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"

Comments

$300k per employee?

[Sadiq]

$300k per employee? I wonder how much of that is in weed.... could explain alot of things...

Pretty high cost

[777333ddd]

Includes stock?

Re:Pretty high cost

[LostCluster]

$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.

Re:Pretty high cost

[TopShelf]

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...

Re:Pretty high cost

[tekunokurato]

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.

Re:Pretty high cost

[Mongoose Disciple]

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.

Re:Pretty high cost

[toopc]

> Overlycompensated execs do tend to skew stats

-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:

Re:Pretty high cost

[danheskett]

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.

Re:Pretty high cost

[AK Marc]

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.

Re:Pretty high cost

[Bingo Foo]

In my company the average per head is $140.

So how are things in the Bangalore call center?

Re:Pretty high cost

[wideBlueSkies]

Very good. Thank you. We only think in Java here, and this is fine.

We are currently creating a critical banking application out of parts we're reusing from other customers products, and open source solutions. We decided to skip several key requirements because we don't understand why the users would need them, and implementing them would not allow us to meet our deadline.

The reused parts, don't exatly fit the remaining requirements, and thus we're modifying the requirments to fit the components.

Just as long as we get a good build on August 1 all will be well. Thank you.

Cheers.

------------
Not far from the truth over there.

wbs.

Knew it was coming...

[Anonymous Coward]

Perhaps Gates knew exactly when the right time to leave was :)

Re:Knew it was coming...

[CodeWanker]

Bill Gates and a small boy were walking through the woods. "It sure is dark and scary in here!" the small boy said. "How do you think I feel?" replied the Bill Gates. "I have to walk back all alone."

mid-life crisis

[Coneasfast]

i think steve ballmer reached his mid-life crisis long ago.

Re:mid-life crisis

[RobKow]

Since when was necrophillia associated with mid-life crises?

Re:mid-life crisis

[ReelOddeeo]

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.

Dear Microsoft

[arieswind]

Dear Microsoft,

Welcome to the real world, where your stock does not grow 10,000% in a matter of a few years, and companies have to *gasp* cut costs, or perhaps even *bigger gasp* innovate, to keep their companies from falling flat on their face.

With much love(sorta),

The World

Re:Dear Microsoft

[Daniel Dvorkin]

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.

Re:Dear Microsoft

[Mr_Huber]

Oh, dear. This just flashed into my head...

Bill, lying naked on a table: "Why do my dividinds hurt?"

Linus, looking down, sad and concerned: "You've never issued them before."

Re:duh!

[bigman2003]

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.

solution:

[blue_adept]

immediately discontinue the "one dollar for each reported bug" program.

Pit stains

[bujoojoo]

Maybe if Ballmer wouldn't charge his dry cleaning to his expense account, they wouldn't be in such dire straights...

DEVELOPERS, DEVELOPERS, DEVELOPERS!!!!

$300K Not Unusual

[4of12]

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.

Lets help these guys out...

[cOdEgUru]

Now..now..play nice.

Everyone look at poor M$ in the corner, dying a slow death for the lack of another Billion in the bank.. Lets not let that happen..shall we..being the good neighbours we are..

So here is what I recommend.. The slashdot community will, painful as it is, will map out the various product lines of Microsoft with their perceived value, which needs to be truncated or snuffed out completely. Once we are all in agreement as to the total worth is a Billion, Cmdrtaco, the chosen representative, will submit said list to the powers that be (read: Balmy Balmer) for review and acceptance.

So get your thinking caps out, check your emotions , pay no heed to the thousands of M$ programmers who will obviously hate you for nixing their much loved products, let reason run rampant..and lets choose what Microsoft needs to put another Billion in the bank!

Midlife crisis...

[Zorilla]

In other news, Microsoft is nearing the release of their two newest products: Microsoft Combover and Microsoft Penis Car

Costs catching up?

[Dark Paladin]

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.

excerpts from the memo

[hoferbr]

excerpts from the memo (not included in the businessweek article):

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."

Re:But why?

[lucabrasi999]

I know, I know, it's big business and stock price, but still, it's not like they're running out of money.

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.

They could save about $800 per employee

[Anonymous Coward]

By switching to Linux and OpenOffice/KOffice on their desktops. Not their development or testing machines, but just their accountants, security team, and call centers.

Dang! Wait a sec...Windows and Office are free to them, so it only saves on the cost of anti-virus + downtime/patch maintenance, so that's probably only $50 per user or so.

Re:troll fest

[tatsu69]

You suck at trolling and even starting a troll... You have to do it right.

I use Microsoft everyday and love it. I want Bill Gates to have my baby and Linux sucks.

Re:I'll go for $270K

[sploo22]

It has to be said...

$300K should be enough for anybody!

Re:Gotta innovate, not replace

[pavon]

Exactly. And it is not just Microsoft - it is a general weakness in the shrink-wrapped software business model. In that model you depend on sales of the previous version to fund additional features for the next version which in turn drives sales, and the cycle continues. The problem is that at some point your product becomes mature, and you have already implemented 90% of the features that 90% of the people want. Now there is still alot of potential functionality to be added but, each feature will appeal to only a small audience. Therefore even though you may have done as much work between versions 5 and 6 as you did between 2 and 3, you have deminishing returns on the number of purchases. Lastly, ever since the dot-com boom ended the number of first-time purchases (as opposed to upgrades) has been going down dramatically as well, so you are much more dependent on upgrades sales, which we just determined will also go down with time.

So basically the shrinkwrapped software business model sucks for mature software. Unless you can keep improving the software in a way that appeals to a large number of people, you will not be able to generate enough money from sales to continue development at your current pace. Then your product will stagnate, and newcommers who focus on different niche features that you don't have will eat away at your market share.

Once your software becomes mature, you really need to move away from the shrinkwrapped business model to some type of service business model. Interestly enough, OSS kicks ass in just about any service business model. If you are being paid for the act of writing and deploying software, rather then selling it as a product, it doesn't matter if you control the software or not. It just matters that you have the experience and talent to improve an existing piece of software (ie helps alot if you wrote the software to begin with).

OSS has the opposite problem - it is easy to get paid to improve mature products, but getting a piece of software to maturity is harder (financially).

MicroSoft Counts Options as an Expense

[kallistiblue]

Or at least they did.
That's one of the reason that MicroSoft doesn't pay any corporate tax.

Alternative Fuel

Re:Longhorn

[robochan]

...The big thing is going to be Longhorn--that's why it's taking so long. WinFS, Avalon, whole new interface called Aero Glass, an entire .NET-based OS that replaces Win32, and so on...

I hear it's going ot come bundled with Duke Nukem Forever too.

The problem with Microsoft

[c0d3h4x0r]

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.

Not anymore

[Anonymous Coward]

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.