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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
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.
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.
Difference being that Microsoft is selling software and Redhat is selling service and support.
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.
Visit Jonesblog and say hello.
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%.
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.
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 $1000 gets it to the point where it's seriously impacting their finances. And that is where most Americans put their collective foot down.
Honey, I shrunk the Cygwin
Of course, the poster doesn't mention that
;-)
1) The server applications are also strongly in black.
2) These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.
3) All the segments that are in red are relatively new (except MSN). In the tech industry it is very common for new products to produce a loss for the first few years. Why should be any different for MS?
But hey, don't let a few insignificant facts distract you from waging a holy war
When men used to be men
First of all, MS isn't "acting like a capitalist"-- you're right on that accusation-- but they are certainly not acting like a welfare agency. Depending upon which aspects of MS's business plan you dislike the most, they are acting like "a software racket" (think of the Mafia's control of certain industries-- like that, only without all the guns and cement shoes and stuff
The free market. It's not free if one company runs the show (almost) by their lonesome.
Competition. (See above)
Competing on quality and price, not marketing.
At least, that's how the "classical capitalists" would have it-- people like Adam Smith and whatnot.
In any case, MS's behavior in the past decade or so has been sort of a twisted mockery of what capitalism is "supposed to be". Look at what ths Soviets did to socialism-- twisted it into a monstrous nightmare. MS is doing roughly the same thing to capitalism-- wrecking it.
They are most certainly not anything to do with welfare...
Honey, I shrunk the Cygwin
we could drive M$ to bankruptcy by buying BULK xboxes and using them as Linux servers?
In the free world the media isn't government run; the government is media run.
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?
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?
Austin is more fun than Dallas.
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.
<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
You would have to be a bona-fide moron to think windows has competitors that actually force market prices. Compare ximian connector to the costs of maintaining outlook on a windows box.
Ximian, unlike microsoft, has to deal with market pressure. Microsoft is in such a position to not succept itself to market pressure as easily.
duh.
-- dieman - Scott Dier
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).
slashdot!=valid HTML
Did anybody else think they'd come up with a new product when they read the headline?
General Relativity: Space-time tells matter where to go; Matter tells space-time what shape to be.
...just because you know how to type in bold, it doesn't mean you're right.
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.
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.
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.
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.
I don't make the rules. I just make fun of them.
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.
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.
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.
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.
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
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.
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.
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.
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.
Comment removed based on user account deletion
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
Linux is a viable alternative to Windows.