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The thing that keeps Microsoft afloat is its Windows monopoly (and the Office suite and servers, but both are strongly tied to Windows as they have little presence elsewhere). Up until 10 years ago, the only threat to Windows was Mac OS which had been stuck at 5% market share for decades, and Linux for the desktop which lingered around 1%.

The last 10 years have seen two new entrants to the operating system market - iOS and Android. iOS still has a relatively small, but lucrative userbase. Android already matches if not exceeds Windows' installed userbase. A lot of people dismiss these as a "toy" OS for toy devices. But that's being ignorant of the march of technological progress. 30 years ago my primary computer was a desktop. 20 years ago it was a laptop that was nearly 2 inches thick. 10 years ago it was a notebook just under an inch thick. Today it's a half-inch thick ultrabook, but about half my screen time is on my phone and tablet.

Mobile isn't going to go away. Eventually it's going to eat the laptop and eventually desktop markets. Intel charges a fortune for their CPUs (about $100-$1000 vs about $5-$20 for ARM). As technology advances and ARM processors become more and more capable of performing everyday computing tasks, there will be less and less reason to spend an extra $100-$500 for an x86/x64-based "computer". And if x86/x64 dies, Windows dies with it. Microsoft knows it, and its shareholders know it.

That's why Microsoft worked so hard on Windows RT (basically Windows for ARM). That was their warning shot across Intel's bow that they had better do something to stave off the advance of ARM devices, or Windows was going to jump ship and abandon x86/x64 for ARM. It worked. Intel came out with some new extremely low-power CPUs which were almost competitive with ARM in power consumption but ran x86/x64 software, thus slowing ARM's encroachment into the laptop market (e.g. early Chromebooks were ARM, but they're now Intel). At least for now.

But the Intel can't keep it up forever. Their tax is very high per cm^2 of silicon compared to ARM. Eventually they're going to have to cut their prices, or ARM is going to win out. And if ARM wins, which OS do you think is going to dominate? Windows RT? Yeah neither do I. Which is why Microsoft's shareholders are so anxious that Microsoft do something, anything, to gain a foothold in the mobile (ARM) market.

Hmmm. Sure.

http://www.tannerhelland.com/wp-content/uploads/Microsoft_2010_Revenue_Values.png

That's awesome. Please compare for us:

1) The percentage of Google's revenues that are from advertising;

with

2) The percentage of Microsoft's revenues that are from advertising;

Here, I did it for you: Microsoft makes about 4% of its revenues from advertising, and that's generous - it falls into the "Online Services" category, and 4% would assume they made no money other than from advertising in that space. Google makes 96% of its revenues from advertising.

Microsoft is an "advertising company" like Google is a "hardware company" - that is to say, not at all.

It's actually better for them than he points out.

Microsoft has been making a profit on this division for some years now, and their entertainment and devices division has made enough to make back the losses it took for some years, such that even over the last 10 - 12 year period it could now be deemed to be entirely profitable. The money pit argument comes from the supposed $6bn or so black hole Microsoft had from the R&D costs of developing the original two XBoxes and the $1bn warranty write off from the RROD fiasco. Obviously Microsoft's profits frim this division probably aren't quite up to the $6bn mark yet, but the $6bn number came from Sony fanboys wanting to troll Microsoft and was simply a combination of Microsoft's large lump sum costs like those mentioned above, without any consideration of how much of that was absorbed into revenue. The answer was quite a lot, so the real loss on the division was much much lower.

It's not entirely uptodate as it doesn't cover sales so far this year, and unfortunately they seem to have gotten rid of some of the more useful historic charts they used to have, but this site is quite useful:

http://www.tannerhelland.com/3958/microsoft-money-updated-2011/

You can see entertainment and devices is not the weak division now - it's online services that's the issue. E&D looks set to earn about $2bn in profit this year I believe.

My personal feeling on it is that I suspect a lot of it is driven by XBox Live subscriptions, I believe Microsoft have about 35 - 40 million gold subscribers (may even be higher now, this figure was from a few years ago IIRC), and they don't really provide anything for that service as all gaming etc. is peer to peer. It costs around £40 a year RRP, but you can get it for about £32, however even at this lower price I suspect all those subscribers are going to equate to about $1bn in sheer profit when you do the £ to dollar conversion, and remove costs of providing the service. Take this away, and the E&D division doesn't look so healthy making maybe only £200mill - £300mill, which is nothing to cough at, but still small in big boy terms. Effectively it seems they're not making as much on console sales/games/digital content outside of XBL subscriptions as they really might hope to be.

Microsoft revenue by division, updated with 2010 data: http://www.tannerhelland.com/3958/microsoft-money-updated-2011/

Actually, MS is Windows - Office - Outlook - Sharepoint. I'm not even sure if Sharepoint is for revenue yet, or just lock-in.

http://www.tannerhelland.com/2962/where-does-microsoft-make-its-money-2010/

• 5 versions of the .Net Framework and Visual Studio
• 2 generations and 6+ versions of the Xbox gaming system
• 4 generations of the Zune music player
• 2 major desktop, 2 major server, and 4 Mobile/Embedded Operating Systems Updates

Not to mention large investments in online search, software as a service, and cloud computing. With the exception of their Online Services Division (MSN, Bing, Hotmail, advertising) Microsoft makes significant income from each of their product divisions and has more than twice the income that Apple does. Many of their business products are doing very well, and Sharepoint recently became their latest billion dollar sales product.

I will admit that Apple's products are more popular than Microsofts, but that is because they are tailored to the consumer market. Most business uses Microsoft because it costs less and makes users more productive. I personally think that the Zune HD and Windows 7 are great consumer products, and the Windows Phone 7 is designed to compete with the iPhone as opposed to the Palm OS for Windows Mobile, so it will be interesting to see how the next 10 years progresses.