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Financials Indicate Microsoft Prepping for War
SpaceAdmiral writes "Microsoft has surprised analysts by forecasting significantly higher expenses in the next fiscal year, an indication that the company might be getting ready to do battle with its online rivals. According to analyst Eugene Munster of Piper Jaffray, 'It looks like Microsoft is going to war with Google.'" From the article: "According to Mark Stahlman of Caris & Company, the fact that Microsoft plans to spend significantly more in 2007 was an indication of renewed aggressiveness in its competitive strategy and an indication that the company was returning to the kind of actions it exhibited before the Justice Department's antitrust lawsuit in the mid- and late 1990's. 'It's pretty clear that Bill is running the company again,' Mr. Stahlman said, referring to Bill Gates, 'and they are going to remake the business. They are being much more combative and much more strategically managed.'"
Business / Microsoft
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Mar 30th 2006 | REDMOND
From The Economist print edition
Microsoft’s core business is under threat from online software
IMAGE
RECENT advertisements for Microsoft show office workers as dinosaurs, stuck in a bygone era. Aptly, it is an accusation that some are now making about the software company itself.
Microsoft earns more than half its $40 billion or so of annual revenue—and the vast majority of its profits—on just two products: the Windows operating-system and Office, a collection of personal-computer (PC) applications including word-processing and spreadsheet programs. Both, however, are coming under threat from new technologies.
The pressure Microsoft is facing in its core businesses is similar to one confronted by IBM—another firm that was once synonymous with computing. At the beginning of the 1990s IBM had to face up to the shift from a computing world dominated by mainframes to one dotted by personal computers. In this new world hardware became a low-margin commodity and Microsoft’s operating system took the privileged position. Today, Microsoft still dominates the PC market. But like IBM before it, today’s giant knows that its position is under threat.
The threat to Microsoft comes from online applications, which are changing how people use computers. Rather than relying on an operating system and its associated application software—bought in a box from Microsoft, and then loaded onto a PC—computer users are increasingly able to call up the software they need over the internet. Just as Amazon, Google, eBay and other firms provide services via the web, software companies are now selling software as a subscription service that can be accessed via a web-browser. Salesforce.com, the best known example of this trend, offers salesforce management tools; other firms offer accounting and other back-office functions; there are even web-based word-processors and spreadsheets. This lowers the economic and technical barriers to entry for firms wanting to compete with Microsoft, as well as diluting the advantages the firm gets from controlling how the computer works.
These huge shifts in computing take a very long time, because there is so much inertia in the marketplace—the idea of online applications has taken years to get even this far. Microsoft is still in a position that most firms would kill for. Its two main products—Windows and Office—remain fabulously profitable quasi-monopolies. Even if online applications and open-source software make rapid progress, Microsoft would retain a powerful and profitable position for some time.
For all that, however, online applications clearly threaten the way Microsoft makes its money. Its licensing agreements are geared for a world where software is a physical product, purchased on discs, and paid for at once or in regular instalments. But its online competitors charge each user a subscription: some like Google are even supplying software as a free online service, financed by advertisements. Last month Google acquired the firm that created Writely, a popular online word-processing program that is an obvious potential competitor to Microsoft Word.
Online competitors have also mastered quick development and deployment times that Microsoft cannot match. Meanwhile open-source software—developed co-operatively and distributed free of charge—is also gaining ground. George Colony, the boss of Forrester, a technology-research firm, believes Microsoft faces the biggest challenge in the firm’s history: “Bill Gates knows how to compete with anyone who charges money for products,” he says, “but his head explodes whenever he has to go up against anyone who gives away product
Vista will be out in 2007... doesn't an increased in spending by Microsoft reflect marketing they'd have for a new OS?
Or maybe they are just planning on migrating services to Linux? Where their announced expenses 5-20% higher than expected?
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Or they could be spending more money on patents
Or they could be spending more money on developing Vista
Or they don't really think they have a chance in their feud with the European union after all...
There are more options than "prepping up for war"...
Their expenses will be related to building out their online services infrastructure and shifting their business strategy to it. There was a good article in Fortune recently about this shift.
From the end of TFA:
This may of course change in the future, but I somehow doubt they can touch Google or Yahoo. The whole race for the crown is about the search based ads, not about who uses which search engine. So Microsoft has not only to get a lot of users to use MSN search as their standard search engine, they also have to convince all the advertisers that their system works at least as good or better than those from Google or Yahoo/Overture.
When Microsoft entered a market late in the past, they always could leverage their market position. It was easier to use the already installed IE then to download another browser, it was easier to use Windows Media Player than to download and install RealPlayer or Quicktime. If Microsoft had no leverage in the market, they used their money: They bought shares in cable companies, started cooperations with mobile phone makers or massively subsidized XBOX/360.
But what could they use this time? Desktop search integrated into Vista? Standard search in IE7? Lower prices for advertisers? Most likely all, but nothing will give them a real advantage. They will have to really compete and innovate this time, and that is not something they are good at.
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How does one get from the fact that Microsoft is planning on spending more money this year than last to the assumption that they must be going to war with Google? If this was Google, everybody would be trying to figure out what new product they were going to come out with (Goobuntu, GInternet, etc). I've got a pretty low opinion of Microsoft, but I try to stick with justifiable reasons to dislike them, not jump to the worst possible conclusion every time they do (or plan to do) something.
I've always pictured the color of OS zealotry as a sort of bright flamingo pinkish hue
The own a browser.
First round, they tried to steer the web in their direction. Fortunatly open standards kept things under the public's control.
IE7 they're starting to get a little better supporting stuff like AJAX, and PNG transparencies. What i'm seeing is a shift in Microsoft from "Let's make all the rules" to "Let's adopt everything".
Not a long comment, but that's my thoughts on their strategy.
If they plan to go to war, it's already started. Just look at MS Live, xbox, origami, etc.
On the other hand, I imagine marketing, shipping, supporting, and even patching a new OS that will be installed on the majority of the world's newest computers will increase costs quite a bit for a company. Let's not forget IE7 and Office Live either.
'It's pretty clear that Bill is running the company again,'
/. and their desktop outfitted with three screens.
It's true.
And to increase productivity, everyone at Microsoft now has their homepages set to
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Gee, I saw recently that Google's market share for search is up again and so is Apple's share in mp3 players. Firefox has a climbing share in the web browser market. Microsoft can't dominate every market it enters. As a matter of fact, here lately they've been getting their ass kicked a lot. Does anyone think the original xbox would have sold near that many units if MS hadn't bought Bungie and not allowed them to ship for Mac and PC at the same time as they had planned? Instead we had a very cool game that would only play on xbox. The only way MS wins is by manipulating the free and open markets.
The last time I remember them doing any real marketing for their OS was when Windows 95 came out. They didn't really market any of the other OSes all that much. I think the only reason they will have to market this one is because there isn't really any new features, and the old version is pretty stable. Also, the fact that you need a high powered computer to run the new UI (the only new feature) means that they're won't be a lot of people buying it off the shelf, only people who buy new computers. You don't have to market it to the person buying a new computer, because they are going to buy windows anyway, and the only version offered will be Vista.
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According to recent rumors, Bill Gates is purchasing a Bradley Fighting Machine. He believes that it will provide Microsoft a leg-up in their war with Google. When asked about the situation, Larry Page responded with "we don't make forward looking statements." He was standing in front of an M-5 tank.
In other news, Google has announced the release of the F-22 Raptor Beta(TM) program which allows for anyone with an internet account to remotely control an F-22 fighter. Anti-war groups have expressed a fear that teenagers remotely flying armed warplanes could pose a threat to world peace. Google responded by stating that the weapons systems are locked out except when over the testing range at Latitude 47.6 by Longitude -122.1.
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Maybe even three.
1. More money to lobbyists and politicians
2. More money for lawyers in more lawsuits and appeals
3. Start paying down the fines in EU that won't go away any other way.
Oh wait... They already are our overlords and they suck at it. Oh, nevermind!!!
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Here are the issues, pick anyone:
1. Launch the most expensive product in your history (in terms of development dollars)
2. Try to prevent nearly-free server operating systems from eating your lunch
3. Pay off the EU fine (just a paltry $700 million or so)
4. Launch a new version of your flagship application (Office Vista?)
5. Stem the losses from your flagship gaming appliance (Xbox360)
6. Make your Longhorn into steak
7. Continue to avoid the wrath of various litigation efforts, some which you will lose...
And there are many more, but these are sufficient to need to build a war chest, Google's success notwithstanding.
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It wouldn't be so bad if the stock wasn't flat to declining over the past five years.
But the lack of growth means Microsoft is having to spend more and more of its large amounts of cash on:
1) Dividend increases
2) Stock buybacks
When you have around 10-11 billion shares issued to fuel your growth over the past couple of decades that ends up being many, many billions of dollars the company needs to keep spending every year just to keep shareholders from dumping the company and putting their money in real growth companies, like Google.
The Xbox project has been the number one financial sore spot for the company for the past five years. The financial press has been wondering when a grownup is going to take charge up there in Redmond and clean house for the company. It sounds like Microsoft is finally starting that process.
The days of the company throwing billions of dollars at marketplace failures like the Xbox and Xbox 360 are going to be coming to an end. Microsoft's core business monopolies are now no longer just being chipped away at but under direct assault. It will be interesting to see Microsoft awoken. The Ballmer era of the past five years or so has had the company acting like a aging and bumbling fool.
And Ballmer shouting, "I love the smell of Vista in the morning. It smells like victory."
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Classic slashdot... Microsoft says they will be spending more money next year, so we get articles formulating elaborate stories about Bill Gates taking over the company again and using his monopoly to break anti-trust laws and kill the little guy, etc, etc.
This is just random bullshit speculation, might it just be that microsoft is in the middle of some of the largest product launches in their history, with SQL server, new development tools, a huge new Operating system, new web browsers, and a new website www.live.com.
I suppose it would just be too logical that they might be spending money marketing and supporting all these huge new endeavors.
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Using Linux was an unmitigated disaster. Things that seem like absolutely basic functionality don't work right. I spent literally 40+ hours poring over online forums trying to figure out how to get pieces of software to work right together. OpenOffice pops up random dialog boxes when you try to save to a file share, Flash doesn't really work right on Linux under Firefox, Evolution doesn't like having its email repository stored on a share, etc, etc.
Then there are the user interface difficulties. Windows and OSX are the only 2 OSes I'm aware of where companies actually have done meaningful user testing to verify what works and what doesn't. Gnome and KDE are nice window managers, but they're just not set up right for office tasks. Sure I can sit around and change everything from the icons' sizes to the taskbar size, but who wants to spend days configuring their computer like that?
And don't even get me started on file associations (what program runs when you double-click on a file with a given extension). No matter what I tried, I couldn't get Gnome to let me change the file associations for files on an SMB share. And, it's absolutely opaque how to change them for regular files too without resorting to editing text files in /usr/share/blahblah.
As for this perceived threat from webapps, I don't think Microsoft should be worried at all. Even the mighty Google knows that trying to reimplement MS Office using Ajax would be an absolute disaster. And, think about it. How would I make my scanner scan files into Word? Does Javascript have an Ajax routine "useScanner()"? How about if I want to fax something to someone?
Personally, I dislike Microsoft's monopolist tactics. But, I have to admit, Windows is a better office OS than Linux (Gnome or KDE), and it's not even close. It's just that simple.
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MSFT took a hammering today as it lost 11% of its value today - it remains to be seen if this is a permanent fall or not.
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Almost makes MSFT look like a value stock... (That is, if you can evalutate MS on technical merits and not knee-jerk "Linux r00ls M$ SuX0rs!!!" criteria.)
However, I personally wonder if Mac OS X won't take a larger chunk out of MS in the coming future... What do you guys see in the crystal ball for Microsofts Future?
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Almost makes MSFT look like a value stock...
All my Linux opinions aside, what is there about Microsoft that would project any growth? Vista is late and has had most of the mildly interesting features stripped out. The Office suite is about as bloated and ridiculous as you could possibly make word processing and spreadsheets. I don't see much for revenue there. I don't know if the Xbox has actually made any money yet. There was a bunch of noise about Groove and Ray Ozzie a while back, but we haven't seen anything come from that yet. AdCenter is just getting started, a little late. The only thing anybody seems moderately excited about it is IE7 (oh, and the fact the godaddy converted to Windows Servers).
While Microsoft may be a value stock based on previous performance, the competency of their leadership as businessment and the tremendous resources available, I wouldn't make any such judgements on their technical merits.
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Shares in Microsoft Corp. (MSFT.O: Quote, Profile, Research) slid more than 11 percent on Friday, their biggest drop in more than five years, after the software giant said earnings would be hurt by increased investments aimed at fending off rivals such as Google Inc. ... The move shocked Wall Street, which had hoped to benefit from the company's biggest product releases in years, with its Vista operating system and Office 2007 scheduled for January. ... "This is still a company that is extremely profitable. What people are worried about is whether that ever flows through ... to the benefit of shareholders, or does the company spend that money," said Charles Di Bona, an analyst at Sanford C. Bernstein.
No doubt disspointing reviews of Vista and DRM'd content are part of the fizzle.
The long predicted downward spiral has begun. Employees are leaving for greener fields, product sucks and the competition is better. It will only get worse for them. They had their chance to fix things back when they promissed to take care of security four (five?) years ago. Instead of fixing, they wasted their time and energy with more anti competitive junk like Bitblocker, Paladium and lock box media. Their efforts to expand into the server market flopped and so will their efforts to expand into the kinds of services they derided back in 2000. Such a spiral could not have happened to a nicer company.
The Microsoft idiots thought they were going to come out swinging and are surprised that people are tired of being punched in the nose.
Friends don't help friends install M$ junk.
Different distributions have different strengths and weaknesses. Package installation is not one of Fedora's strengths, and never has been. For that, the title goes to Debian and its derivatives (Ubuntu, in particular). So because your mission is different, I think you might do well to look at a different distribution, like Ubuntu.
Dude. That is his point. There shouldn't be mission level granularity. It should just work for some things. I have had similar experiences and I only use linux for development or web-based applications. As far as using it for desktop, forget it. People have jobs, families, wives and girlfriends. Linux is the biggest double-work creation system in the world. Think of all the times people are recreating the exact same problems nearly simultaneously. There is energy being lost to the universe. Some day that will change, but it doesn't appear to be any time soon.