, and it looks like the rest of the article gets into actual substantive critique, but it's hard for me to trust substance from someone who starts out with such an unfair introduction.
The real point is that MS has realized none of this potential. Forget lead, it hasn't even followed. Instead of swiftly copying the wildly successful iPhone, they just mocked it, telling everyone that it was a hopelessly niche product. Likewise, the iPad was being written-off by Ballmer as a pointless device with no appreciable market. In reality, it was busy becoming the most successful consumer electronic product of all time.
This goes well beyond a failure of vision. A remark like that indicates total ignorance of present reality. It's a bit like calling Avatar "a flaming fiasco seen by nobody" on the same weekend it breaks a billion dollars at the box office. Coming from the head of a major studio, an assessment that poor would be career-ending.
If your model is imitating others, fine. But you HAVE to be fundamentally aware of what others are doing if you're going to make it work. So if you're demonstrably clueless about what "two of the most successful publicly traded tech companies of the period" are really up to, or why their products are selling so well, you're simply the wrong man for the job.
Apple and Google were in their heydays during this time period. If anyone is interested in seeing a really interesting comparison then go to finance.google.com and do the following:
1. Look up MSFT
2. Click "All" for your zoom option, this should give you from 1986 to present
3. Add GOOG and AAPL using the compare box
Now look at the chart. MSFT is up 25,019.04% since it was publicly listed. AAPL is up 11102.07% since it was publicly listed. GOOG is up 394% since it was publicly listed.
If we want to truly assess Ballmer's performance as a CEO using stock performance as a metric then I strongly suggest we look at the past ten and five years of performance of Microsoft and compare it to similar tech companies.
Offhand, I think that IBM and Oracle make suitable comparison points. Looking at the past ten years of performance, we can see that MSFT is down about 27%, while IBM is up 49% and ORCL is up 109%. Now we can more clearly see that Ballmer has more than likely missed some opportunities along the way. When you narrow to the last five years, the picture doesn't change.
I agree with the author of the blog piece - Ballmer has proven to be a mediocre CEO of Microsoft. However, we need to make sensible comparisons to get the point across.
Frankly, I don't understand how MSFT could sit on 40 billion dollars in cash and short term investments without increasing its dividend to something more in line with what one should expect from a mature cash-rich business.
Increasing shareholder value should be the goal of all publicly listed companies. Purchasing Skype for $8.5 Billion dollars flies straight into the face of this - it is a crazy move. Any shareholders that are not screaming about this should wake and smell the sinking share price.
Edited: Formatting in the step-by-step portion of this post was messed up initially...
Source -- http://www.microsoft.com/presspass/inside_ms.mspx
- Warren Buffet, 2010 Letter to Shareholders
Over the last ~10 years Microsoft has been good at #1, good at #2, but #3 has been suspect.
MSFT's current P/E ratio is about 10x. Just looking at that number right there, most people would conclude that MSFT was a great value play. In my personal opinion it is indeed a great value play - but not so long as Ballmer is still calling the shots.
If market prices were solely set based on income then you would be right; the price would eventually rise regardless of whether Ballmer remained at the helm or not. However, market prices are more complex than this. They also incorporate expectations for the future. It is here where MSFT's current problem is.
If you look at the components of MSFT's cash flow their major income sources are the Windows Operating System and the MS Office Suite. It is unbelievable that either revenue source will suddenly evaporate.
The problem is that both of MSFT's core business functions are under pressure. This pressure is coming from the decreasing dominance of the PC as the digital platform of choice and the increasing prevalence of Internet-based solutions to problems that were previously solved by offline software packages.
While MSFT is currently conducting expansions into a large array of industries, it is unlikely to dominate these industries to the same degree that it currently dominates the desktop sphere. In all of the industries where MSFT is trying to expand its footprint it faces vigorous competition from fairly formidable competitors. Even in its core industries, challenges are appearing on the horizon. Here's just a really quick summary:
1. Video Gaming - Nintendo, Sony, Apple? (Perhaps for "casual" gamers only, but I am not well versed enough to know how serious of a contender Apple is as of yet)
2. Tablets/Mobile - Google, Apple, HP
3. Search/Advertising - Google (Look, this is a big enough fish, I don't even need to name anything else)
4. Operating Systems - Google (ChromOS in the distant? future, Android everywhere, tablets eating market share), Apple (tablet popularity may erode Windows market share)
5. Server & Server Tools - ORCL, Linux, IBM, etc, etc, etc
6. Microsoft Office - Nothing serious yet, but GOOG is salivating at a chance to chip away at this
Market prices incorporate expectations for future growth as well as performance relative to peers. In the near term Microsoft is making buckets and buckets of solid cash. In the medium term, there are threats on the horizon that are looming large. In the long term, there is a great deal of uncertainty and this uncertainty is not made any better by strange moves like acquiring Skype for $8.5 billion.
I have heard some people say that acquiring Skype was a defensive move. Look, defensive moves like that are the last ditch strategy of someone that knows they are losing. There were a billion strategies that could have been taken that would have yielded a better strategic position.
What Microsoft needs is a visionary leader that can turn its buckets of cash into something that can carve out a substantial, permanent, and secure foothold on one of the fronts that they are fighting. That sounds cliche, but it is what they really need right now.
Microsoft is a fantastic company with an amazing amount of talent in it. I actually believe that it has some incredible earnings potential, but unlocking this potential will take bold, aggressive moves - not expensive defensive posturing.
It is not my intention to bash Microsoft. I have a lot of respect for the company. However, something obviously needs to change in response to the new challenges that they are facing. The status quo is no longer good enough.
Edgar online for the year 2000 10-Q filing, yahoo finance for price in 2000, http://www.betanews.com/joewilcox/article/Microsoft-Q3-2011-... for revenue break down.
I apologize in advance for any formatting strangeness in this post. In my defense - I am new here, and it is 1:31 am.
As for the earnings argument, look at it this way - Apple and Microsoft both made about 18B after taxes in 2010. Difference is, Microsoft's been printing money for almost a decade. Google doesn't even come close.
It's a fantastically profitable company. You can speculate about the future however you want, the fact remains that this company that until a year or two ago made more than Apple and Google combined is priced far below that combination.
Why invest in Microsoft when you could invest in Exxon Mobile, Johnson & Johnson, The Coca-Cola Company, Novartis - all companies with better long term growth rates and beefy dividends.
Look, I am not trying to be discouraging, but I find it grating how little progress Microsoft has been able to make despite its huge market advantages.
Maybe the question is one of perspective. I tend to constantly think in terms of long-term investments. If you are investing because you intend to cash in on an upcoming bounce in the price (rather than holding on for the long term) then that is actually a sound strategy - I wish you luck in timing the bounce.
It's the long-term perspective that I am mostly referring to. That is the reason for the speculating about the future.
Disclaimer: I own none of the shares mentioned above - as a matter of fact I currently own no shares of anything.
The flaw with speculating about the future is that anything that's certain will be priced into the stock immediately. Any other "educated guesses" you make might as well go to a blackjack table.
A lot of people think they're being prudent just because they're investing with a "long-term perspective". That doesn't get you anything in and of itself - I can buy a car and hold onto it forever but it'll never appreciate (well, until it becomes an antique). It's true that you shouldn't daytrade, that you should be willing to stomach holding something even if it loses value. But that just makes it more important that you understand why you've chosen to hold onto this stock for so long. And I don't think speculation about the future is a good basis for that decision. If you can point to something in the present (e.g, 18B in net income) there's a lot more assurance that you're actually getting something for your money.
Now, I'm not fully convinced that companies on that scale are really delivering the best market value to either shareholders or wider society compared to their functions being split across a network of smaller organisations that can stand or fall on their own merits, but still... other large companies exist and have done better.
Generally, this is true, but no one is doubting MSFT's profitability right now, the doubts are with regards to MSFT's future profitability.
"The flaw with speculating about the future is that anything that's certain will be priced into the stock immediately."
Only in the very short term and with short-term information that is both publicly available to all investors and verifiably true - most information does not meet these criteria. The longer you move out on your time horizon the more uncertainty will impact the market price.
There is an enormous amount of literature out there with relation to determining the future price movements of volatile assets in markets with asymmetrical information (not everyone gets all news at the same time). You should google the "efficient-market hypothesis" as well as recent efforts to test the assumptions that it relies on. (Thanks to the fall-out that occurred immediately after the 2008 market bust there has been a lot of soul-searching in the investment management industry.)
"A lot of people think they're being prudent just because they're investing with a \"long-term perspective\". That doesn't get you anything in and of itself - I can buy a car and hold onto it forever but it'll never appreciate (well, until it becomes an antique)."
They don't have to think that they are being prudent - there is evidence to demonstrate the prudence of this strategy. There is a large body of research out there that has demonstrated that long-term investment via index funds with low management fee overhead is a solid, profitable investment strategy.
"But that just makes it more important that you understand why you've chosen to hold onto this stock for so long. And I don't think speculation about the future is a good basis for that decision."
MSFT has underperformed over the past 5 and 10 year horizons. Past performance is not a guarantee of future results, but I have found it to be a worthwhile indicator to pay attention to.
I was a portfolio manager for about 3 years (before I decided to jump ship and try a startup). When building a portfolio for someone, one of the most important questions concerns the time horizon of the investment. A portfolio's risk profile should be appropriate for the investor. The only way to determine this is to look at the past performance, past volatility, and future prospects of any potential portfolio asset.
In the long-term everything is uncertain - I agree with you on this. However, where we disagree is that you seem to believe that all future events have an equivalent uncertainty, but this is demonstrably false.
There is a implicit probability associated with all future events, and these probabilities, in the aggregate, will impact today's share price. Some events are more probable than others. For a subtle demonstration of this, you could easily look at the performance of some of the larger pharmaceutical companies. As they get closer and closer to the expiration of some of their key money-making patents the volatility of the companies notably increases.
There is a considerable amount of truth to what you are saying, but I would, personally, hesitate to invest in an individual company without incorporating some type of business risk analysis into my decision.
Edit: Minor grammatical flaws. I apologize for any that remain, this was typed in a hurry.
The issue is that it is being managed like it is a change-driving company investing huge sums in new markets that generate slender revenues where they don't generate losses. Paying $8.5 billion, around 4% of its market capitalisation, for Skype is not likely to change the revenue it gets from its core businesses.
If it wasn't so big, I would expect it to be a private equity target. But the pargest PE deals have been around $40 billion, about 20% of Microsoft's cap.
I don't believe Ballmer is a good CEO, but directly comparing to Apple and Google is nutty. Your comparisons are much more relevant.
Even so, look at the comparison this way. Google and Apple both created and captured new markets; Google with online advertising and Apple with mobile devices. This proves that there was a huge amount of room for innovation and growth in the last ten years. But comparatively, MS has done nothing. It hasn't grown in any direction.
And what makes the comparison even more relevant is that MS has actively attempted, and failed, to copy both of the other leaders--Ad center is a failure, MS online strategy is balkanized and schizophrenic, the zune is dead, and WP7 is not gaining traction. That failure is reflected in the chart.
The test isn't how a company does when its taking over a new market. It's what it does when its losing its old market.
The real comparison isn't is MS better than Google or Apple. MS has already had their climb. The real question is "is MS IBM or DEC?"
Apple and Google are Microsoft's biggest competitors. Is he not supposed to compare Microsoft to its direct rivals?
Meanwhile, Google is basically starting from zero - of course it's going to show faster growth than the lumbering behemoth that is MS. Keep in mind that few people outside of the bank underwriting the IPO and Google employees actually got the awesome starting price.
So yes, he should compare them, but no, he's doing it wrong.
Microsoft makes twice as much as Oracle, pays a dividend, and yet has half the P/E multiplier. It's just not a sexy stock right now, but you can't deny the underlying profitability. Personally I think it's just that they've made some really embarrassing mistakes (Bing?). None of the failures have really dented the bottom line...they still had 8.5B lying around to buy Skype.
And you're right about spare cash and the bottom line. From what I understand, the twin cash cows provided by Windows and Office hide a LOT of sins. In that sense, Microsoft is like some hopelessly corrupt petrostate. Sure, the place is a shambles in every way imaginable, but as long as the oil keeps flowing, nothing matters enough to dislodge the ruling class.
Let's compare with a whole platoon of major tech companies that were big a decade ago:
You'll note that MSFT sticks out like a sore thumb.
In their defense, MSFT also has been paying dividends, which some of the comparison companies have not. When a company pays a dividend, the stock price theoretically should fall by almost exactly the dividend paid. As http://ycharts.com/companies/MSFT/dividend_yield shows, they had a particularly big payment in 2005. When I put those dividends back in to MSFT, their stock has been utterly flat over a decade. This makes them a lot better than they otherwise appear, but their poor performance still sticks out like a sore thumb compared to the rest of the tech industry.
I don't think it was his list didn't include Sun. Or AOL. Or Compaq. Or Dell. Or Sony. But the comparison list was not generated with an eye towards being unfair, and I think that the point made is still valid. Microsoft could have done better than it did.
Are you implying that all those stories about Apple surpassing MSFT's market-cap were misleading due to this fact?
Given the expected substantial growth of per-capita wealth throughout parts of the developing world (e.g. much of Asia especially China, parts of India, much of South America, parts of Eastern Europe, etc.) and the consequent expansion of the population of the affluent, developed world the potential future market in the computer software/hardware/services industries is likely to be enormous. The companies that manage to cement themselves firmly into the future mainstream mechanisms for people to buy physical and digital goods online as well as the mechanisms for obtaining access to the online world will be well seated to collect substantial revenues from that expanded market. And Apple, Google, and Amazon are much better situated and seemingly much more capable of capitalizing on new forms of markets than Microsoft is. I believe all of that is, to varying extents, reflected in their respective stock prices, and I think it's a very valid view of the state of those companies.
If you buy a stock as a dividend stock, you might not really want it to rise much, or at all, since you want those dividends giving out the increased value rather than seeing it reflected in the market cap; ie. you want the company paying out the results of expansion.
As for the basic point here though. Yes, an investor cares about total returns so dividends can't just be ignored.
Since the comparative price of the stock would get adjusted to reflect this and market cap is a simple product of the price and shares outstanding, it does tangentially impact market cap (again, only for comparative purposes). Though a more direct way of stating this is that the value of the stock should be adjusted to reflect the returns from dividends.
Just a headsup. www.investy.com works correctly. investy.com seems to be directed to the IIS7 splash page.
Just thinking about it, I only see two ways in which that would change the stocks valuation. On the one hand, it must reduce the capital that Microsoft has on hand, which might reduce the price of the stock. On the other hand, I would imagine that the fact that owning Microsoft gives you real value in the form of an (quarterly?) payout might increase the stock's price. One can still buy and sell the stock just like a stock that doesn't pay a dividend, betting on the future success of the company, plus you get money on a regular basis. Is there some other way it relates? I really don't know much about this.
At the end of the day, what matters here is how much money you make and how long it took you to get it, which is a function of sell price - buy price + dividends received - transaction costs and taxes paid. This chart ignores the dividends received part, and thus misrepresents the value of the stock. I don't know how big the dividend is so I don't know by how much. I doubt it would really make -50whatever% a whole lot better, but it would certainly be something better.
Traditionally dividends are generally paid out by businesses that can't reasonably expect to use their cash to grow - reinvesting all your cash to grow may not make sense if your growth is limited by geography or by completely owning an entire market. The textbook example is a utility company.
It does seem that recent changes have again adjusted the tax rate. In fact, based on more information, it seems long term capital gains tax is in fact lower (while short term is the same as dividend tax).
(updated for formatting)
That's not true. Companies have opportunities to invest money into things that a normal investor cannot. If a company can invest the money at an above average rate it should.
For US investors, it's even more clear cut as dividends would be taxed if payed out. If the company instead retains and prudently invests that money, the company in essence is able to generate a return on money that would have been payed as taxes. Over the long haul, that "float" is extremely valuable.
It's not that I think every company should always pay out a dividend. It doesn't make sense if you're growing fast, or losing money. Berkshire doesn't have to because we generally agree that Buffett's a better investor than the rest of us. For the vast majority of companies not in these categories though, it seems like the shareholders would be better off if they just got the cash.
You might disagree with them; if you do, sell the stock.
The graph that was shown is misleading because it only represents the share price growth over the last ten years, which was down (or flat). For much of that time Microsoft was paying quarterly dividends, which means shareholders were yielding some return from their Microsoft stock even if the share price wasn't appreciating.
Though he also said this (it was paraphrased by a reporter, so it's not a direct quote):
Shareholders benefit more from leaving their money with him and reaping a handsome return than by getting a regular payout and depleting the Berkshire war chest.
*Same source as above
In any case, it doesn't matter that much especially given a relatively small number of years and a stagnant price per share. The general premise of Microsoft stagnating is true regardless of how you tweak the numbers.
In theory you only buy shares back when you believe that they are worth more than they are trading for. If this is true, it will increase the intrinsic value of the company and should increase its price per share. If it is not true, then management is incapable of evaluating their own business and shareholders should demand that all non-essential capital be returned to shareholders in the form of dividends.
In either case, my point still stands. These things don't matter enough to be bickering about them. From January 2000 to present the Nasdaq is down about 29%, for Microsoft to only be down that amount your adjusted price would need to be about $40. You need to be very generous to say that those dividends we're worth ~$15 and that's just to match the Nasdaq.
If you really want to argue with the data you should be arguing about the start/end dates. Comparing to the Nasdaq eliminates some of the problem as most tech stocks were equally inflated in 2000. I still think you're looking at near parity at best. Microsoft should have been better than average and the data shows that it probably wasn't.
If you yourself had a a market cap of $25 including the $5 in your wallet, giving away that $5 would lower you market cap to $20.
Given that MSFT is a tech company, and we have seen many major tech companies started and grown to almost MSFT's size in the last decade, it does support the OPs point that clearly Ballmer missed a few things.
MSFT missed search. Great. They missed the music play, great. They missed the phone play. Great. Now they missed social media. How many things do they have to miss before someone says Ballmer has to go.
It is precisely because they are a 'high-tech' company AND paying dividends that validates the OPs original point...in my humble opinion.
Edit: That being said, them paying dividends will affect the stock price for sure. But, he was just using the stock price as a proxy for Ballmer's performance.
The simple fact is that it may be impossible to reconcile the different business styles needed to succeed in both the consumer space and the business space. Let them separate and have genuinely different corporate personas and both might succeed more.
Yeah Apple definitely doesn't need all that cash they're raking in.
Move along please, point to something substantive and back it up with evidence before you arrogantly dismiss Steve Jobs. He has valid criticisms such as how will he be replaced? But what you said, absolutely is not backed up by all the available evidence. You then go on to praise Ballmer? Bizarre.
I want to mention again .NET and C#. C# has become a cornerstone of the enterprise world, much like Java. You could say that Apple has XCode and Obj-c, but that doesn't really compete against .NET, except for desktop apps. But the focus of XCode lately has been iOS and .NET has been web apps. Of course this is a broad generalization.
Back to business needs. Microsoft is great at products for the businesses, and great at selling them to the businesses. They are also great at other things too, like XBox. I have had a feeling for a couple years now that there are departments with great product managers that put the product above the politics of a large corporation and upper management that shield the workers from the politics. Those departments end up with great products, like the XBox, Office (though I have heard Office just has the clout of being a big money maker to get whatever they want), Visual Studio/.NET/etc, Windows, and possibly IE (or at least the the current IE team). But reading about what happened with purchasing Danger to take on the iPhone stinks of to many people trying to tell Danger team what to do.
About the only place where Microsoft and Apple true stand toe to toe is the OS. Windows 7 looks great (I have only used it sparingly being a Mac/Linux guy) and OSX is great. I guess you could say the browser is another place. Both IE9 and Safari are good, but really, I think Firefox and Chrome have them beat.
How Microsoft can use this to their advantage is for someone else to figure out. Maybe splitting up would be good, or maybe they just need to say to hell with completing against Apple when in comes to consumer gadgets.
what products does Apple put out there for businesses
doesn't really compete against .NET
You may say what you want about .NET, but go to any software or web-related conference, and you'll see more than half the room filled with Apple computers.
Apple doesn't compete with .NET because it doesn't have to.
And yes, Apple doesn't compete with .NET, that was sort of my point. They different products to address different needs—iOS/desktop apps vs web based CRUD apps for insurance companies (example corporate industry).
It isn't just the hipsters that are deploying to Linux, it's the big guys too, like the London Stock Exchange.
where is the data about that ?
Why does Apple need to worry about B2B? They sell consumer products--iPads, iPhones, iPods, Macbooks--that's where they make the bulk of their revenue/profits.
The idea that it's valid to criticize Apple for not having enough B2B is like complaining that Fender doesn't make flutes. It just isn't their business.
Apple tried and failed to enter B2B, recently.
Here is a quote from Jobs: People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.
And can you give an example and cite how Apple tried and failed to enter B2B?
WebObjects, meh, if that's the biggest fault you can point out in Apple then they're doing fine.
Apple is great a certain things and at deciding to focus on those areas, such as dropping XServe and WebObjects.
I keep waiting for these folks to say who they think should be running Microsoft but that doesn't come up a lot.
You just can't fake the magic of the founders.
Yahoo is a good counterpoint, though I'd suggest externalities like a lack of visionary leadership or a lack of intellectual capital, compared to their rivals, are more to blame.
Edit: Schultz wasn't a founder, but I believe he was their first visionary leader.
If you're in enterprise IT and you disagree with me, remember this: unless you're the CIO, you'll be the last to know.
Maybe I've been unfortunate, but I haven't found people at the CIO level to be particularly forward-looking.
I look at it this way. Chrome notebooks are priced beyond that of PC laptops, they offer no benefit over a PC laptop running Chrome, so why buy one? Further ChromeOs will have limited local storage, and absolutely no native apps. This means no Skype, no local movie player, etc. A buyer would actually be getting less for their money by buying a ChromeOS machine instead of a $350 laptop at BestBuy with Chrome installed.
The form factor for consumption of media, video and news, does not require a keyboard. In fact it does not seem to require much of the laptop form factor at all. The tablet may already be the best solution, time will tell. But ChromeOS is avoiding stepping on Android's toes, and is not expanding in that direction. And that is limiting.
Leasing will only be available for schools, businesses, and governments--entities already in long term contracts with Apple or PC manufacturers. There won't be much penetration in the short term. And when it comes to price comparisons, ChromeOS will not have the support base and personelle which is already built up around PCs.
Lastly Chrome notebooks necessitate a wireless data plan, but as of now no carrier gives unlimited access for a low, flat fee. That means no unlimited Netflix or Hulu. And judging from my experience with a mobile data card, the connection is not stable enough for video streaming anyway, nor voice calls, nor multiplayer gaming.
Which is precisely what Google is now doing.
If these numbers are indicative of the US as a whole, 45% of new laptop purchases are OSX. IPhone, IPod touch, and IPad are selling well outside of the premium market. From these data points I still feel Apple is the main competitor to MS.
As for laptops, looking at data is better than pointless statements:
Laptop sales correlate with google search trends. The later has a bimodal distribution, with one peak in August and one in December. The former represents back to school sales, and due to its size, it is clear that student purchases of laptops are a significant factor in the market.
This struck me because I'm presently reading Stephen Levy's In the Plex, in which he reports at great lengths about why Google decided not to purchase Skype when eBay had it up for sale: mainly owing to Skype's peer-to-peer technology not being compatible with Google's existing centralized infrastructure. What reason would Microsoft have to think that this reasoning had changed?
In fact, "Microsoft people" are often completely blind to everything not made by Microsoft. Reading HN you may never know, but if you've met actual .NET stack developers, or MSCE's or anyone else similar, and you'll find people who make websites and don't know what apache is. Or they'll dismiss open source technologies with ridiculous reasoning.
That's what I see when MS speaks.
(To be fair, IBM can be the same way, if you are in certain industries, and I would imagine Cisco has the same effect in networking, but that's outside my knowledge)
Internally, we're told to use MS technology whenever possible. Using open source tools is also a nightmare from a legal perspective, and there are some non-trivial process because of that. It's not hard, but it requires due diligence on our part to ensure we don't expose the company to liability.
For the above reasons, it's frowned upon in company culture. I'm facing an internal side-project and am tempted to take a swing at it with nginx, apache and RoR for learning purposes, but the last thing I want is my manager to demo it and get a non-IIS error message along the way.
So here I am, an actual ".NET stack developer". Ask me anything.
Clearly they have a clue. They realize that it's perfectly feasible to deploy large-scale applications using only the Microsoft stack. There's even a lot of evidence it might be the most efficient way to do it.
Personally, I try to avoid using Microsoft technologies - but I wouldn't be surprised if, making the switch, life suddenly became a lot simpler.
This seems off to me. Am I the only one who doesn't remember "Windows Mobile was the dominate player in consumer minds" in 2006?
Side note: Anyone want a Dell Axim?
Of course I also knew quite a few people with Palm Pilots, so...
It all started with the Google brain drain - and that happened while Bill Gates was very much involved at Microsoft. Once the brain drain begins, you lose talent at a rapid clip and no matter how great an idea you may have, it's very hard to execute.
So then if you can't build it, you buy it. The product and the talent. Hence the Skype purchase. Here MSFT is buying a business and the people who run it, granted at a hefty price, but Skype is well established around the world and I see it as a better integration with Microsoft than eBay, which never made any sense to me. No it didn't cost Apple 1 billion dollars to build Facetime - but it also didn't cause Skype 1 billion dollars to build Skype. I can't say what it's worth now but I do know that I use it a lot since it's been available on the iPhone - great when traveling abroad.
Bing is slowly making strides as a search engine, Windows 7 is selling rather well and Kinect is a huge it. And they have partnerships with Yahoo! and Facebook.
Ballmer may need to go, but I really don't think Microsoft is entering the early stages of it's finale.
Bing search is another good move Microsoft has made. Adcenter, on the other hand is an embarrassing disaster on its own two feet and an ugly nightmare in comparison to Adwords. Adcenter is like a buggy crashing version of Adwords in 2005. Given that Microsoft provides the only real alternative search engine to Google that is pretty damn pathetic.
I think you hit the nail on the head with the brain drain. The fact is even with a brain drain companies have assets. Apple was effectively a dead company in the late 90s. Microsoft needs this same type of brutally intense focused leadership right now -- not attention deficit disorder look at me showmanship.
MS has apparently realized that there's still a huge opportunity following the analog PBX shakeout of the last decade. They've been pushing Lync pretty heavily lately and I think the Skype purchase was made so they can directly address the things people ask for when they're evaluating Lync.
This chart (courtesy turar) is the real story -> http://ycharts.com/companies/MSFT/net_income#compCos=AAPL,GO...
It just bothers all the Silicon Valley tech press that Microsoft continues to thrash its competitors.
Google makes money via search.
Apple started off with fucking mp3 players and now makes 'post-PC' devices.
It just bothers SiValley that no one can touch the Windows domination.
Microsoft made $5 billion+ in profit last quarter. The CEO who's been in charge for the last 10 years should be given a prize for surviving and growing the company's profits.
A new emerging company will always have more room to grow. If you consider each company at its core competency they are all dominating.
Google has 64% or so search share. Bing+yahoo get 30% or so.
Microsoft has 90%+ desktop OS share. After 16 or 20 continuous quarters of growth Mac is still less than 10%.
Apple is dominating smartphones (though Android might slow it down, notably without making any profit itself - unless you want to count it as a defence for mobile search). It's also dominating Tablets and trying to change things - because it doesn't want to fight Microsoft head-on in PCs - Just too difficult given Microsoft's advantages.
So each company is dominating its niche and trying to find ways to make its niche dominate the entire tech landscape.
Microsoft still being so dominant and the success of Windows 7 point to Sinofsky and Ballmer being God level. Growing profits from a couple of billion a quarter to $5 billion to $6 billion a quarter is extremely impressive.
Apple's growth is more impressive - However, that doesn't mean Microsoft's profits are unimpressive and it'd be foolish to take your personal dislike of Microsoft as a reason to discount some really solid work by CEO Ballmer.
Finally, Ballmer's first duty is to Microsoft and himself and Gate and Microsoft people.
Who fucking cares what the vultures of Wall Street and shareholders who don't do squat think.
Yes. MS has a massive installed base. If they can't leverage that to get people to use it, they are clearly incompetent.
$8.5B influential? Honestly, I don't see what $8.5B gets you that investing $500M in a Skype partnership wouldn't have.
I'd like to think they have some grand plan, but honestly I don't think so.
I think they're just sitting on a stack of cash and getting pressure from investors to spend the cash and grow.
What makes Microsoft's floundering under Ballmer particularly galling is the fact that Microsoft has been acutely aware of this for a very long time; the Sun and Netscape antitrust suits were born of Microsoft's fear of a platform-neutral world.
It's not here today, and we're only starting to see the first seeds of it with the rise of rich web applications and platforms like ChromeOS, but it's on its way. Microsoft still has a timeline in the scale of years to work with, but they need to start focusing aggressively on the future sooner rather than later, and, frankly, I don't see Ballmer as being the person capable of guiding the company through a transition they're going to have to make if they're going to survive in the long-term.
Having an execution problem, long term, kills companies. No matter how great their advantage may be.
Yes, that's right. They couldn't create a Skype clone, no chance. Of course, they could create a similar product in terms of functionality, but how many would switch to it from Skype?
Windows Live Messenger boasts in excess of 330 million monthly active users with 40 million concurrent, compared to Skype's 170 million and 20 million-30 million concurrent
Only 8 million Skype customers pay, so the income they'll get from it is pretty much nothing (compared to other sources of income MS has)
Read that whole article - it shows how dumb this purchase really is.
I've had a couple of conversations with people in semi-upper levels of MSFT management. Long term Microsoft employees are still scarred from that litigation. So much that it still comes up in conversation 12 years after the fact.
P.S. I have been following Skype for a long time and worked for a company that sought to partner with them in their early days (fudge - just dated myself). Beyond the old school "acquire eyeballs" angle, in my humble opinion, their technology is very legit. The algorithms/techniques/architecture/infrastructure they use for audio compression and transmission (and now video) are very finely tuned and if you think it is easy to recreate that just because you have thousands of developers at your disposal, you should reconsider your position.
Also, MS has had a nice streak of anti-competition battles during Ballmer's tenure. Just one data point that may be relevant to the lack of growth in MSFT share price.
Last thing, a chart showing the 100-day Simple Moving Average (post tech burst) may more accurately depict/model the normal MSFT price range under Ballmer's leadership.
Interesting blog/review for sure, thanks
Perhaps this is why it's worth $8.5 billion to MSFT and not to others. It's pretty silly to say someone got a bad deal a week after they bought it. If Ballmer has some awesome plan for it that will require a year or two to implement it would behoove him to disclose this so that others could move competitively to destroy the value from such a purpose.
There's a reason M&A is often referred to as a winner's curse -- because winning the bidding typically means overpaying. The synergies execs often talk about almost -always- fail to be realized.
Shareholders of Microsoft would have been much better off if the company just bought back $8.5bn in stock. A dividend would have been out of the question due to tax repatriation issues.
Skype's revenues for the first six months of 2010 were $406 million, with a net income of only $13 million.
I bet this will go down as one of the most stupid buyouts in history.
Skype and VoIP in general have all kinds of potential synergies with current MSFT products, difficult to materialize as they may be. Remember that they just put out an incredibly powerful 3D camera called the Kinect. With Skype on Xbox, we could see the beginnings of accessible 3D teleconferencing. Even if it's just Skype, its inclusion further cements Xbox's place in a living room by replacing another utility.
Some analysts are forecasting for the telepresence market to grow at ~30% annually through to 2015, with a strong driver being enterprise clients. Why not bundle Skype into Office? Microsoft Communicator already does video chat, but only with other Exchange users. Expanding the install base by 124M users might be the kick in the pants teleconference needs.
Whether or not these scenarios are achievable by MSFT is up for debate.
I am not sure how MSFT is planning to leverage this deal with plans of pushing into the mobile market. I am sure there is something in the works there.
Stock Price comparison:
There were many Billion dollar companies that are doing fine without a staggering growth seen in Apple or Google, that does not mean that CEO's are doing a bad job.
I'm not saying that Microsoft hasn't missed opportunities or that Ballmer shouldn't be replaced but its not quite as bad as pictured in that graph.
For the first few years of the decade, the company was still dealing with governments on two continents on what and how they could compete in the software business.
As others have mentioned, in this time frame they have also paid billions in dividends.
It may well be time for Ballmer to go, but the comparisons in stock price to Apple and Google over these short time frames don't reflect all the context and dynamics of the share prices.
They could have bought up a lot of innovative, smaller companies for $8.5B... some that might rebuild their character.
I predict that this time next year all major mobile operating systems will have some form of cloud sync
And Microsoft isn't doing that badly on those: http://ycharts.com/companies/MSFT/net_income#compCos=AAPL,GO...