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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"
Microsoft's major problem is that it's been a long time since they've released a totally new line of products that has been sucessful. Aside from Open Source, Microsoft also has to compete with its own prior versions... Why does somebody who has Windows 2000 need Windows XP? Why does somebody who has Office 2000 need Office XP?...
Microsoft's problem is not competition. In most markets, they own a huge share. So Mac's ~5% and Linux's small share are not the problem.
The problem is that innovation (?) is getting more and more expensive. And in order to keep revenues up, they need to spend huge amounts of money on advertising, etc.
The low-hanging fruit has been picked, and now they need to go after new markets, new products, and the more difficult dollars.
No reason to lie.
Those whom the Gods would destroy they first give a vision statement to.
If brevity is the soul of wit, then how does one explain Twitter?
You are correct. Even if your company makes money, Wall Street look at the rate of revenue and income increase. Wall Street also sees the $50 or $60 Billion in cash that Microsoft has and asks "Hey, where are our dividends on the stock?" A $0.16 per share dividend isn't much when you have $60 Billion in the bank.
Most of MS costs are labor - people. How you reduce labor costs is to pay less and pay fewer people.
Expect cuts. All this talk about how MS is no longer going to pay for shiatsu massages for your 'animal companion' is just their way of saying "Hey dickheads the 90's are really fucking over". Next stop - "Microsoft is just like everyone else, move to India or get fired!"
Well, the last time I checked, that was roughly how much they'd lost over the previous four quarters on the XBox venture... and roughly how much they'd lost onthe XBox venture over the four quarters before that...
In a company where pretty much everything except Windows and Office is the company just tossing money at an unprofitable venture for the privilige of having a product in that area, finding a billion dollars to cut shouldn't be that hard...
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
Because wasting money is never a good idea, no matter how rich you are.
Advice: on VPS providers
The cost per employee at msft is high, partly due to some of the best working conditions in the industry - love 'em or hate em', msft is consistently voted as the best place to work, at least here in the UK, but i'm pretty sure the states is more or less the same. Ballmer (if he would have had hair) is a typical PHB , in that he thinks that cutting costs in some of these "extra's" will make the company "perform better", but usually, the opposite is true. Ballmer and his yes-men probably have not heard about some of the modern management techniques that disprove this single-minded vision of manageing a company. The free Coke's are probably next to go. Along with a fair chunk of employee productivity, no doubt.
People who think they know everything are a great annoyance to those of us who do.
This is the point where Microsoft investors figure out just how diluted Microsoft stock has really become. If I read the numbers right, they have 11 Billion shares outstanding. Which means that, after 30 years of doing business, they have only made about $6 per share (which costs $27.89).
This is the problem with companies not giving dividends - it really distorts the amount of money they are making, and distorts the purpose of the company. Microsoft wants to hoard the money so it looks better on paper, rather than give the owners of the company their profits, which will reveal that wild investing in disparate projects which make no money but undermine competitors does not do much to shareholder value.
This is part of the problem with option-granting programs - it dilutes the stock significantly. When companies give dividends this is more obvious (hey! my dividend went down this year!). When they don't, the stock price is a lot less attached to reality.
It's kind of interesting how much of Microsoft's quarterly revenue comes from investments rather than direct earnings.
I'm not saying they aren't a strong company - they are. However, their stock price is WAY over what it should be, and their performance-per-overpriced share isn't what it should be, either. Their large bank account has helped justify their stock price while spending rediculous amounts of money keeping the competition away.
Engineering and the Ultimate
Dear Steve,
If you had really paid attention in your Harvard business classes, you would have learned the story of Standard Oil. A big monopolistic oil company that was finally forced to break up into pieces. Mr. Rockerfeller was sad until he suddenly discovered his stock portfolio went through the roof. Apparently, when Standard Oil became a bunch of smaller companies, they grew the market and their collective market capitlization was far, far greater than they were in one company.
You've had the opportunity several times now, and the last time had the feds suggested it too. But maybe it's not too late. It's time to knife the baby and split Microsoft into two or more companies. Split applications from OS. Create an Internet technology group separate from the others that encompases IE as a pluggible component for Windows or any OTHER Operating System, and provides search, MSN, Instant Messaging, VOIP, etc.. Move the Entertainment group into its own company and let it succede or fail on its own, and more importantly, let them have the freedom to chose the technologies involved. XBox has fans now, and it has a bright future. But only if the XBox division is no longer distracted by trying to save the OS group.
Come on, Steve. You know the time is right, and this is so the right thing to do.
The bitter lessons of a veteran coder: http://bitterprogrammer.blogspot.com
Yeah--cost per employee is a common stat used to demonstrate the general average force an employee has in the business. Another common one is revenue per employee. High cost per employee frequently shows that a company is working hard to expand, spending a lot of money on something (whether it's R&D or plant infrastructure) to build capacity, technology, etc. It's good that ms is doing this--if they cut that much, the employees will, on average, not be as empowered to expand. Don't forget that microsofts market cap still assumes pretty high growth rates compared to the average (i.e. high P/E).
Simple math would answer your question, too: the article says 57,000 employees, so do 57k * 300k and you come out with $17bb in expenses.
Read jack phelps dot net
Mid life crisis is exactly the right term. Please look at the following template, and see if it fits Microsoft.
When a man reaches 40 or thereabouts, they suddenly realize their mortality. They suddenly realize that all those dreams they had and plans they made in their twenties are not going to happen. They aren't going to be able to build all of the software libraries they were imagining even in their early thirties. Furthermore, they find that the number of times per week that they have sex is less than the timer per DAY when they were ninteen.
Usually, this results in: the sudden need for a boyfriend/girlfriend that is half their age. The kind of toys that they wanted at age 20 (usually a certian kind of mp3 player, 3D graphics card, or sportscar). I remember a dear friend describing the waitress he was dating, and one of the plus points was "well, she's at least almost half my age!".
Different people have different views on what follows. I'll express my own view. This is highly personal. And not all people agree. I perceive that part of the issue is whether you have your eyes focused on this life or the next one. Since my real hope lies in what is to come, and not is what is present, I have not had, and don't expect to have a midlife crisis. Someone said something like: "where your stock options are, there your heart will be also.". Although I don't want to hasten the event, I'm ready to go, and frequently think about it.
Back to the subject. So does this sudden middle age realization of ones own mortality seem to fit Microsoft? In other words, they might have as many years still ahead, as they have behind them, but suddenly, there is the realization.
Those who would give up liberty in exchange for security and DRM should switch to Microsoft Palladium!
DISCLAIMER: I work at Microsoft as a developer. Nothing I say here is official company stance. This is just my personal opinion based on my time both before and after joining Microsoft.
Microsoft's main problem is a refusal to take quick action by trusting in common sense and instinct.
For example, it took upper management over a decade to finally see that users didn't trust Microsoft products. The rest of the world knew it all along, but management had to wait for mountains of hard data to come pouring in before taking any action. The Trustworthy Computing effort is genuine, sincere, and effective, but it's also about fifteen years overdue.
Do you think Bill Gates wrote BASIC for the Altair, or pulled off his buy-an-OS-and-name-it-MS-DOS move, based on mountains of official market research and hard data telling him that it's what people wanted? I'm betting he didn't. I'm betting he did it because he was smart and trusted his own instincts -- just like a professional chess player who doesn't realistically have the time to scientifically evaluate every possible move at every turn.
Microsoft isn't a bad company. People here really do care about satisfying customers and making the best stuff in the world. I really hate the false accusations so many people make about this company. But I also have to say that this company has grown timid and too slow to act, and that is our real challenge.
Moderator hint: a comment is neither "Flamebait" nor "Troll" if it is true.
Microsoft's problem is not competition. In most markets, they own a huge share.
Their problem is competition, in a way. Has been for years. Competition of older versions of their own product, that is. Windows XP isn't selling as well as they want to, because of the Windows 2000 that people already have and that does what they want.
I believe posters are recognized by their sig. So I made one.
Not too high, don't forget they're temps.
"Actually, you don't read it right. Microsoft's stock has split 9 times, and 1 share in 1987 would give you 288 today. The value of one share on Sept 18, 1987 was $114.50, and the value of one share on Feb 14, 2003 was $24.96. Given that you would have 288 shares, your beginning value of $114.50 would have ended up at $7,188.48."
I agree with you that Microsoft used to be a great stock to own. I would also agree that, if Microsoft could persue the same growth that it has over the past 30 years, it would also be a great stock.
My contention is simply that Microsoft will not see the growth it had in the past, and therefore its _current_ stock price is unjustifiable.
"Conclusion - MSFT may not be a great stock to own now, but it was a great stock to own for 16 years or more."
I agree with that wholeheartedly.
Engineering and the Ultimate
What is this, a troll? We had this crap all through the 90s boom.
"Process excellence" in software is usually the wishful thinking of a management that believes dehumanized industrial optimization techniques apply to a creative craft practice. The "process" typically accelerates the exodus of the most knowledgeable and productive employees to less mind-numbing work environments. Show me one good process that produces excellent software despite being run by idiots. Focusing on process is what companies do when they've become so clueless they can't find their *ss with both hands. Of course, most companies enter such a phase in their evolution, perhaps it is Microsoft's turn.
"Just enough" process is the right amount. Just enough to keep release cycles sane. Just enough to keep the product evolution from becoming too unstable. But not enough to distract people from focusing on their real work, doubt their better judgement, or prevent their creative juices from flowing. Any more than that and the perpetrators should be smacked repeatedly on the head with a rolled-up gantt chart.
Free drinks are great but they don't pay all that well and make you work 60 hour weeks at a minimum.
I was interviewing there and when I heard that they expected at least 60 hours per week I said No thanks. It's just not worth it for me to spend 60 to 80 hours per week at work no matter how great the cafeteria.
It might be great for 18 year old kids though.
evil is as evil does
> Oh. I understand now. Microsoft, as a company, is a failure.
Exactly. Luck gave them a monopoly on DOS, they were clever and ruthless enough to keep that going through the transition to NT. Office was their other big idea that lead to monopoly #2. But examine their products that they didn't get a monopoly on, none are profitable. Their early success in gaining a monopoly on DOS has twisted their corporate culture such that they don't know how to compete. That is why I call them a failure, because failure is their future unless they can reinvent themselves.
Lets look at that future a bit shall we? Let us start with their present situation.
Assets:
One metric assload of cash.
Monopoly rents on Windows & Office
Liabilities:
Zero friends & allies in their industry, only enemies and slaves.
Zero prospects for growth at greater than growth in PC sales in a world where PC sales are flat.
Zero prospects for innovation, having NEVER innovated in the past and a corporate culture built around NOT innovating so as to prevent accidental damage to their monopolies by changing the rules of the game.
Several money losing divisions that can't be eliminated without scaring Wall Street.
Now we look to the future. If there is one certainty, it is that OpenOffice.org is going to destroy the revenue stream from MS Office. Whether Microsoft cuts the price on Office or bundles it into Windows to maintain their monopoly, the revenue stream from Office is going to decline faster than most analysts yet realize. Windows on desktops is probably a safe stream for 3-5 years, then it could be at risk as well. With both monopolies at risk where is the upside when assessing future earnings? Today's stock price is Wall Streets best estimate of what earnings will be in the future. For the past couple of years that estimate from the hardest assed green eyeshades money people (Wall Street investors) has been one consistent verdict: FLAT.
Publicly traded corporations are all about the share price, nothing else matters except dividends and with so many shares in circulation they simply don't have enough revenue now to pay meaningful dividends and revenue isn't going to growing much anymore, and will probably be declining 5 years out. So their future is one of pain. They are way past the size where actual failure is a possibility, yet success and growth is also out of reach so their future is a long drawn out pain until something changes the equation. See IBM in the 80s and 90s.
Democrat delenda est
The problem with this company is that you have to make a lot of random people feel good about themselves before you get a go ahead on anything. You want a permission to fart in your office? Ask a dozen other teams what their policy is, schedule two dozen meetings, negotiate, negotiate, negotiate and only then will you get a go-ahead.
You know why this is? This is because of lousy management. A lot of people have become managers at MS simply because they wanted to become managers, not because they have necessary skills or are particularly fit for the job. A repercussion from this is that there's certain lack of leadership and vision from the very bottom to the very top.
This is unfortunate, because as a company Microsoft can kick everybody else's ass. We have SIXTY BILLION bucks and the best talent in the world, yet we still sit on our butts and wait until somebody else invents something to buy the company outright.
Until last year, they never paid a dividend. The only people who ever made money off M$'s greed were stock market speculators. Now that the "growth" is over, they pay a pathetic little dinkle to all those who had faith. At the same time, they rewarded their executives handsomely, though their treatment of "perma-temps" is infamous. You call that responsible? That's rape all around.
When the stock crashes down to it's worth, about $6 for their assets, "investors" will be left with nothing. Don't you worry, the lawyers will get the cash. I predict that long term investors, such as pension funds and "partner companies", would have been better off with government bonds.
Friends don't help friends install M$ junk.
And it looks like you missed it: the point of all their free drinks and the food court theme is to keep you THERE and WORKING, as much as possible. No need to go out for lunch (even if a brief change of scenery would be refreshing), nor even a stroll to the corner 7-11 for a soda or Starbucks for a coffee.
It looks like you missed the point. I have never worked for or interviewed with (or applied to) Microsoft. However, I've been in the buildings as guests of employees and am long-term friends with employees. They provide (or provided, I've not been in for a while) those things to give people a choice. You could go out for your hour lunch, or you could stay in. If you are on a long support call (most of my friends were in premier support, where they only talked to people with really big contracts, not any pay-per-support), you could toss the caller on hold for a very short period and get anything you needed to keep you going to do what it takes.
It is unreasonable to tell a customer with a multinational network outage to wait an hour while you took lunch, or call back in to the queue and repeat everything to someone new. It is also unreasonable to have an employee work straight through without breaks. Microsoft found a happy medium.
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