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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".
This shows the potential danger that StarOffice and OpenOffice pose to Microsoft if they ever get off the ground in the way that many would like them to. Especially if OpenOffice gains a large foothold in the business world - it would put serious pressure on all Microsoft divisions to make up the lost Office profits. If Linux ever gains a significant desktop share, this could get good.
From the Financial Times article: Bill Gates, Microsoft's chairman, speaking yesterday in Las Vegas at Comdex, America's largest information technology conference and show, warned that investors and pundits were becoming too pessimistic about the prospects for innovation in the information technology industry.
Of course we are becoming more pessimistic. When any one company can afford to loose billions of dollars running other companies out of business while creating inferior products, of course we are going to have less innovation.
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Go back 15 years. Microsoft's main revenue drivers were DOS and ummm Word for DOS. Languages contributed more then too (although I'd argue that MS has much more dominant share of DOS/Windows development tools today than they did 15 years ago)
We're not talking monopoly rents. We're talking about how some parts of your business become cash cows and support other parts of your business that they believe are worth investing in and will one day become profitable.
What about soda fountains at McDonalds (or wherever you buy your greasy fat)? They charge you $1.25 for seventeen cents of syrup and some essentially free carbonated water. It's the highest profit margin in the food industry, but it's merely a simultaneous choice by EVERY restaurant to do it.
What if people just EXPECT windows to cost more?
I know, it's faulty logic on MS's part; I recently bought licenses to all my illegal MS software because the university was selling them cheap. Before, I couldn't afford office and windows XP and vis-studio.net, so I stole them. Then I paid about 50 bucks and got licenses.
If they would just acknowledge that lower prices = less piracy and greater market penetration (esp. in poorer countries), then we'd all live in a happier world, wouldn't we?
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Most employees at MS think that the project they work on is successful. Even the ones that are total losers. This is because the orgs are always mixed up so that everyone works in profitable division, and exact profits from each product are never given out. Just praise.
It was always embarrassing to here people talk about how great their product was doing according the the VPs. Anyone who'd been there long enough knows the truth, but dont rub it in peoples faces. Bad for moral.
No; one of the selling points Microsoft use when touting the X-Box to developers is that they can write the game once and then deploy on both PCs and the X-Box, whereas if they develop for the PS/2 or GameCube, they need to write the game again. They're leveraging the dominant position of Windows in the desktop market (where games need to be sold) to enhance their position in the console market.
This is the kind of thing that can be considered an abuse of monopoly power.
Hold on for just a second. A can of coke costs about a nickle to make, can, ship and refrigerate and I just payed 0.75$ for it out of a vending machine.
High profit margins don't make you a monopoly.
Hang on, now to make this analogy more correct, you'd have to make sure that you almost never saw a vending machine for anything but Coke. Certain companies would make cups that could only contain Coke, and would be threatened if their cups were able to hold anything else. Everytime you wanted to take a sip, it would go flat, and you'd have to open a new can. Everytime that you wanted to buy a new can, you'd have to also buy a new cup.
get real, when people go to a computer store, and the salesperson asks them "What kind of computer would you like to buy?" they're looking for an answer like: {Dell|Compaq|Gateway|IBM}, -- Not linux, Mac OSX, FreeBSD, OS/2, etc.
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This is the content portion of your post:
.NET Server, both products were written by the Server platform group, not the Client group. This explain why the Client group has such a high percentage of profit and why the Server platform group didn't.
Windows XP shares >90% of its code with
Good points! You should have stopped here.
Instead, you couldn't resist getting in a few useless jabs:
One more proof that these two websites are less and less appealing to people who have a brain and use it. It shouldn't be that hard to use your brain once in a while instead of spreading lies about your opponent, it actually might even be useful and intelligent.
What wasteful, unwise things for you to write! You could have made your point without diving down to invective. As is, your post looks like a troll and will probably be regarded by most as such. If you want to be convincing, you will do much better to present your facts without slandering your opponent. Hell, every opponent is a potential convert.
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Look at Apple. Everyone knows that Apple has generous profit margins. However, they went out and bought their OS outright, and then spent another 4 years developing it before they offered a shrink-wrapped version. And the price they charge? $129. And that for an OS that serves 5% of the computer market.
Microsoft, OTOH, initially develops NT in partnership with IBM, so some of their costs are defrayed. Then they are the sole developer, but they have several releases, in addition to charging a per-seat license on for the server version, so they make up their development costs with each version. Now they are up to WinXP, which costs $300 for the professional version, which they are selling to 90% of the computer market. It should be obvious that MS is charging far, far more than they need to.
Also, keep in mind that most sales of Windows XP are preinstalled bundles on PC's, so who knows how much profit is made when you shell out the $300 for a shrink-wrapped copy.
I'm sorry, but when someone is making 85%+ margins AND shutting other companies out of entering the market, I don't know of a clearer definition of monopoly.
As a capitalist, I'd much rather see the market solve it's own problems. One way would certainly be for the government to seek out open source solutions as much as possible. Particularly the military; they already train their personnel on troubleshooting PC's, there's no reason they can't put more emphasis on Linux.
I just wouldn't want to see it issued as a directive that all departments must switch to Linux, because I'd hate to see Mac OS X get shut out.
If someone is found guilty of pirating warez, lates say Windoze XP... should the company value its "loss" at the retail level, the fair market value, or the cost of production?
Actually, Microsoft should be paying the Pirates!
With extra copies of the software out there in use, the value of the software (which is proportional to its user base) is increased. Therefore, Priates are actually helping the monopoly along. For early adoption software, I'm sure Microsoft is very happy to have Pirates spreading copies to friends or anyone else in the market. More copies is less sales for competitors and greater chance that their file format will become the standard.
However, once a product hits 60% or some other magic number of market dominance, the software is ubiquitious and the Pirate isn't helping to "spread the word". At this point, the Pirate is a net loss for Microsoft, and they are actively hunted down. Further, all of those "non-prirate, good customers" who have, unfortunately, illegally installed copies; well, Microsoft will be very nice to them with their payment plans.
Moral: If you want to hurt Microsoft, don't use or help spread the use of their products.
The price of PCs have gone down dramatically in the last several years. Even though the price of Windows is the same, or has risen is something that the consumer mostly doesn't see directly. Not many people have done the Windows upgrade since Windows 95 came out. Now they just get a new OS when they buy a new computer. A similar thing happens with Office being loaded on new PCs. Unless consumers *really* start to resent the prices of Microsoft, not much will happen.
you forget half of the circle.
The diversification is not meant as a way to find new products to sale in order to have more profits. The diversification is meant as a way to sustain or extend the monopoly. The monopoly is based on the unavoidable duo windows/office which provides the cash flow to operate the monopoly. All derivative products and their strategy are always centered around keeping the duo unavoidable.
Take the browser as an exemple, you cant find a more unprofitable redmond product since it was never sold but given. It was never meant to be profitable. It was meant to destroy the netscape navigator and the risk of applications which didnt care about the underlaying os (think web apps and java). Now it's ok because anyone "need" ie to do that.
This is all in the finding of facts of the doj trial. Those losses are the top of the iceberg that is meant to destroy others.
Actually, as soon as people stop to pay a lot for something that is cheap (an os and an office suite), then the duo wont be a cash cow anymore in the minute. That must be what keep them awake. It's called open source.
I wonder how many of Sony's customers actually call Sony up and ask for Linux to be pre-installed on their laptop... I'm sure there are a few, but not all that many. 'But Linux doesn't cost Sony anything! Why shouldn't they?' you cry.
Well, let's get back to reality now. If Sony wants to ship a desktop with Linux pre-installed, they've got to hire people to put together a pre-installed Linux distribution to use. People with experience building OEM Windows distributions aren't rare, and the tools to help this process are relatively common. Also, you've suddenly got to make sure all your hardware is completely supported in Linux. So you have to go out to your component suppliers.
So after you've done all this, you start selling pre-installed Linux on your computers... and suddenly somebody has a problem! Uh oh, I hope you have some people on hand for technical support! And you can't just outsource your technical support to a specialist company, like you can with Windows.
Let's face it. There simply isn't enough consumer interest to support pre-installed Linux on the desktop. Sure, you're going to save about $100 per computer (OEM license cost), but how many do you have to ship to make up for initial setup cost in the first place? The cost of the Windows license simply isn't a big enough on most computers being sold these days to make up for the pathetic level of general consumer interest (I don't consider the 0.5% of desktop users using Linux to be significant).
Now, the server market is different. Lots of people want Linux preinstalled on x86 servers and *gasp* I can buy it preinstalled! I've been able to for years! But there's appreciable demand, so that's no big surprise.
For the record, I use Debian GNU/Linux, and have for years. When I bought this computer (it's not worth my time to hunt down parts at OEM prices and build it myself), I just went to a local store, specced it out and asked for it without a Windows license. Easy as pie. But I didn't expect the guy running the store to preinstall Debian on it for me.
Microsoft is leveraging their high prices to enable them to give away other products, thus undercutting their competition.
Without doing research, I can pretty reasonably put this in two words -- "bull" and "shit".
I'll be willing to be that two years ago, three years ago, all those markets were reported as profitable. And it isn't because of a "tech downturn" that dropped *everything* into red ink without managers doing any cost saving. No, you'd hear about divisions being cut, layoffs, everything if there were real losses.
It's pretty obvious what's going on. MS is making money, just as usual. A while ago, a big company went belly up because of "loss hiding" -- our old friend Enron. As a result of this, lots of laws were passed making executives and auditors legally liable for hiding losses, inflating profits, and tucking them into future good years. Perhaps more importantly, the current public opinion is to crucify execs doing this, and not to let the government let them off the hook easily.
What's happened is that our buddy MS has, like most large companies over the past few years, has been tucking away a few too many losses under the rug and artificially jacked up reported profits.
Now, all of a sudden, Bill G. and Co. could be doing hard jail time (to say nothing of their auditing firm) if they can be shown to be deliberately hiding losses for another year. So they want to get rid of their losses *now*. It can't wait for another year -- they have to show all those unreported losses and inflated profit immediately. Well, they can't say that Windows is losing money -- 2k to XP migration is critical right now, Linux is a threat, and looking less than stable would be an awful idea. They can't say that Office is losing money -- for the first time in years, competitors have just sprung up, including Open Office and even WordPerfect pulled a comeback. The Office product also has to be rock solid. So where are all those losses going? Right into these non-core markets. Everything else loses money to clear up the balance sheets.
This isn't just MS, either. You're going to see a *lot* of big companies doing this, and a *lot* of negative filings, as companies have to avoid giving away past reporting falsehoods.
Now, I haven't looked at their past sheets. If this is consistent with past filings, I'm wrong. But I'd quite confidently bet that I'm not.
May we never see th
The research that Microsoft does is not the issue. The jobs and software that Microsoft creates is not the issue. At issue is the fact that Microsoft is abusing its monopoly position to charge excessively in markets which it holds dominance (namely operating systems for the main OEM manufacturers of PCs and office suites). At issue is the fact that Microsoft is using the profits it gains from this abuse to extend its monopoly to other markets. At issue is the fact that Microsoft is effectively DUMPING their products in markets in order to gain market share. (This of course does not touch on their other abuses: API abuses, forced upgrades, fake deals, stealing trade secrets, coersion, forced bundling etc etc etc).
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