The Future of the Software Industry

madro writes "Remember 'Does IT Matter?' a while ago? Nicholas Carr is back with an editorial in today's New York Times following Microsoft's decision to dramatically reduce its cash stash. Carr's take: Microsoft is admitting it can't find better uses for its cash, due to the growing maturation of the software industry. No mention of open source, although Apple's consumer-targeted model of free iTunes driving iPod demand is one listed alternative." Reader CodeArtisan submits another piece about Microsoft's loot distribution, and Newsforge (which is part of OSDN along with Slashdot) has a story about the future of commodity software.

Comments

Re:Well, here's a thought.

[strictnein]

Bill Gates is giving his $3.3 billion to charity, although his yearly dividends will go up quite a bit (up to $578 million)

somebody needs to read his software license

[SuperBanana]

From the Guardian article:

Oh, and while we are at it I want a tiny payment for myself for having to pay for a second suite of Office for my own (non-Microsoft) computer even though I already had it installed on my office laptop. Or at least count it as an offset against all those statistics about counterfeit downloads.

Maybe he should have actually read his software license, because if Office is installed on a business system, one copy is allowed to be installed on a home system for the purposes of allowing that employee to work on Office documents at home.

Just goes to show you how incredibly ignorant some technology reporters are. Oh, and he could have downloaded StarOffice or OpenOffice...

Re:ohh! Darth Vader gets a heart transplant?

[strictnein]

Bill Gates has given $27 billion to charity you idiot. Soon that will be over $30 billion. And, by the time he dies, he plans on having "only" $3 billion left (with the rest going to charity). There's a lot of reasons to criticize him, but this is absolutely not one of them.

I'd agree

[JohnnyComeLately]

In accounting we'd go over cases of corporate buy outs and study guys where the company was diced. The one exception to this rule is Microsoft. Meaning, most companies that slow down in innovation and have a huge hoard of cash get bought by leveraging against their equity. I walk up to Joe Sleez banking and say, "Loan me $4 Billion to buy Microsoft, which has $3.8B in cash, $100M in Accounts Receivable, and misc in other assets. You buy the company and dice it up and sell off the parts. Similar to a car, the parts can be worth more than the car as a whole. Plus, you never leveraged a dime of your own money.

Many firms have poision pills and other defensive postures against this aggressive practice, but I've always been surprised no one has tried to buy and dismantle M$. I was also surprised they never paid a dividend, as its a psychological move for investors. Then again, most people aren't buying M$ for a diversified, low-risk retirement portfoilo.

Coming around to the specific topic of timing, it certainly makes sense that the tax code is encouraging it. If you're netting over 7% leaving it alone, why pull out retained earnings to have a cut taken out of it? When I saw they had cash doing nothing (ok...mortgage backed securities) and were keeping ahead of the risk-free rate (rate of a 10 year bond), it's a no brainer to leave it in Microsoft's bank account. I'd almost say you're better off telling them to dividend re-invest. You avoid the taxable income, increase your holdings, and benefit more from the impending stock buy back.

I really hate M$ for its predatory marketing practices and $hitty products, but from an investing standpoint it's hard to hate them.

Re:The Problem At Hand

[cluckshot]

The real reason they are releasing cash has to do with something more fundimental. There are Securities Laws which while seldom enforced are called "Blue Sky Laws." These laws make it a serious criminal offense to sell a stock never intending to pay your investors back appropriately. Microsoft has earned a wad of cash. This is so obviously a stock fraud if they don't pay it in dividends especially since they cannot argue that they are going to grow infinitely any more that they must distribute or they will be subject to the most obvious prosecution for selling the "Blue Sky."

The problem here is that in distributing they have to admit that they are no longer a "Growth Company" and they have to admit that they are worth about 25 cents on the dollar what the investors have in the company right now and maybe less as asset value. I could go on in details but I am sure some ingnorant fool who thinks that he should only own stocks so that other bigger suckers than himself will buy them will argue.

The owners of Microsoft are avoiding jail terms they think by doing this. Unfortunately they should have been paying dividends 10 years ago to avoid this prosecution. But had they done so I suppose we might still have a robust Software industry with lots of competition and new programs for they could never have dominated the market so had they distributed.

The issue here is not Antitrust it is FRAUD.