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Microsoft Profit and Loss by Business Area
An anonymous submitter writes "The Register is reporting in this article striking new evidence of what in my opinion can only be described as abuse of their monopoly position. A recent SEC filing shows that they lose money in every business area except Windows (86% profit) and Office (79% profit)." Another notes that the Financial Times has a story on the same subject - Dr. No writes "According to the Financial Times, Microsoft's Windows division has a profit margin of 85%. This is the first time this figure has been made public." The full version of Windows XP costs about $300.00. Microsoft could sell it for $45 and still make a profit. The difference between the $45 price and the $300 price is what economists call "monopoly rents".
Difference being that Microsoft is selling software and Redhat is selling service and support.
This is basic Economics 101.
It sell for $300, and the cost to produce it is $45.
That means the profit is $255 and the gross margin is $255/$300 * 100 = 85%.
Microsoft OS division has a profit margin of 85%.
That's great.
Microsoft's X-Box division has a profit margin of -300%.
The OS division is where MS gets the cash to pour into products that will never turn a profit, or at best break even; the services they're providing (even for a charge) that are good to have but aren't really marketable, or are only marketed by MS for the sole purpose of having a presence in that market, without hope of actually taking over.
That's the whole point, though: under US law, there's nothing wrong with having a monopoly per se. That just means you're wildly successful and everyone wants your products.
There is something wrong with abusing that monopoly to shut out competition (denying people choice) or leveraging that monopoly to compete in other markets (eg, using the DirectX and Win32 API to compete in the games console market).
It also suggests that Microsoft could get hammered under various nations' anti-dumping laws, since it would appear they're selling goods at well under the cost of manufacture.
Microsoft is very aware of this. They also know that at this point, an office application that can't reliably import/export/work with with Microsoft Office documents isn't worth beans. Hence why their file formats are so thoroughly undecipherable.. they want to make sure that others are unable to work effectively with MS Office documents (crack open a MS Word document with a plain text editor, and you will see what I mean).
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I worked in Windows and NT for many years, and then MSR for a couple after that.
MSR provides nothing to the Windows internals. What a ridiculous statement.
MSR is a prestige organization only, and MS pays huge for that 'prestige'. Every so often you will hear about something from MSR getting into a product, but let me assure you its all hype. Most things that actually do get into a product were built by people from the product team who changed orgs to MSR after the idea was already proven. And those are very rare too.
No, MSR is a worthless academic sideshow that will be cut off the day MS profits are unable to hide its wasteful useless bloat.
Windows wrote theirs from scratch...
Wrong! Windows 9x came from DOS, which Microsoft bought from Tim Paterson. Windows XP came from Windows 2000 which came from Windows NT which came from a joint project between IBM and Microsoft.
Personally if I was an MS stockholder I would like to see this profit in my hands as a dividend of some sort, where I can decide to invest it myself, rather than let MS invest in non-performing projects (negative NPV) or donate away.
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Really, the incomes of different Microsoft divisions are entirely fictional. Most of their sales come from package deals to OEMs, which they could account for in any sort of way. After all, the number one computer game for a long time was the solitaire version that came with Windows. If Microsoft wanted their entertainment division to make more money, they could charge for solitaire and include windows with it for free. Since most people get them both via an OEM, nobody sees them itemized, so MS could change the pricing around, and the only effect would be that the division split on the SEC reports would be different.
Of course, the SEC filing is not a lie, but Microsoft could choose any gross income they wanted for any given division, and it would be just as accurate, because it doesn't actually reflect any measurable difference in the world outside.
According to the field of Microeconomics no firm will be able to maintain high profit margins in the long term unless they are a monopoly (or similar things like oligopoly w/ collusion.) In a real competitive market with low costs of entry, other firms will see Microsoft with such high profits and have incentive to enter the market, undercutting Microsoft. As the result of new firms entering, prices go down to a point of "normal or zero economic profit." This is how the competitive market works.
Microsoft is able to maintain such high profit margins because of their monopoly market position. Little other market factors would allow sustained high profit in the long term.
But if you read Sherman, et al. you'll find that monopolies are illegal because they COULD lead to abuse.
No, monopolies are illegal when abused. One example would be leveraging a monopoly position to force entry into another market. Another would be taking actions specifically designed to discourage competition. The rules change when you become a monopoly, but it's still legal.
"We returned the General to El Salvador, or maybe Guatemala, it's difficult to tell from 10,000 feet"