5 ms·

How does Microsoft justify a $3T valuation in a world where Linux is free?

by elicksaur 2y ago

rendang 2y ago
Windows can't be even 1 of those 3T by itself right?
outside1234 2y ago
By running Linux in their cloud
asah 2y ago
Once a government or company adopts Microsoft (and 95+% have), it's *very* difficult to migrate, allowing Microsoft to charge whatever they want and force you to buy other products, including Azure.
- jjcob 2y ago
  At a non-profit that I contribute to we recently switched everything to Microsoft because it was the easiest way for ~10 people with varying backgrounds to collaborate, when you have only a part time technical person who has limited time to set everything up. Costs a bit of money, but dealing with Google Docs, Synology, Dropbox, email and web hosting providers took so much effort. Setting up Sharepoint etc. isn't trivial either but at least it's a standard setup that you'll always find someone who can manage it.
stackskipton 2y ago
Microsoft valuation is high but they have clear profitable products. Most people going, “these valuation are insane” because these AI companies are not profitable and doesn’t seem to be a clear path to profitability.
- vdfs 2y ago
  I think they need a lot of money to build AGI, then ask it how to be profitable. That's what OpenAI head said in an intreview
caseyy 2y ago
It doesn’t. It’s just speculative markets. To recreate all Microsoft’s meaningful profit-generating offerings would cost a very small fraction of $3T. In SaaS space startups are competing with MS products for much cheaper. In operating systems, commercial Linux (RHEL, SteamOS, etc) is competing for much cheaper. In gaming, Microsoft has contributed much to game cost inflation, meaning others compete for cheaper. In hardware others compete for cheaper. In home office, even Google and Apple likely spend less to compete. Maybe in web services Azure leads in costs and has some moat, but I’m only saying this because I don’t know it well. This is not to say MS is not an impressive company, but $3T is not its real value. From the stock market side, PE of 32-ish suggests it’s meaningfully over-valued too. So I know you kind of meant that question in a half joking way, but it is a good question. You can’t explain $3T with real value, it has to be speculative or bubble-ish.
- ghc 2y ago
  Those are just products. Microsoft has distribution at a level that is orders of magnitude harder to build and worth far more. Comparing how much money it would take to build a competitive portfolio of products to compete with Microsoft is like comparing how long it would take to build a Twitter or Facebook clone. Sure, it wouldn't take that long or that much money, but product is the easy part.
  - caseyy 2y ago
    Companies ultimately participate in the economy with their products and services. Infrastructure is an asset used to provide these services and goods, which can (through economies of scale and similar effects) make the company more competitive. However, Microsoft's services and products wouldn't be competitive in the natural, free market as exceedingly similar products can be provided cheaper. This is just general microeconomics. We can also ask whether Microsoft's market is free, from a macroeconomic perspective. I would say it is not. There is still a very significant consumer lock-in from Microsoft's dominant position. Some would even argue that this lock-in is monopolistic as Microsoft created many markets it inhabits (operating systems, home publishing, small business software, PC gaming, and similar). I don't mean to criticize here - monopolistic is a very loaded word politically. Objectively, It's natural that businesses are monopolistic for some time when they create markets. But not forever. My point is that Microsoft's monopolistic position is not sustainable unless it provides services that are either significantly differentiated or cheaper than the competition. As such, it should not command its market cap. Microsoft understands this, as its strategy is to establish itself as a monopoly in emerging markets (like AI) by using "embrace and extend," a business tactic they are known for. But I don't believe monopolies in moat-less markets are easy to sustain. This, once again, brings the market cap into question. Perhaps I am missing something; this is just my opinion, anyway. But I am trying to look at it objectively from a corporate finance perspective. It's easy to get lost in marketing speak. Microsoft does a lot of "upward management" aimed at its public shareholders, so it's important to look at the fundamental facts. Microsoft is an impressive company, and it has many things to brag about, but some matter more in its actual business economics, and some matter less. I don't believe infrastructure matters as much as the monopolistic lock-in they have (for now) and the competitive edge they don't. Perhaps they will find a more sustainable business model as it's clear from how their products and offerings have been developing that they are urgently trying to.
rvz 2y ago
You are comparing two different things.
Sevii 2y ago
Windows isn't even Microsoft's main product anymore.
jjcob 2y ago
Because they are the ones who have Office, which 90% of non-tech businesses and governments run on. Word, Excel and Powerpoint are the standard tools everyone uses to get their job done.
buyucu 2y ago
I doubt Microsoft makes much money from Windows anymore. Microsoft's valuation primarily comes from Azure and other cloud products.

How does Microsoft justify a $3T valuation in a world where Linux is free?

rendang 2y ago

Windows can't be even 1 of those 3T by itself right?

outside1234 2y ago

By running Linux in their cloud

asah 2y ago

Once a government or company adopts Microsoft (and 95+% have), it's *very* difficult to migrate, allowing Microsoft to charge whatever they want and force you to buy other products, including Azure.

jjcob 2y ago
At a non-profit that I contribute to we recently switched everything to Microsoft because it was the easiest way for ~10 people with varying backgrounds to collaborate, when you have only a part time technical person who has limited time to set everything up. Costs a bit of money, but dealing with Google Docs, Synology, Dropbox, email and web hosting providers took so much effort. Setting up Sharepoint etc. isn't trivial either but at least it's a standard setup that you'll always find someone who can manage it.

stackskipton 2y ago

Microsoft valuation is high but they have clear profitable products. Most people going, “these valuation are insane” because these AI companies are not profitable and doesn’t seem to be a clear path to profitability.

vdfs 2y ago
I think they need a lot of money to build AGI, then ask it how to be profitable. That's what OpenAI head said in an intreview

caseyy 2y ago

It doesn’t. It’s just speculative markets. To recreate all Microsoft’s meaningful profit-generating offerings would cost a very small fraction of $3T. In SaaS space startups are competing with MS products for much cheaper. In operating systems, commercial Linux (RHEL, SteamOS, etc) is competing for much cheaper. In gaming, Microsoft has contributed much to game cost inflation, meaning others compete for cheaper. In hardware others compete for cheaper. In home office, even Google and Apple likely spend less to compete. Maybe in web services Azure leads in costs and has some moat, but I’m only saying this because I don’t know it well. This is not to say MS is not an impressive company, but $3T is not its real value. From the stock market side, PE of 32-ish suggests it’s meaningfully over-valued too. So I know you kind of meant that question in a half joking way, but it is a good question. You can’t explain $3T with real value, it has to be speculative or bubble-ish.

ghc 2y ago
Those are just products. Microsoft has distribution at a level that is orders of magnitude harder to build and worth far more. Comparing how much money it would take to build a competitive portfolio of products to compete with Microsoft is like comparing how long it would take to build a Twitter or Facebook clone. Sure, it wouldn't take that long or that much money, but product is the easy part.
- caseyy 2y ago
  Companies ultimately participate in the economy with their products and services. Infrastructure is an asset used to provide these services and goods, which can (through economies of scale and similar effects) make the company more competitive. However, Microsoft's services and products wouldn't be competitive in the natural, free market as exceedingly similar products can be provided cheaper. This is just general microeconomics. We can also ask whether Microsoft's market is free, from a macroeconomic perspective. I would say it is not. There is still a very significant consumer lock-in from Microsoft's dominant position. Some would even argue that this lock-in is monopolistic as Microsoft created many markets it inhabits (operating systems, home publishing, small business software, PC gaming, and similar). I don't mean to criticize here - monopolistic is a very loaded word politically. Objectively, It's natural that businesses are monopolistic for some time when they create markets. But not forever. My point is that Microsoft's monopolistic position is not sustainable unless it provides services that are either significantly differentiated or cheaper than the competition. As such, it should not command its market cap. Microsoft understands this, as its strategy is to establish itself as a monopoly in emerging markets (like AI) by using "embrace and extend," a business tactic they are known for. But I don't believe monopolies in moat-less markets are easy to sustain. This, once again, brings the market cap into question. Perhaps I am missing something; this is just my opinion, anyway. But I am trying to look at it objectively from a corporate finance perspective. It's easy to get lost in marketing speak. Microsoft does a lot of "upward management" aimed at its public shareholders, so it's important to look at the fundamental facts. Microsoft is an impressive company, and it has many things to brag about, but some matter more in its actual business economics, and some matter less. I don't believe infrastructure matters as much as the monopolistic lock-in they have (for now) and the competitive edge they don't. Perhaps they will find a more sustainable business model as it's clear from how their products and offerings have been developing that they are urgently trying to.

rvz 2y ago

You are comparing two different things.

Sevii 2y ago

Windows isn't even Microsoft's main product anymore.

jjcob 2y ago

Because they are the ones who have Office, which 90% of non-tech businesses and governments run on. Word, Excel and Powerpoint are the standard tools everyone uses to get their job done.

buyucu 2y ago

I doubt Microsoft makes much money from Windows anymore. Microsoft's valuation primarily comes from Azure and other cloud products.