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Microsoft's Midlife Crisis
pillageplunder writes "This article from Businessweek covers the recent memo sent to all Microsoft employees by Steve Ballmer. Interesting tidbits through-out: how Microsoft will try to cut a Billion dollars in expenses, and its cost per employee is about $300K"
If you've costed in the salary of a professional, fringe benefits, vacation, employer's contribution to social security, etc. and then add in a multiplier to account for the infrastructural overhead services (people in accounting, facilities maintenance, management, etc.) in a large corporation or university, this figure is not at all unusual.
That said, however, Microsoft enjoys a surfeit of talent that, like ATT Bell Labs in its day (when it, too, had a monopoly) could afford to do lots of interesting work.
Unfortunately, the need for innovative work to reinforce and expand the existing business model and never ever undermine it is constraining and prevents the company from releasing the full talent of its employees.
So what you see instead are people leaving Microsoft to start entirely new ventures.
"Provided by the management for your protection."
$300k per employee is a high stat, but the typical office worker costs a company $100k-$150k a year when things beyond salary such as the cost of supplying that employee with the office space and supplies needed to do their job, insurance costs, administrative expenses, and other such costs are factored in.
I wonder if this is an example of Microsoft trying to be the "end all, be all" of everything, and it's finally catching up with them.
So far, they have 4 sources of real revenue:
Windows OS/Server
Office
Development Tool Sales
Some hardware (mice, keyboards, etc)
Everything else that MS is involved in has been money losing ventures. Cell phones, PDA, cable TV, "Ultimate TV" - heck, the "raging successful Xbox" has lost over $2 billion for the company (and if that's success, I'd hate to see what failure is).
MS has $56 billion in the bank (some cash, some investments), and so far, revenues are still outstripping costs. But I think Ballmer can look ahead and read the writing on the wall. Other than the MS tax on computers (yes, it exists, deal with it), people aren't rushing out to upgrade with every new OS release. Lots of folks are still on Windows 98/2000 Server and Office 95.
So what will be cut away? WIll they just reduce the number of employees? Shift more developers to India? Or cut on some projects and say "OK, so we're not going to take over the cable market."
The Xbox2, for example, is being retooled not to be "successful" (as in "Beat Sony!"), but "profitable", which should be their focus: making a game system that is cheaper to produce, harder to hack, and even if they aren't #1 in the game industry they can make money at it (wait - that sounds like another console company out there). Why be #1 in the home media player market when sometimes being #2 makes money too?
Odds are, MS is, as the article mentions, just going through a "mid-life crisis". They'll either recoup, tighten down, and keep chugging along - or just proceed with "business as usual" for all their talk, then wonder 5 years from now why all of the business are running Slinux (simple Linux - easy enough for Grandma to figure out how to change the screen resolution) or Apple OS X instead of Windows.
52 Weeks, 52 Religions with John Hummel
On growth and costs: "We have as much opportunity to grow as any other company in the world. That's a big statement, but the opportunities we've scoped out are very big. Make no mistake -- we must grow our revenues to grow profits. We cannot just cut costs. At the same time, we must ensure a competitive cost structure, or competitors will offer prices, services or innovations that we cannot afford to match. Other companies have been severe in tightening costs the last few years -- layoffs, major benefit reductions, etc. We have not done those things and want to be prudent now so we avoid severe measures later."
On the need to innovate: "The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag - like search and online music distribution - rest assured that the race to innovate has just begun and we will pull ahead."
On Microsoft's share price: "Obviously, we all want to increase the value of our stock, and we have the best opportunity to do that since the end of FY98. Our stock was around $25 then, as it is now, and we have more than doubled our operating profits since. Shareholders then were betting we would work hard for all these years to make the company worth that mid-98 stock price. We have done so."
On aiming products at various markets: "Our products must also be better segmented for different users with different needs. And we must evolve marketing to focus more squarely on the value proposition throughout the product lifecycle, not just at launch. So many customers have yet to deploy our most recent advances, so we must not only help them understand why to deploy, but also demonstrate the benefits of deploying before we reach the Longhorn generation."
On perceptions of Microsoft: "We must also work to change a number of customer perceptions, including the views that older versions of Office and Windows are good enough and that Microsoft is not sufficiently focused on security. We must emphasize key positive perceptions of the strong manageability, and developer and information-worker preference, for our platform."
On avoiding the trappings of size: "Nothing solves 'big company' ills quite like a strong focus on accountability for results with customers and shareholders. Innovating, growing share and profits, and serving customers all ensure that we have no time for wasted motion. To do this, we need to prioritize the things that matter the most with our customers and for the company, and then be accountable for executing on those choices."
The problem is the way they word the statistic, "$300,000 in annual expenses per employee." This could entail both fixed and variable costs, meaning that simply eliminating an average employee wouldn't shave $300,000 from the bottom line. If you're looking at employee-related expenses overall, SRC (Salary-related costs, such as benefits) would normally run something like 30-50% over and above the employee's salary. Of course, since they're in the Seattle area, who knows what their average salary is...
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No shit.
I love this bit from the article:
Does Microsoft's midlife struggle signal that the glory days are over for tech? Not a bit. While industry revenue growth is slowing, there's still plenty of innovating to do. Microsoft just has to figure out a better way of going about it.
No, it means the rest of the tech world will go on innovating, and Microsoft will go on copying, and make money -- not insane shit-tons of money, maybe, but plenty of it -- just like always. They've never innovated anything; they've always made their money by being clever businessmen, not brilliant inventors. Nothing has to change.
The correlation between ignorance of statistics and using "correlation is not causation" as an argument is close to 1.
I can believe it. The working conditions for developers at Microsoft are incredibly beyond anything I've personally seen at a company of any size elsewhere.
I did an interview there back when I was in college. Mind you, I didn't like a one of the people on the team I'd have been working with, but beyond that I was just blown away. Developers in large, comfortable, well-furnished (and, importantly, to their wishes rather than a corporate mold) offices rather than cube farms. Employee cafeterias which blew away any cafeteria or buffet-like restaurant I've ever seen.
For me, the really painful thing to pass up was the free beverage package. Sure, some of the places I've worked have had something like that. The words don't really describe Microsoft's setup. Imagine a huge wall of soda fridges like you'd see at most gas stations, except on a grander scale -- imagine they have every brand or flavor you've ever heard of, including some you were previously pretty sure they didn't make anymore. Imagine there's one or two of those on every floor on every building.
You can say a lot about Microsoft's business strategy, ethics, products, etc. But as far as working environment goes, it's hard to beat. They mean to provide an environment that no competitor (as in for hiring their developers away, not as in for the marketplace) can match. I can believe the high price tag.
-nod- As is often said, I and Bill Gates make an average of 2 billion a year, each.
Bill Gates is paid no where near $2 billion a year from Microsoft though. No stock options either. He (and now Balmer) are actually some of the lowest paid CEOs.
C|Net: Gates, Ballmer get slight pay raises
CEO Steve Ballmer and Chairman Bill Gates each received $551,667 in pay and $313,447 in bonus last year, up from $547,500 in salary and $205,810 in bonus a year ago.
While Gates and Ballmer received no stock options, other Microsoft executives did:
We don't really work 60 hours per week anymore. Some chose to do so, and they do quite well for it. But many work 40 hours and do perfectly fine as well. I personally have done quite well in my first few years here, and I only work 40 hours a week. Like any software job, I have worked a couple of 50 or 60 hour weeks at deadlines, but by no means is this common.
That's an utter lie. I defy you to find anyone who is "forced" to work "60 hours a week" minimum at Microsoft.
Read the developer blogs over at blogs.msdn.com. These people love their jobs, but they all have vibrant social and family lives.
Maybe 5 or 10 years ago things were different, but I know by e-mail and by longtime friendship several developers across the MS board and NONE work a regular work week more than 40-45 hours. Around shiptime do they work some long hours and short weekends? Yes.