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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".
Microsoft could sell it for $45 and still make a profit. Sure they could. Just like the RIAA could sell CDs for $5.95 and still make a profit. These guys make me sick!
At our school, we don't earn a degree when we graduate—we earn pi/180 radians
Come on who's posting this stuff? Essentially you're saying that you're okay with the monopoly but they shouldn't abuse it. That's crazy, but I guess that's what a monopoly can do to how people percieve the company. Microsoft can't innovate but they can dominate and they do that well. You try to keep quarter after quarter of growth in a company Microsoft's size and you too will find that you will have to do anything and everything.
http://tinyurl.com/3t236
where for some reason they needed to compete with linux on the desktop.... how hard would the linux sell be when windows is 45 bucks...
There's nothing Intelligent about Intelligent Design.
They aren't charging $1000 a copy (or $2000, or more) because there is a limit people will stand-- in this area, at least (and perhaps only in this area). Joe Consumer won't care if you tell him "This OS is made by an evil candy-from-babies-stealing monopoly with flappin' heads and beady little eyes", but he WILL care if you say "Hey, did you see that new Windows on sale at Best Buy? It's a thousand bucks!"
I've found that most Americans remain quite apathetic to anything and everything, in general-- until you make it blindingly obvious that something will hit them in the wallet.
Saying "Windows is made by a monopolist" doesn't get them riled up.
Saying "Windows will now cost $1,000 a version" does.
Why? Simple. Since they feel that Windows is great, and therefore "worth" $300-- but $1000 gets it to the point where it's seriously impacting their finances. And that is where most Americans put their collective foot down.
Honey, I shrunk the Cygwin
- This profit subsidizes the rest of the MS products. You're getting a good deal.
*BZZZT* WRONG! The profit subsidises projects that puts other companies out of business. The X-Box is currently losing $750M/year, and is set to rise. How can other companies hope to compete, or even break into that market?Of course, the poster doesn't mention that
;-)
1) The server applications are also strongly in black.
2) These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.
3) All the segments that are in red are relatively new (except MSN). In the tech industry it is very common for new products to produce a loss for the first few years. Why should be any different for MS?
But hey, don't let a few insignificant facts distract you from waging a holy war
When men used to be men
First of all, MS isn't "acting like a capitalist"-- you're right on that accusation-- but they are certainly not acting like a welfare agency. Depending upon which aspects of MS's business plan you dislike the most, they are acting like "a software racket" (think of the Mafia's control of certain industries-- like that, only without all the guns and cement shoes and stuff
The free market. It's not free if one company runs the show (almost) by their lonesome.
Competition. (See above)
Competing on quality and price, not marketing.
At least, that's how the "classical capitalists" would have it-- people like Adam Smith and whatnot.
In any case, MS's behavior in the past decade or so has been sort of a twisted mockery of what capitalism is "supposed to be". Look at what ths Soviets did to socialism-- twisted it into a monstrous nightmare. MS is doing roughly the same thing to capitalism-- wrecking it.
They are most certainly not anything to do with welfare...
Honey, I shrunk the Cygwin
I'll put it simply.
;) ) was "Well, there goes the MS case... they'll be let off with a relative slap on the wrist."
The courts did not fail-- by their current definition of failure.
A more pro-Microsoft administration succeeded the previous one in the Federal government. Their idea of "failure" would be if MS did suffer.
When Bush took the white house, one of the first things I thought (after "Oh, shit!"
Which was, by most observers' assessments, just what happened...
Honey, I shrunk the Cygwin
You're absolutely right about it not being an abuse in terms of the letter of the law, BUT an 89% profit rate is a very strong sign that the market is bearing a heavy price for the monopoly. (Note that 20% profit rates are normally considered very good in most businesses, IIRC. 89% is almost unheard of.) Isn't this type of burden on the market exactly what anti-trust laws were intended to prevent?
When you're a monopoly, yes it is.
Again, when your entire multi-billion-dollar monopoly which has widespread penetration in many markets is being supported by two out of thousands of products... that's abuse.
The key is that this isn't just any company. Sure, a normal company might choose to try their hand at a new market, supporting it with profits from another. But this is a monopoly, and they're using their monopoly to gain marketshare in other markets. All the other markets! This is the definition of such abuse.
Summary: do not compare this to "any other company". Whey we're dealing with a monopoly, the rules are different.
Don't think of it as a flame---it's more like an argument that does 3d6 fire damage
Microsoft charges a price they believe the market will bear. They don't charge $1000 a copy because people wouldn't stand for that. That isn't to say the price could creep up to close $1000 in a few years (provided they will still be in the OS business). Actually, this issue is already covered in Judge Jackson's finding of fact in 1999. See this.
Notice in particular the first sentence (emphasis mine):
And this is all from 1999! How much have they (not) changed in three years?
i can download a full version of redhat for free. and have it be legal.
can you download windows XP, legally, for free?
i think it takes a whole different spin on things when a company can sell something for 150$ (and people purchase it) as well as give it away for free, and still be afloat.
k.
--even a broken watch is correct twice a day.
It's a "will consumers ever grow a spine and tell Microsoft to take a flying leap" issue. I realize the alternatives may entail an initial cost outlay over and above the current licensing (for businesses, anyway), but it is my opinion that this will yield significant benefits over the long term. I personally wouldn't mind seeing Bill Gates in a position where he's asking what Microsoft can do to be of greater value to consumers, and hopefully stay in business. But until the spine issue is resolved, this will remain little more than wishful thinking.
<JessLeah casts 'Dispel Troll' and recites:>
1) One small good deed does not cancel out many large bad deeds.
2) IE is actually not a buggy piece of anything-- I personally think it's quite nice. I merely dislike it because of the morals of the people making/pushing it.
3) Putting words in my mouth does not mean I agree with them. There will always be situations where companies will release some things at a loss or for free-- it's the concept of the "loss leader". Look at how many video game companies routinely lose GOBS of money underselling their consoles. They make their money on the cartridges/CDs. That's a very common and acceptable course of action.
Do you really think your cell phone company (assuming you have a cell phone) makes money off of the sale of cell phones?
Honey, I shrunk the Cygwin
Microsoft is aggresively entering new markets because, when you own 99.9% of one market, further growth in that market can only take place at the rate of growth of the market. And since the OS market is realtiely mature, it does not grow as fast as other, emerging markets. Sorry to burst your bubble, but it has nothing to do with linux being a "major" competitor...
Microsoft's playthings like XBox and WinCE will never be profitable.
Or to put it in words you understand:
ALL divisions at Microsoft are dependent on Windows and Office. With people refusing to upgrade and/or migrating to OpenOffice and Linux, ***** ALL ****** Microsoft products are endangered. - Sooner than you might think.
Expect the MSFT-shares to drop a bit in price over the next days. Shareholders don't like being lied to - they also don't like a company that is picking up losing ventures one after another (most recently and most serious is XBox. Sold about half as many units as Microsoft expected and promised - at a higher loss than expected.)
It's no coincidence that Bill Gates sells thousands of shares each week. He knows that even after all the beating the MSFT-stock received, it's still overpriced.
Microsoft's problem is that without happy shareholders, all their tax-stock-option loopholes don't work anymore. And without them, they would make losses - RIGHT NOW.
Always remember: The most profitable product Microsoft sells is not Windows and not Office, it's MSFT-stock.
A lot of businesses have that much markup.
Like Hell. Markup is NOT the same thing as profit.
Profit is equal to revenues minus the cost of manufacturing and minus the cost of sales admin and R&D. Markup is the increase percentage of cost of goods (i.e. manufacturing cost) to reach the selling price.
Most businesses have to have 80% markup to just break even. In the US the average business makes about 10% profit on a 80-100% markup.
Do you think I can buy a computer cable for $5 from Tiawan, mark it up and 100% and sell it to you for $10 and make a 100% profit? No friggin way. I still have to pay inventory carrying costs, rent on the warehouse, salaries and benefits of my bookkeeper and shipping clerks, taxes and so on.
What Microsoft has to do is sell their product at a price that is about 7 times what their manufacturing, sale, admin and R&D cost is to achieve an 86% profit. If we assume that their sales,admin,R&D costs are essentially the same as their manufacturing cost (typical for most companies), that means Microsoft's markup is 1400%, or fourteen times what the typical US business markup is.
Microsoft has been, and continues to be the most profitable (as a percentage of sales) large organization in the world. Major products like Windows with it's 86% profit exceed any other known large scale product in profitability. And that includes products like cocaine sold by drug cartels that only averages a 50% profit margin, and the patented pharmaceuticals that people on this site whine about so much.
THE ONLY CONCIEVEABLE WAY THAT MICROSOFT CAN MANTAIN SUCH PROFITS IS THROUGH PRICE GOUGING MADE POSSIBLE BY A MONOPOLY.
That one division carries a company is NOT an abuse of their monopoly position. Keeping Netscape off the desktop with the threat of higher Windows licensing costs IS. Just because a company makes a profit in 1 area and loses in another doesn't make it abusive.
No, but it becomes abusive when the company uses profits from one division to lower the prices of their products from another division in order to drive out competitors.
The US itself complains about this constantly when it comes to European steel imports and other goods. Maybe the solution to this problem is for the Europeans simply to impose hefty import duties on Microsoft's below-cost exports to the EU.
It seems to me that MS should be worried by these figures. They have a whole load of different products but only Windows and Office actually make them any money? We're not talking just Xbox here, this is MSNBC, MSN, PocketPC, VisualStudio, Consulting, etc. They've busted there butts trying to diversify for the last ten years and have come up with zero to show for it. Whether they are a monopoly or not is not the point. The point is that they have a huge sled and only two dogs are pulling it. If something should happen to Windows and Office, say Linux and OpenOffice, they would have nothing left to fall back on. Yea, they have a ton of money in the bank to keep them going for a few years but they'll have to work hard at finding something else to do for a living.
Incorrect.
Now I'm not the average slashbot who runs nothing but Linux from his home computer to his coffie machine, but what I got from the article is that Microsoft is sustaining a foot in the door of a market that doesn't want them. If they are loosing money making mice and keyboards, our economy is set up so they would have to inovate or go out of business. Microsoft is the exception to the rule. They can keep on producing their products even after the market has voted them as the weekest link. The fact that Microsoft is using sales of its other products to continue to produce infirior hardware is not fair to the consumers who have already choosen Logitech and Genius. Two companys who produce amazing hardware and make a profit at it. I don't know about you, but I'm not sure how long I'd last without MY Genius NetMouse Pro.
Of course, because the video game arena was profitable and easy to get into BEFORE MS entered. Well, except for Sega, they lost too much on the hardware and had to leave that part of the business. But, that must have been for some other reason. Neo-geo has done great in the US. Well, I guess they've failed before MS got into the market. There have been a LOT of companies over the years that have tried to get into this market before, and most all have died. Even veterans like Sega have had problems pre-MS.
In fact the only company in recent times that I can think of to successfully break into the video game business was Sony. Why was that? They had the money to make a great product and keep it afloat untill it really took off. MS is doing the same thing. For all the MS bashing here on /. (which I'm usually part of) you have to admit that the XBox is a great piece of hardware compared to the other consoles on the market. And being MS, they can afford to entice publishers and devote resources to helping them make the games look/run better.
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
Consumers do have a choice at present
OK, call up Gateway and try to get them to sell you a computer without Windows pre-installed. Can't do it, can you? Or try running over to Best Buy and getting a computer without Windows on it.
Or try buying a Sony laptop without Windows installed on it.
The fact is that consumers do not and will not have a choice until the have the freedom to purchase any computer they want WITHOUT Windows installed on it.
Right now Microsoft has the market sewn up with these pre-installs to the point where consumers do not have a choice.
MS gives out IE for free, that's anti-competetive?
Boy. You don't even kind of get it, do you?
Giving away software isn't what makes MicroSoft a monopoly. Using their leverage as THE MAIN supplier of household Operating Systems to distribute this software, to the exclusion of others, with a toehold in the OS that other browsers will not have and then, ultimately, claiming that the browser is INEXTRICABLY intertwined with the OS -- all of these things are what make MS a monopoly.
Repeat after me: It's not giving away software, it's unfairly using an advantage and obstructing others that makes MicroSoft a monopoly.
I don't think most people would care if MS kept to standards, but that's another story.
The opposite of progress is congress
Actually, YOU don't seem to understand the basic definition of a monopoly. MS has a monopoly because the court found that there was not a viable competitor in the market - they have exclusive possesion or control of the desktop OS market.
The "abuse" of that monopoly (using monopoly power to leverage other business in a way that gives MS an unfair advantage) is the illegal part.
While I agree that "most people" don't care if MS used standards, I would bet that "most computer professionals" DO care, yet due to the monopoly issue can do very little about it. MS's failure to adhere to standards (and the embrace and extend practice) makes it REALLY flippin hard to interface MS systems to other non-MS systems.
I think what we are looking at here is some sort of economic evolution. You will notice that Microsoft's most mature products (office and Windows) are profit leaders. However, loss leaders will be products that some day (maybe 5 years) will bear the fruit grown in the soil rich with competitor's blood. Once all of the competition for browsers, or Database servers are dead, they can crank up the profit margin on those products, as all of the competition has been swallowed, killed, or discredited by FUD.
The real unanswered question is whether this is a death knell or call to arms.
Ms will effectively own your pc at the hardware level and you all will pay a monthly bill to use it. It's inevitable and will be the fact of life in a couple years. Linux will be effectivly dead in the pc market and ms will double there current prices for windows and office and still sell it cheap if you chose to rent it. Joe consumer will think MS office is standard because its better and not because ms crippled all pc hardware. Ask any user who makes the best software and %90 will say Microsoft. They do not and will not know any better and it wont matter how good OpenOffice is.
http://saveie6.com/
The specs of the system and the money involved have very, very little to do with the overall quality of the games. The Sega Genesis had jack for money and barely any developers against the NES behemoth. They didn't need money, they didn't need to "entice developers," they got a few good ones together that would work for cheap, made their own games for their own system, and gave Nintendo one hell of a run for their money. One could even say that the infusion of cash has been a bad thing for the industry, large markets have turned something that was very much an art form for decent profit to a big media market. When anything that looks somewhat pretty or is halfway entertaining makes a metric assload of money, there's much less incentive than there was when only the really great games got any sizable amount of cash. There's just no motivation anymore, which is why we can always predict that the great games are going to come from people like Yuki Naka, Yu Suzuki, Shigeru Miyamoto, their teams, and the projects they supervise. The names are so important because these are the people that still treat it like an art (except Yu Suzuki not so much anymore, but he hasn't had any public support since Shenmue flopped).
Also, it's pretty silly to call a console with UMA technologically superior to the others. Just because they throw fancy/powerful PC hardware in a box doesn't mean it's a superior gaming platform. The biggest point of a console is architecture, not raw power, not how impressive the hardware is, but how incredibly well everything works together. One of the best things Sony did with the PS2 was the emotion engine, while it had some serious oversights (lack of hardware antialiasing), it was a better attempt at a SYSTEM than MS's PC in a slightly smaller box. I don't know as much about the customization of flipper and the rest of the gamecube, but from what I know of the N64 I think I can assume that Nintendo knows what they're doing hardware-wise (aside from that unfortunate incident with the N64 cartridges). I know that someone's going to mention all the wonderful benchmarks that everyone and their mother with a dev kit has put out. Be sure to read what they're testing - 9 times out of 10, the benchmarks are just polygons without effects. Benchmarks on consoles are useless.
First, there were about 10 people who made points like these: Mcdonald's charges $1.25 for a large coke when it only costs them $0.03. Diamond retailers have a 200% markup. Vending machines sell coke for $0.75/can when it costs $0.10 to manufacture. Look at how big their profit margins are! And so on...
The profit margins at Mcdonald's, jewelry retailers, and vending machine companies are very low. You have to take into account all the costs in calculating profit. Mcdonald's only pays $0.03 for the coke they are selling you, but they paid over $1 million for the building in which they are selling it to you, and over $200k/yr for employees in that building, plus costs for managers and benefits, to say nothing of corporate expenses, advertisements, and so on. Retail jewelry stores fail more often than any other kind of store. Sure, they charge a 100% markup, but they get like 2 paying customers per day, for which they must pay rent on a store and employees' salaries, etc.
An 89% profit margin is extremely unusual. IIRC, the average profit margin in American business is around 4%. The only other large companies that take anywhere near that profit are drug companies, right after marketing a "blockbuster drug" where there few competitive alternatives.
Okay, here's how it works. People who buy computers have a reasonable disposable income. They also feel windows is a necessity for their computer. Therefore their demand for windows varies little with price.
As long as the response of demand to a change in price is proportionately less, MS increases profits by increasing price. However, this does not produce a socially desirable outcome. Microsoft's surplus, or benefit derived from sales, is bigger than if the price was $50, but the consumer's is much smaller. The total is less than if the price was $50. This situation can only be maintained in the long run due to the monopoly position of MS, and is called a market failure.
Therefore, the socially desirable thing is for the government to buy/regulate/whatever microsoft to sell their supernormal profits cheaper.
Free Java games for your phone: Tontie, Sokoban
This decision didn't come from the administration, it came from a judge. True, judges are appointed by the President, but Judge Colleen Kollar-Kotelly was appointed to the United States District Court in 1997, over three years before the current administration was inaugurated. Only Congress can impeach a judge, so I don't understand how the current administration could possibly have affected the outcome of this case.
grep -ri 'should work'
Comment removed based on user account deletion
Microsoft's playthings like XBox and WinCE will never be profitable.
/.) predict that many of Microsofts ventures will be profitable.
How does such rubbish get a +5? NONE of us know whether or not they will be profitable, and people who actually study business (or who at least have a basic understanding of business, unlike many here at
Microsoft's problem is that without happy shareholders, all their tax-stock-option loopholes don't work anymore.
NEWSFLASH - Companies rely on happy shareholders. Please, got back to school.
There is no longer anything that can be done with computers that is nontrivial and clearly legal. -- Paul Phillips
Hold on -- the problem with comparing the $300 list price with the 85% profit margin at first blush appears to be that, of course, copies are sold at every price from $300 down to whatever bulk OEM bundling deal might be hammered out.
However, that misses the point altogether of a margin: an 85% profit margin is always an 85% margin. 85% tells you what fraction of the take, and it's a big take, is characterized as profit. And 85%, especially given the VOLUME we're talking here, is staggering. 85% suggests you've either got a product that it unusual and special and hot and patented or hard to imitate, or that something fishy is going on.
You almost want to ask, why don't they spin off the Windows division? Well, we know that the Windows division bankrolls other, future plans of the Microsoft Corporation as it casts about trying to provide for its ongoing viability.
As for the relevance of monopoly, easy, it raises the highest price that the market will tolerate by imposing illegal constraints on the market finding something better. It's the essential reason that a monopoly is desirable. Think of it as getting a higher price from your customer with a handshake and a gun than a handshake alone. Simple as that, and just as illegal.
I happen to know another company with a negative cash flow in most divisions. Actually, all divisions. It's VA Linux, and they're burning up money (from VCs and the IPO). Does that make them evil? Nope. Capitalism is about investing money (and taking a loss here and now) in the hopes of achieving profits in the future. It cost a lot of money to develop SourceForge (and all those star wars ripoff ads!), but now that it's developed, maybe they'll be able to sell it for large amounts of money.
Why is it different for MS? Because they don't need to seek outside VCs or do an IPO to create MSN or MSNBC or XBox? Or because someone has a hard on for them?
Do you even lift?
These aren't the 'roids you're looking for.
"How can other companies hope to compete, or even break into that market?"
:)
You and what other companies?
Maybe Atari or Neo Geo or Nec (TurboGrafx) or 3DO or Amiga or Indrema... or everyone else.
Interactive Visual Medical Dictionary
Microsoft definitely has a monopoly. But it is not illegal to be a monopoly. It is illegal to use monopoly power in certain ways, and neither I nor the vast majority of the SlashDot crowd is anywhere near capable of determining what behavior by a monopoly is legal and what behavior is illegal.
Homework assignment: go read the complete trial history of 7 major monopoly trials. After that, I'll listen to your opinions about how illegal Microsoft is. Until then, don't take it upon yourself to determine how illegal and evil Microsoft is.
Microsoft has done something that no other industry could do: provide a platform compelling enough to allow it to continue to make 85% profit margins even in the face of fairly strong competition being given away for free. People want/need/think they need Windows and Office. And maybe they don't just get it because they are ignorant masses. Perhaps they get it because it provides some things that nothing else can.
First, it is pretty tough to say exactly what it cost to produce Windows. We can see how much Bill spent on employees in the Windows division last year versus the profits that Windows sales brought. But Last Year's work on Windows isn't what made people want to make Last Year's Windows purchases. It was the work of years of figuring out how to make Windows valuable. A lot of this was research (which loses money). Some of this is peripheral applications (which lose money) -- without them available, nobody would want to buy Windows.
Now in doing this, Microsoft has stepped into controversial territory. Instead of under-pricing to take over a market, they are under-pricing to ensure the survival of another market. Those are different things. Predatory pricing is illegal, but the other hasn't been completely evaluated in court (AFAIK). Perhaps they are both wrong, perhaps only one. (Although it is likely that the real answer is that you can't really have one without the other, so maybe the question is moot.)
But I suggest that instead of yelling about how evil (aka very effective at doing what companies are supposed to do -- make a profit) and mean (aka looking out for themselves instead of their competition) Microsoft is, and how all Microsofties should go to jail, I would much rather focus on topics more grounded in reality:
What is Microsoft doing that Open Source isn't? How can we start doing this better without abandoning our values?
Should this practice of non-predatory undercutting be legal? It has definite advantages for some people (even not counting Microsoft), and definite disadvantages for some people. Is it different, as I asserted earlier, or is it the same as the normal predatory price undercutting?
What population is most hurt by this practice? Can Linux fill this need? Should we work to make this happen, or would it be better to chase the more mainstream population?
What do we need to do to shore up Linux's environment in the same way that Microsoft shores up Windows' environment?
The mindless repetition of whining and flaming of Microsoft every time any article about them comes out won't get anybody anywhere. Lets talk about something intelligent for a change. Please?
Thanks.
Time flies like an arrow. Fruit flies like a banana.
A bicycle is a viable alternative to a car. Unless you work a long way from home or have to bring new furniture home, or have kids to drop off at daycare, or live someplace where it snows a lot.
So a bicylce is a viable alternative to a car, but there's lots of caveats.
Going naked is a viable alternative to clothing. Unless you're not a supermodel, or want to leave the house, or own lots of mirrors, or don't like to get arrested.
The Linux/Windows thing is not a true paradox. Linux is a viable alternative to Windows as long as your work doesn't require Windows, you don't want to play any of the games only available on Windows, you don't need any of the apps only available on Windows, and you're willing to spend a little time when things don't work right out of the box.
If you lost your car for some reason, you could probably get by: friends, bike, public transportation, taxi, rentals. If you lost Windows, you could probably get by - most Windows apps have an equivalent on Linux, and those that don't you could get from a friend's PC or at work or maybe on a Mac. We generally don't have to make the either/or choice, but we could if we just weren't so lazy/set in our ways.
Not a true paradox, but funny, I guess.