6 ms·

Despite today's news about Microsoft's record Q1 revenue, I'm concerned about the company's long-term prospects in computing. Looking at Microsoft’s recent ann

by mjfern 16y ago

Despite today's news about Microsoft's record Q1 revenue, I'm concerned about the company's long-term prospects in computing. Looking at Microsoft’s recent annual report, filed on June 30, 2010, Microsoft generated 83% of its revenues and 98% of its profits from the following three divisions: Windows & Windows Live, Microsoft Business Division, and Server and Tools. While these divisions include a collection of products and services (e.g., Azure), it appears that most of the revenues and almost all the profits of these divisions is driven by Windows (desktop and server) and Microsoft Office. Its remaining two divisions – Online Services and Entertainment & Devices – encompass all of the company’s consumer products outside of Windows and Office, such as the Xbox 360, Bing, Windows Mobile, and Zune. In 2010, these two divisions accounted for the remaining 17% of Microsoft’s revenues, and had a collective operating loss of $1.676b. In fact, between 2008 and 2010, these two consumer-focused divisions generated an aggregate of $3.353b in operating losses. Looking across its five divisions, we can conclude that Microsoft generates a majority of its revenues and nearly all of its profits from Windows and Office. And while Microsoft has found some success with other enterprise products (e.g., SharePoint, Microsoft SQL Server, and services), its consumer strategy, outside of Windows and Office, is struggling. From my vantage point, the two key questions for Microsoft are: 1. In what timeframe will Microsoft face downward pressure on its Windows and Office revenues and profitability, given the transition from desktop computing to thin devices and cloud services? 2. Can Microsoft develop and execute a corporate strategy in the consumer or enterprise markets, outside its stronghold of desktop computing? And will this strategy substantially compensate for any disruption in its core market of desktop computing? My sense is that the transition from desktops to cloud services and thin devices is accelerating due to rapid innovation and growing competition among Amazon, Apple, Facebook, Google, Netflix, Salesforce.com and others. Further, Microsoft has thus far underperformed in cloud services and thin devices, from search (Bing) to smart phones (Windows Mobile). In view of Microsoft’s dependency on Windows and Office, and its inability to gain significant share in newer growth markets, I am concerned about its long-term prospects in computing.

wilschroter 16y ago
I think you may be considerably overlooking the amount of integration Microsoft has into both the personal mindset of consumers as well as the enterprise. While they may in fact go the way of IBM and become less relevant over time, I wouldn't overlook the fact that they have remained on top in many categories over many sea changes. I don't know that the other companies you mention have demonstrated their staying power (Apple circa 1992 was not exactly "on top")
- face 16y ago
  They remain on top due to anti-competitive and monopolistic business practices (for which they were convicted of), as well as other business tactics such numerous Linux/FOSS FUD, patent trolling, etc. Certainly not due to the quality of their products (which I have the misfortune of having to use a lot of). One hopes that in the end, open and superior products will prevail.
seldo 16y ago
I don't think Microsoft has to worry about its survival: Windows and Office will remain cash cows for the forseeable future. But they, like IBM before them, will lose all relevance to new directions in technology -- in fact, it's arguable that this has already been the case for years. The biggest argument for this that I can see is their online services division -- i.e. Bing -- which lost more than half a billion dollars in one quarter (they lost a similarly gigantic amount in Q1 2009), and hasn't had a profitable quarter since 2005 [see http://www.businessinsider.com/chart-of-the-day-microsofts-operating-income-2010-1 http://www.businessinsider.com/chart-of-the-day-microsofts-o... ]. Even Microsoft publicly acknowledges that succeeding in online services is key for future growth, but they show no sign of being able to even begin approaching profitability in that space -- instead, they are losing more and more every year.
- mjfern 16y ago
  Good points. A question is how long Windows and Office will remain cash cows for Microsoft? 1. One future state is that most people transition from desktop computers to smartphones, tablets, etc. We then dock these devices for doing intensive work. 2. Another possibility is that we have smartphones and tablets, but transition from desktops and laptops to thinner laptops (e.g., netbooks, new Macbook Air, etc). The issue for Microsoft and others is then - what operating system and office software becomes the standard in this future computing environment: Windows and Office, Android/Chrome and Google Docs, Apple's iOS and iWork, or some other solution (e.g., OpenOffice)?
  - bad_user 16y ago
    1) I'm not seeing how this can happen. Love my iPhone for Email reading / Skype chatting / quick browsing, but that's pretty much all the productive work I can do with it. My wife is also asking me repeatedly how the hell can I browse the web on that small screen. With my laptop I can also stay in bed AND type with the lights closed and without much effort. That's not something I can say about devices like the iPad. IMHO ... in the future devices will simply vanish from sight and get replaced by interfaces based on holograms projected from your furniture.
- 16y ago
zmmmmm 16y ago
For all MS's failings, one thing they excel at (sorry, no pun intended) is persistence. If they think something is important, they'll keep trying ... and trying ... and trying ... and eventually they usually turn out something pretty good. They did it, for example, in the browser wars (IE4,5,6 were substantially better browsers than their Netscape equivalents). Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.
- bkhl 16y ago
  You forgot Vista, although Microsoft relatively quickly turned it around with Windows 7, which is selling at the fastest rate in the history of operating systems.
  - tjogin 16y ago
    I think Windows 7 is pretty good, but I think the record adoption rate of it has quite a bit to do with how bad Vista was (and its terrible reputation); it created a void that needed to be filled, by anything that wasn't as terrible as Vista. Remember, Windows XP is really old.
js2 16y ago
I just posted this as an article to Hacker News: "Microsoft's Addiction to Windows and Office." I'd appreciate an upvote. Thanks! I don't think soliciting votes is necessary around here.
- deleted 16y ago
  [deleted]
Shamiq 16y ago
My team is working on this product:http://crm.dynamics.com/online/ http://crm.dynamics.com/online/ We're massively ramping up as we get closer to our 2011 Q1 RTW ship dates, and the product is way more polished and functionally relevant than our competitors. Heck, I even think our marketing team has bought some massive advertising on money.cnn.com We're very excited.
- epo 16y ago
  What relevance does this have to the discussion? How is this not spam?
  - Elepsis 16y ago
    The parent questioned whether there are any new markets in which Microsoft is succeeding. The poster above you gave one example.
- duck 16y ago
  Microsoft's CRM product is great and looks to only be getting better. I've always loved how support is handled in the US and very top-notch. Keep up the great work!
- sahaj 16y ago
  Just a usability thought on the site... Try this: mouse-over "TRY IT TODAY" and then try to click on "GET STARTED". The natural instinct is to linearly move the mouse to "GET STARTED", but in doing so you trigger the "REAL-TIME INSIGHT" mouse-over action.
  - Shamiq 16y ago
    I see what you're saying. I'll get the right people involved.
    - Shamiq 16y ago
      Okay, I actually got a really fast turn around from my PM team (given that we're Seattle based). A video repro of your issue + a link to your comment was fired off to the person who "owns" that site, so we'll see what they do about it! Thanks so much!
jseliger 16y ago
I've been reading stuff like this on slashdot and the rest of the Internet since I started using the Internet around 1998. With a few changes, this could also have been posted in 2002, 2005, or 2008. In 2013, will MS still be posting massive profits, and will people still be questioning whether Microsoft can keep it going? I'm guessing the answer is "yes."
- jimbokun 16y ago
  And during that time, Apple has surpassed Microsoft in both revenues and market cap, which would have seemed ludicrous in 2002. So, relatively speaking, those people on Slashdot may have had somewhat of a point. As others have pointed out, IBM still makes billions, but are no longer the leading force in computing. Microsoft appears more and more destined to a similar role.
  - blub 16y ago
    So? If Apple wins it doesn't mean that Microsoft has to lose. In fact, it looks like they're both winning.
  - azharcs 16y ago
    For Apple to win, Microsoft doesn't have to lose.
bkhl 16y ago
www.microsoft.com/cloud/ Microsoft might be a little behind, but they are definitely serious about "cloud". Plus, Windows Phone 7 does not look too bad. It might not be as complete as its competitors in features, but it is definitely a strong ground work. Let's just sit and watch how those folks in Redmond will monetize better from the cloud.
- brc 16y ago
  You're right about this. One thing Azure is not is a direct clone of either AWS or Google App Engine. Azure is different from both, and I believe once they have sorted it through, they will be using their considerable contact list to leverage existing customers onto the Azure platform. One of the key aspects of this is allowing Azure to be run as a private cloud - which I'm sure is the result of a lot of customer feedback and contact.
wslh 16y ago
Well, I am concerned by any company long-term prospects: - Apple: May be in less than five years a cheap generic chinese mobile clone will have all the iPhone capabilities. - Google: Search irrelevant, a lot of competition in the advertising arena. - Facebook: P2P or other kind of social networking. - Twitter: P2P too.
- pclark 16y ago
  Google is the only company you listed that has failed at expanding it's revenue streams - too early to say for Facebook and Twitter, and Apple is killing it at new markets.
- loewenskind 16y ago
  Your post brings up the real issue: if you sit still you're going to die. Apple now makes something like 60% of its revenue from products that didn't exist 5 years ago. I'm sure they realize this and will continue. When they stop they wont be center stage anymore and they probably know this. Google has been trying almost everything there is to try. It's been almost exclusively failure but their pockets are deep enough that they'll probably get a hit eventually. I guess in that sense they are the closest to Microsoft's current position but they haven't built up nearly the same amount of bad blood yet. Facebook I have much less faith in. Everyone I know who uses it only does so because they can't find a good alternative. That's a bad situation to be in if you're going for the long term I don't know enough about Twitter to make a comment.
igravious 16y ago
I will state my bias up front, but hear me out. I think that free and open source software is a better way for companies to develop software and serves the consumer better. With that out of the way my big question to Microsoft (the linchpin software company) is when are you going to make a serious open source play? It was obvious to some over 10 years ago that this was a movement that Microsoft had to embrace to stay relevant and yet they have completely failed to get it. It is obvious to anybody who enjoys coding that the great developers prefer free and open source software. There isn't a single category of product that isn't built using this methodology now. The worlds fastest supercomputers wouldn't dream of using Microsoft's operating software. Why is that? If Microsoft makes such great software, why can't they power the world's fastest and sexiest computers? Microsoft is obsolete to many until they address this core issue. You can say all you want about them not making this or that online play but their core business as you point out is operating systems and office tools. Free and open source operating systems and office tools will one day break into that cash cow and when it does Microsoft had better be ready. I can't put it any more plainly than that. You may now return to your scheduled programming :)
- igravious 16y ago
  Aaargh! :) Why am I being down-voted? Others on this page have stated that Microsoft shall not be as profitable going forward for reason X or Y or Z. I have stated why I think this is the case. I can't of course _prove_ it which is why I said that I have a bias up front. But if you look to the mobile phone landscape you have a situation where Android and Symbian are free software. It took a long time to happen and it took two technology giant neither of whose core business was operating systems and office tools per se. Don't you think that this is significant? Let's repeat this, nobody had any success competing with Microsoft at its core competencies until open source competition came along and even then the market that Microsoft "owns" is still firmly within their grasp. Somebody else on this very page expressed their opinion that the technology disruptor would be thin clients/cloud computing and didn't get down-voted for it. But I do. Please do not down-vote me if you disagree with my opinion, express yourself and tell me why you think I merit down-voting. Thanks.
  - 16y ago
mattmaroon 16y ago
Somehow I knew if I clicked comments I'd immediately the same thing I've been hearing for 10 years, and will probably hear for the next 10. "Sure but it's all Windows and Office and how much longer is that really going to last?" How many more years does Microsoft need to get increasing revenue from those two before that will stop? Or will they just keep saying it, year after year, until it's true. You could have said "people are going to start cancelling their landline phone service" every year since 1950 and you would have gotten to be correct eventually right? Just hang in there.
- Aetius 16y ago
  I wish I could +1000 this comment.
RyanMcGreal 16y ago
Despite today's news about Google's expectation-beating Q3 revenue, I'm concerned about the company's long-term prospects in computing. Looking at Google's recent annual report, filed on October 28, 2010, Google generated 96% of its revenues and 99% of its profits from the following one division: advertising. While this divisions includes a collection of products and services (e.g., mobile), it appears that most of the revenues and almost all the profits of these divisions is driven by AdWords.

by mjfern 16y ago

wilschroter 16y ago

I think you may be considerably overlooking the amount of integration Microsoft has into both the personal mindset of consumers as well as the enterprise. While they may in fact go the way of IBM and become less relevant over time, I wouldn't overlook the fact that they have remained on top in many categories over many sea changes. I don't know that the other companies you mention have demonstrated their staying power (Apple circa 1992 was not exactly "on top")

face 16y ago
They remain on top due to anti-competitive and monopolistic business practices (for which they were convicted of), as well as other business tactics such numerous Linux/FOSS FUD, patent trolling, etc. Certainly not due to the quality of their products (which I have the misfortune of having to use a lot of). One hopes that in the end, open and superior products will prevail.

seldo 16y ago

I don't think Microsoft has to worry about its survival: Windows and Office will remain cash cows for the forseeable future. But they, like IBM before them, will lose all relevance to new directions in technology -- in fact, it's arguable that this has already been the case for years. The biggest argument for this that I can see is their online services division -- i.e. Bing -- which lost more than half a billion dollars in one quarter (they lost a similarly gigantic amount in Q1 2009), and hasn't had a profitable quarter since 2005 [see http://www.businessinsider.com/chart-of-the-day-microsofts-operating-income-2010-1 http://www.businessinsider.com/chart-of-the-day-microsofts-o... ]. Even Microsoft publicly acknowledges that succeeding in online services is key for future growth, but they show no sign of being able to even begin approaching profitability in that space -- instead, they are losing more and more every year.

mjfern 16y ago
Good points. A question is how long Windows and Office will remain cash cows for Microsoft? 1. One future state is that most people transition from desktop computers to smartphones, tablets, etc. We then dock these devices for doing intensive work. 2. Another possibility is that we have smartphones and tablets, but transition from desktops and laptops to thinner laptops (e.g., netbooks, new Macbook Air, etc). The issue for Microsoft and others is then - what operating system and office software becomes the standard in this future computing environment: Windows and Office, Android/Chrome and Google Docs, Apple's iOS and iWork, or some other solution (e.g., OpenOffice)?
- bad_user 16y ago
  1) I'm not seeing how this can happen. Love my iPhone for Email reading / Skype chatting / quick browsing, but that's pretty much all the productive work I can do with it. My wife is also asking me repeatedly how the hell can I browse the web on that small screen. With my laptop I can also stay in bed AND type with the lights closed and without much effort. That's not something I can say about devices like the iPad. IMHO ... in the future devices will simply vanish from sight and get replaced by interfaces based on holograms projected from your furniture.
16y ago

zmmmmm 16y ago

For all MS's failings, one thing they excel at (sorry, no pun intended) is persistence. If they think something is important, they'll keep trying ... and trying ... and trying ... and eventually they usually turn out something pretty good. They did it, for example, in the browser wars (IE4,5,6 were substantially better browsers than their Netscape equivalents). Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.

bkhl 16y ago
You forgot Vista, although Microsoft relatively quickly turned it around with Windows 7, which is selling at the fastest rate in the history of operating systems.
- tjogin 16y ago
  I think Windows 7 is pretty good, but I think the record adoption rate of it has quite a bit to do with how bad Vista was (and its terrible reputation); it created a void that needed to be filled, by anything that wasn't as terrible as Vista. Remember, Windows XP is really old.

js2 16y ago

I just posted this as an article to Hacker News: "Microsoft's Addiction to Windows and Office." I'd appreciate an upvote. Thanks! I don't think soliciting votes is necessary around here.

deleted 16y ago
[deleted]

Shamiq 16y ago

My team is working on this product:http://crm.dynamics.com/online/ http://crm.dynamics.com/online/ We're massively ramping up as we get closer to our 2011 Q1 RTW ship dates, and the product is way more polished and functionally relevant than our competitors. Heck, I even think our marketing team has bought some massive advertising on money.cnn.com We're very excited.

epo 16y ago
What relevance does this have to the discussion? How is this not spam?
- Elepsis 16y ago
  The parent questioned whether there are any new markets in which Microsoft is succeeding. The poster above you gave one example.
duck 16y ago
Microsoft's CRM product is great and looks to only be getting better. I've always loved how support is handled in the US and very top-notch. Keep up the great work!
sahaj 16y ago
Just a usability thought on the site... Try this: mouse-over "TRY IT TODAY" and then try to click on "GET STARTED". The natural instinct is to linearly move the mouse to "GET STARTED", but in doing so you trigger the "REAL-TIME INSIGHT" mouse-over action.
- Shamiq 16y ago
  I see what you're saying. I'll get the right people involved.
  - Shamiq 16y ago
    Okay, I actually got a really fast turn around from my PM team (given that we're Seattle based). A video repro of your issue + a link to your comment was fired off to the person who "owns" that site, so we'll see what they do about it! Thanks so much!

jseliger 16y ago

I've been reading stuff like this on slashdot and the rest of the Internet since I started using the Internet around 1998. With a few changes, this could also have been posted in 2002, 2005, or 2008. In 2013, will MS still be posting massive profits, and will people still be questioning whether Microsoft can keep it going? I'm guessing the answer is "yes."

jimbokun 16y ago
And during that time, Apple has surpassed Microsoft in both revenues and market cap, which would have seemed ludicrous in 2002. So, relatively speaking, those people on Slashdot may have had somewhat of a point. As others have pointed out, IBM still makes billions, but are no longer the leading force in computing. Microsoft appears more and more destined to a similar role.
- blub 16y ago
  So? If Apple wins it doesn't mean that Microsoft has to lose. In fact, it looks like they're both winning.
- azharcs 16y ago
  For Apple to win, Microsoft doesn't have to lose.

bkhl 16y ago

www.microsoft.com/cloud/ Microsoft might be a little behind, but they are definitely serious about "cloud". Plus, Windows Phone 7 does not look too bad. It might not be as complete as its competitors in features, but it is definitely a strong ground work. Let's just sit and watch how those folks in Redmond will monetize better from the cloud.

brc 16y ago
You're right about this. One thing Azure is not is a direct clone of either AWS or Google App Engine. Azure is different from both, and I believe once they have sorted it through, they will be using their considerable contact list to leverage existing customers onto the Azure platform. One of the key aspects of this is allowing Azure to be run as a private cloud - which I'm sure is the result of a lot of customer feedback and contact.

wslh 16y ago

Well, I am concerned by any company long-term prospects: - Apple: May be in less than five years a cheap generic chinese mobile clone will have all the iPhone capabilities. - Google: Search irrelevant, a lot of competition in the advertising arena. - Facebook: P2P or other kind of social networking. - Twitter: P2P too.

pclark 16y ago
Google is the only company you listed that has failed at expanding it's revenue streams - too early to say for Facebook and Twitter, and Apple is killing it at new markets.
loewenskind 16y ago
Your post brings up the real issue: if you sit still you're going to die. Apple now makes something like 60% of its revenue from products that didn't exist 5 years ago. I'm sure they realize this and will continue. When they stop they wont be center stage anymore and they probably know this. Google has been trying almost everything there is to try. It's been almost exclusively failure but their pockets are deep enough that they'll probably get a hit eventually. I guess in that sense they are the closest to Microsoft's current position but they haven't built up nearly the same amount of bad blood yet. Facebook I have much less faith in. Everyone I know who uses it only does so because they can't find a good alternative. That's a bad situation to be in if you're going for the long term I don't know enough about Twitter to make a comment.

igravious 16y ago

I will state my bias up front, but hear me out. I think that free and open source software is a better way for companies to develop software and serves the consumer better. With that out of the way my big question to Microsoft (the linchpin software company) is when are you going to make a serious open source play? It was obvious to some over 10 years ago that this was a movement that Microsoft had to embrace to stay relevant and yet they have completely failed to get it. It is obvious to anybody who enjoys coding that the great developers prefer free and open source software. There isn't a single category of product that isn't built using this methodology now. The worlds fastest supercomputers wouldn't dream of using Microsoft's operating software. Why is that? If Microsoft makes such great software, why can't they power the world's fastest and sexiest computers? Microsoft is obsolete to many until they address this core issue. You can say all you want about them not making this or that online play but their core business as you point out is operating systems and office tools. Free and open source operating systems and office tools will one day break into that cash cow and when it does Microsoft had better be ready. I can't put it any more plainly than that. You may now return to your scheduled programming :)

igravious 16y ago
Aaargh! :) Why am I being down-voted? Others on this page have stated that Microsoft shall not be as profitable going forward for reason X or Y or Z. I have stated why I think this is the case. I can't of course _prove_ it which is why I said that I have a bias up front. But if you look to the mobile phone landscape you have a situation where Android and Symbian are free software. It took a long time to happen and it took two technology giant neither of whose core business was operating systems and office tools per se. Don't you think that this is significant? Let's repeat this, nobody had any success competing with Microsoft at its core competencies until open source competition came along and even then the market that Microsoft "owns" is still firmly within their grasp. Somebody else on this very page expressed their opinion that the technology disruptor would be thin clients/cloud computing and didn't get down-voted for it. But I do. Please do not down-vote me if you disagree with my opinion, express yourself and tell me why you think I merit down-voting. Thanks.
- 16y ago

mattmaroon 16y ago

Somehow I knew if I clicked comments I'd immediately the same thing I've been hearing for 10 years, and will probably hear for the next 10. "Sure but it's all Windows and Office and how much longer is that really going to last?" How many more years does Microsoft need to get increasing revenue from those two before that will stop? Or will they just keep saying it, year after year, until it's true. You could have said "people are going to start cancelling their landline phone service" every year since 1950 and you would have gotten to be correct eventually right? Just hang in there.

Aetius 16y ago
I wish I could +1000 this comment.

RyanMcGreal 16y ago

Despite today's news about Google's expectation-beating Q3 revenue, I'm concerned about the company's long-term prospects in computing. Looking at Google's recent annual report, filed on October 28, 2010, Google generated 96% of its revenues and 99% of its profits from the following one division: advertising. While this divisions includes a collection of products and services (e.g., mobile), it appears that most of the revenues and almost all the profits of these divisions is driven by AdWords.