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Microsoft Accused of Squandering Billions On R&D
Julie188 writes "Even as Microsoft celebrates its 10,000th patent, angry shareholders are starting to speak out against what they say is the squandering of billions of dollars on pointless R&D projects. The 10,000th patent covers a technology that allows a device to associate data with objects placed on its surface, and is likely eventually to become part of the Surface table PC. But shareholders are fed up with the $8 billion annually spent. Said one, 'I believe Bill Gates is a charlatan because what he has said, implied, promised to shareholders and stakeholders and all of these visionary things that he mumbles and jumbles about and doesn't make reality of. MS is spending billions of dollars on R&D. Where is the return on investment?' In contrast, Apple had almost the same revenue gains as Microsoft while spending one-tenth as much."
When a company cannot capitalize on its R&D spending, shareholders insist on cutbacks, and the company eventually falls behind and becomes irrelevant.
Since Mr. Gates owns so much of MS, I personally doubt this will happen, but if MS concedes and then begins to cut back on R&D, I'll start to believe those that say that the days of MS are numbered.
If you can read this... 01110101 01110010 00100000 01100001 00100000 01100111 01100101 01100101 01101011
It seems that MS has managed to work itself into a stalemate. On one hand it must keep evolving and changing to attempt to be better than Linux and Apple, but on the other hand it has to keep regulations into check to not become even more monopolistic. R&D is about the only output that MS can put its profits into to keep regulators at bay and still grow its business.
Taxation is legalized theft, no more, no less.
Even as Microsoft celebrates its 10,000th patent, angry shareholders are starting to speak out against what they say is the squandering of billions of dollars on pointless R&D projects.
Investors know that sometimes things won't pay out. These are the whiny little 10%-return-no-risk assholes who sue when a CEO doesn't start layoffs ASAP to pump up the stock price.
Here's news for you: sometimes weird investments pay off in radically unforeseeable ways. If you're the kind of jackass who dismissed the idea because we already had vacuum tubes, then you're the same kind who thinks modern R&D is a waste of money.
As much as I dislove Microsoft, I'm glad they're doing this stuff. Apparently they understand the importance even if a few short term profit-takers are too stupid to see it.
Dewey, what part of this looks like authorities should be involved?
The simple answer is you can't "manage" or plan innovation. A reasonable plan would be to hire a bunch of hackers, preferably ones seen at work at 2 AM, give them each a private office and a $30,000 yearly budget for gadgetry, and a mandate to do something fun and maybe useful. And that's it.
Of course no manager would allow this, so that might explain the paucity of results.
Most of Apple's "R&D" is spent on "D"; there is very little actual research coming out of Apple, by any objective measure. Apple just takes other people's badly packaged good ideas and sticks them into shiny white plastic packages, writing patents along the way.
Unlike other big companies, Apple doesn't even give research grants to academia in any significant quantity (they just charge an arm and a leg for their machines).
If all high tech companies were as stingy as Apple, academia and computer science research would be in big trouble.
Unlike Apple, MS has to invest heavy in R&D because unlike Apple, they don't opperate like a consumer hardware company. Secondly, MS is growing stagnant in the operating system market, because the OS has become ubiquitious, and they have regulators scruitinizing everything they plan to do with their OS offering. Thirdly, if MS does millions in R&D, and their competitors or FOSS can take that and produce a free or cheaper interoperable product, their consumer/desktop software lines are threatened.
MS is moving to the edge of bubble, they need to either realize that they are becoming the next IBM and begin to move away from the desktop market into server/solutions development; or begin to become more of a consumer electronics company, which would require creating "good" consumer electronics and be competitive in that market, not use it as a loss-leader to harm their competitors or further intrench their Windows position. Desktop computing in the past 3-4 years has offered very little that is groundbreaking for the average user, and the best-of-the best in '01 is still good enough for most people. PC manufacturers aren't seeing major growth, only sales in "back-to-school" periods where students become first time buyers rather than using mom & dads aging box, or replacement when existing boxes fail; which more and more consumers and companies are working to reduce.
In a strapped market, where people are much more willing part with hard earned dollars for 6 more inches on their screen with HD more than chips 400MHz faster (but feel slower on bloated software), MS needs to find a new market that they can win, and win big in; or they are going to see their share decreasing.
Forgive my spelling from time to time. I'm often posting during short breaks.
Geez, about the only good thing that we could agree upon about Microsoft is that they do some research even though they may not complete the projects. I'd rather attack them for the really stupid stuff than for doing research which might actually give them a clue.
I think it crosses over to the development team. When you first hear about a new version of Windows, it generally has some features that actually sound cool.
Then management cuts the features and all that's left is the previous version of Windows with a new interface. That's where the crossover is failing.
At $10,000 apiece, all MSFT has to do is sell 800,000 Surface tables and they've got their money back. I mean who doesn't want a big-ass kiosk in their home.
If their R&D has let them figure out a way to make $10,000 items which have a zero cost of goods, and don't have any marketing or support costs, they've got it made.
"National Security is the chief cause of national insecurity." - Celine's First Law
Microsoft has been shutting down their Xbox game studios over the past three years. They are now down to only three: Rare, Lionhead, and Turn 10. Along with their talk of not releasing new Xbox hardware any time soon it sounds like they are easing out of the console market.
They surely see that they went with the absolutely cheapest console hardware and still lost billions. With no consumer electronics design and manufacturing capabilities of their own there is no reason that they would do any better with yet another try at console hardware. More reliable and better built hardware is going to cost more money. And no one at Microsoft appears to be in any mood to continue spending billions on products that are doing nothing for Microsoft as a whole.
Contributing to open source projects is not research; it is development focused on open-source products instead of closed-source products. Research would be developing new ways to improve operating systems, compilers, and web servers, for example, based on certain criteria (performance, security, design, etc.). For example, Plan 9 is a research project. There is plenty of research in academia and industry that are geared toward solving real-world problems. For example, many of the advances in computer hardware, such as deep pipelines and multicore processors, started out as research problems. But contributing to an open source project is different from research. I fail to see how contributing to GCC or WebKit per se solves any problems in computer science, which is the definition of research, unless those contributions are a result of research.
I used to say this few month ago, until I started coming across Vista computers infected with all kinds of exotic trojans and malware. The security model on Windows has gone from complete anarchy to "here's a computer - train it yourself." The burden has been shifted towards the user. That's not progress in my view.
Also, I'm not convinced about Xbox being a fiasco. Out of all the billions they have wasted, this one looks like a winner in the long run. They're one generation away from dominating the high-end console space in an event of one more Sony fuckup with PS3. You could never count Sony out when it comes to massive fuckups.
While they're being accused of squandering billions, it is quite possible that they have provided that much value to the industry as a whole. What the investors are really complaining about is their inability to produce something unique and patentable that is so compelling it sells licenses regardless of the (lack of) value elsewhere.
Investors are complaining because there's an economic downturn and they're losing money. They complain about different things with every company, but yes, they all complain.
"I zero-index my hamsters" - Willtor (147206)
My understanding is that until recently one of the big purposes of MS Research was just prestige, not really product production. MSR has consistently produced a very large amount of academic research in some key areas, e.g. almost always accounting for more than 10% of the papers at SIGGRAPH, year in and year out. Microsoft management was of the opinion that having something like that was useful to their business in indirect ways, even if those SIGGRAPH papers didn't directly lead to deals with CG film companies or anything. Is that true? I have no idea; it's kind of hard to measure intangibles like whether having a prestigious research group attached to your company increased your reputation to the point where it tipped the balance on an important sale or contract.
I think they were also going for the Bell Labs model, where the research group pays for itself if it's left to its own devices and very occasionally invents/patents something big. I have no idea what MSR's patent portfolio is like from a business perspective. Have they licensed any significant percentage of it? More intangibly, what proportion of Microsoft's defensive patent portfolio originated from MSR?
And finally, one of the unofficial purposes of MSR for years was just to hire up everyone so nobody else could. Microsoft had a dominant lead in a number of areas, and one way to protect that is just to deny all your competitors access to talent. Kind of the model Google is currently using (they hardly need 20,000 employees otherwise).
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Geez, about the only good thing that we could agree upon about Microsoft is that they do some research even though they may not complete the projects.
The issues isn't that they do research, or even that Microsoft spends more than their peers. The issue is MS spends disproportionately more for research and loses market share. Instead of putting that money into creating the best operating system ever put on computers, they spend $7.5 billion and get the Zune.
Rumblings from the stockholders. Now isn't that interesting. Microsoft has been able to keep their earnings up, but so did Enron. Right up to the end.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
They could refer to the company charter, which often has a phrase where the primary objective of the company is "to maximize profits and increase shareholder value". If that is the case for Microsoft (I have no reason to not think so here), the directors are violating a primary tenant of their charter if they spend money frivolously. From this it would be the basis of a lawsuit by violating the basic charter of the company and its legal right to exist.
A tech company investing in R&D, or even doing a bit of skunk works is not "frivolous". It is precisely aligned with a long view goal of maximizing profits and increasing shareholder value. The directors have a lot of leeway if this is all you have got to sue them on.
Microsoft's investors have different priorities than you do. They want Microsoft's R&D to produce products that make money, not bad music.
Microsoft's investors are simply starting to wonder why they should pay for billions of dollars a year in research when they can keep Windows, MS Office, and the profitable server software divisions running with a much smaller investment.
Re-implementing other established technologies inside of MS products doesn't really count as research in my book
Re-implementing technology is the basis of a hell of a lot of academic papers. (MSR also puts out more research work than any other company I can think of except maybe IBM.)
Think Bell Labs when you think of MSR. If it comes up with one or two useful things (Midori/Singularity look extremely promising), it's made its money. "Just because Microsoft has never done it, doesn't mean that it's new and innovative"? Just because you don't like what they're spending money on doesn't mean that it's a bad idea.
R&D is not always "innovation". Often it's just making something practical.
"You can either have software quality or you can have pointer arithmetic, but you cannot have both at the same time."
Spending money on R&D is not the same as "spending frivolously." The whole point of R&D is to experiment with new technologies, some of which pay off, some of which don't.
Kudos to Microsoft for actually investing in their future, rather than sitting on the cash pile. To hell with the whinging "investors" who expect money for free.
I do not fail; I succeed at finding out what does not work.
> They could refer to the company charter, which often has a phrase where the primary objective
> of the company is "to maximize profits and increase shareholder value". If that is the case
> for Microsoft (I have no reason to not think so here), the directors are violating a primary
> tenant of their charter if they spend money frivolously.
Trying to show that eight billion for R&D is sufficiently frivolous to warrant corrective action could be something of an uphill battle.
This is Microsoft we're talking about here. They can *afford* eight billion a year for R&D. Now, if they were spending that eight billion on something that clearly would not produce value, such as using Oracle stock shares as toilet paper in the executive restrooms, that might be actionable. But research and development is generally considered important for company growth in most industries, and this is even more true in the software industry than in most others. Someone could possibly argue that they could maybe be getting by with an R&D budget of only seven billion, but it would also not be difficult to argue that as much cash as Microsoft is rolling in there really is no excuse not to be spending ten billion on R&D. Their revenue in 2008 was about sixty billion, more than fifteen billion of which is net income, and that's not an unusually good year for them, and almost all of the money comes from selling products that were developed as part of earlier R&D efforts. (They do also make some revenue from returns on various short-term investments, but the lion's share comes from selling software licenses.) "Where's the ROI?", the shareholder asks? Bad rhetoric. The ROI is obvious and considerable.
What the whiners are essentially saying is, "Screw the future of the company, give us all the money as dividends!" But that would be bad business.
Cut that out, or I will ship you to Norilsk in a box.
An dyou think reducing R&D spending could make its stock go up? If Microsoft had low margins (like most companies have), that might make sense. But even halving R&D would not make such a large dent in their bottom line. THey get 20B out of 60B in sales. Reducing 4B out of R&D (which would be impossible, as that would not even cover maintaining existing products) would bring revenue to 22 or 23B (the difference due to taxes). Do you think that new situation, with 3B extra cash but without a future whatsoever would make the stock go up or down? When Steve Ballmer took the reins, he said "this is a different market, there are not as many opportunities for growth so we have to be more cost conscious". Since then, Google blasted off, Apple created the iPod and the iPhone, companies like Facebook sprouted out of nowhere and mobility became a market bigger than computing. Investing in R&D is what Microsoft has to do. Despite all the babble about marketing, every time they did a bad product (take Vista) they did bad, but when they created products people actually liked, they did great. It's that simple. Don't cut R&D. Cut marketing.
You've been modded funny but I would give this an insightful myself. It's similar to my new favorite phrase that I may have made up, "The less you know, the easier it is to have a strong opinion about it."
With the amount of money spent on marketing dwarfing what is spent on R&D by almost every industry, I cringe at someone saying too much is being spent on R&D. It may or may not be true in this case, but I think the larger problem is Microsoft's inability to execute on the ideas they come up with.
Case in point, the Zune could have been a great product had they taken the time to make the wifi useful and used their weight to pressure the music industry into giving customers a better, non-DRM'ed, experience. Instead they slapped together a product in their usual manner and went to the music industry to let the RIAA dictate what kind of experience they could give their customers.
Apple can spend a fraction of what M$ spends on R&D because they make up for it with good execution.
They've spent a LOT more than $5 billion on the Xboxen over the past decade or so. More like $25 - $30 billion, last I read. That's a truly staggering sum for a product line that's yet to earn them even a cool billion in profit over the same period.
It's even more embarrassing for Microsoft when you realize the Wii has forced them to cut the price of the Xbox 360 just to remain competitive saleswise - and they're still sliding into 2nd place in this generation for overall sales, in spite of having a year's headstart.
Even worse, Nintendo has been turning a profit on the Wii since very early on in its lifecycle. Microsoft just recently started turning any consistent profits at all on its videogame business, and last I read they're still losing money on every 360 they sell (they have to make it back on the games). In contrast, Nintendo is turning a profit both on their consoles and on the games.
In a lot of ways, I'd say Microsoft is an even bigger loser in this generation of the console wars than Sony. The PS3 is likely to have a longer lifespan in the market than the 360, giving Sony more of a chance to make money off the consoles (and games) in the long run. And by pushing Blu-Ray to some level of success at least Sony stands to make some money off that standard thanks to their enormous PS3 investment. In contrast, Microsoft has nothing to show for the whole Xbox investment besides - finally - an anemic quarterly profit for their gaming division.
Apple's making far more money off of the iPhone than Microsoft's making off of the Xbox, and it cost Apple far less money and took Apple far less time.
I think folks criticizing Microsoft for their R&D investments are on the right track. Microsoft has blown a ton of money on R&D and on trying to get into other markets besides desktop PCs, and much of it has been completely wasted. Several of their competitors have done a far better job, spending a lot less money.
Research is great, but you have to be able to translate that research into products people want to buy (that's the "development" side of R&D). Microsoft risks becoming the next Xerox - a one-trick pony who dominated one market, but who could never translate their extensive R&D efforts into successful products in different markets. Remember, it was Xerox who pretty much invented the modern graphical user interface PCs sport today, along with things like Ethernet and laser printers. Where are they now?
People always complain that R&D wastes money until they have no new products and the company goes under, or a new product comes out of the R&D department.
In the meantime, "R&D is blowing millions of dollars!"
It's usually the first thing cut when budgets are tight, but it is probably the worst thing to cut. It just ensures that your future prospects are even slimmer.