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Microsoft: The Faint Smell of Rot
happycorp writes "A business reporter for ABC/Fortune
is asking whether Microsoft is poised to collapse, based on years of industry observation
(with successful calls in the past, he notes) rather than
purely technical considerations.
A short read, with this favorite quote:
"if you sniff the air, you can just make out the first hints of rot.""
Um, I bet the shareholders would like their money invested somewhere else if the company stopped making profit. That scenario of spending all the cash reserves to keep going for several years just for the heck of it thus isn't likely.
The situation for Microsoft is somewhat worse than GM in our example. Consider Microsoft Word 6.0. Unlike an automobile that wears out, breaks down, and needs to be replaced, Word 6.0 has eternal life. It does not ever wear out. After you have used Word 6.0 for 15 years, Word 6.0 works just as well as it worked 15 years ago.
So, you have no need to replace Word 6.0 unless you want to upgrade. For most people, the upgrade is unnecessary because Word 6.0 already has all the features that you need.
Other software programs have the same "problem". Microsoft has so relentlessly added feature after feature to its products in order to capture most of the marketshare that most consumers now have no further need for additional features.
The only way for Microsoft to grow is to enter into other markets. Hence, you see Bill Gate's fist print in the gaming market as Microsoft pushes the XBox. Unfortunately for Microsoft, there is no guarantee of success in markets beyond the computer-software market.
As a side note, Microsoft will continue to invest heavily in R&D in order to enhance the likelihood of success in those other markets. I would not rule out the possibility of buying Bell Laboratories.
Microsoft is where IBM was in the old days. The excitement that lures glamor-seeking job applicants can't last when you've already grown to fill your entire ecosystem. Ditto the press buzz.
In other words, where Malone sees senility, he may actually be looking at maturity.
Of course, Microsoft is too big for that to happen. But "collapse" doesn't necessarily (or even usually) mean total disappearance. It more often means mass firings, loss of market share, plummeting stock price. As happened at SGI.
Speaking of SGI, I worked there during their waning days as a graphic workstation powerhouse. When people talked about where the company went wrong, a common theme was this: Wall Street fell in love with SGI and threw money at the company. All that cash helped them avoid measuring risks carefully or look for efficient ways to do things. By the time money ran short and it was obvious SGI had to reform, it was too late to claim a permanent place in key markets.
That's different from Microsoft, of course, since MS's pile of cash comes from their tithe on every PC sold. But the effect on corporate culture is the same. Cash can be toxic to a good organization.
On October 5, 2000, Mr. Malone predicted the end of Apple and the PC.
a lone.html/
But with falling profits and plummeting stock, and having hastened the end of the desktop PC era, Steve Jobs has put Apple again in a precarious position.
http://www.forbes.com/columnists/2000/10/09/1005m
Microsoft may have a few years left too.
Microsoft has as far as I understand two cash cows: Microsoft Windows and Microsoft Office.
Now both of those are being challenged by open software.
Microsoft Windows is being challenged by both Linux and Mac. Windows is still king, but Mac is gaining popularity and Linux is becoming ever easier to use. I think Windows will lose substantial market share over the next 3 years or so.
Microsoft Office is also being challenged. Open Office has come along nicely. A main threat here is the fact that users don't use more than a few percent of all the functionality within Microsoft Office. They pay for stuff they don't use or need. Once Open Office comes with some really slick templates and default fonts, I bet it will gain popularity. I think Open Office will start stealing license money in the not too distant future. The 2.0 release is coming up, and then that will become really good after a few minor updates.
Once profits decline for Office and Windows, Microsoft will lose a lot of its current freedom to waste money. They will need to be more focused. Given the impression they have a nasty case of infighting already, this focusing will not happen. They will instead continue to decline.
Stop the brainwash
I suspect you are reading more in to the options thing that is really there. You see taxation and regulation is running against options and in favor of dividends at the moment. Options used to be practicly free money to hand out in previous years, but there is huge pressure now for companies to account for options since they dilute the value of shares owned by shareholders who bought them and previously were largely unaccounted for. Executives in particularly were massively abusing them to give themselves windfall profits, even if they weren't performing.
If you are a Microsoft employee I imagine you are maxing out your stock purchases lately and wanting cash bonuses to buy more stock.
You see, Microsoft paid out a $3 dollar dividend in December. It single handedly raised average income in the U.S. by 3.7% in December, without the dividend it would have been 0.8%. Though it should be noted that is an average, chances are the lion's share of it went in to the pockets of a few people, Gate's, Balmer, Allen, etc.
You see the Republican's passed a dividend tax cut in 2003 I think it was. I'm a little hazy on it but I think the tax on dividends is 0% at the moment. Just remember that if you work for a living when you see all those massive deductions out of your paycheck you can't escape. If you make $30K a year you are still probably paying 30% in withholding and payroll deductions. If you're Bill Gates at the moment you can pay billions of dollars to yourself in dividends and pay almost no taxes. Here is what Warren Buffet had to say about it when the Republicans were shoving it through.
The Republican argument was dividend taxes were double taxation, because the company paid taxes on it when the money was made and it was unfair to tax it again when it was paid out as a dividend. The little catch they didn't mention was big corporations exploit so many loopholes in the tax code, and take advantage of so many shelters they often don't pay any taxes in the first iteration.
If you were to go the options route you would pay a big chunk of the windfall of cashing them in capital gains taxes, not as much as you used to but a lot, compared to the 0% you pay on dividends at the money. Its pretty rare in the country to be able to make money and not pay any taxes on it. Bill Gates is not stupid, its pretty obvious now is a GREAT time to dole out all that cash in Microsoft's coffers as dividends, tax free. The dividend tax returns in 2007 though Little George is no doubt going to push to make the cut permanent.
Much of the recent economic "prosperity" is being pumped by tax policy that is letting the wealthy make out like bandits. The current tax code is a huge economic stimulus and that is good to pull an economy out of a recession. It is bad because its leading to huge deficits, and it is MASSIVELY unfair to working people who are getting chump change for tax incentives while the rich are harvesting huge windfalls, some of which they may reinvest in the U.S. and U.S. jobs, much of which is probably being invested in China, India, etc. or being blown on luxury goods.
You can sure tell when Republican's have complete control of things, because it is TOTALLY sweet to be a wealthy shareholder and it totally sucks to work for a living. The amazing thing is millions of working people who are being totally screwed by the Republicans, economicly, keep voting for them anyway. Republicans have some true genius, because they can sucker working people in to voting against their own economic interest by using wedge issues and scare tactics like terrorism, gay marriage, abortion, religion, etc.
@de_machina