Where Microsoft's Profits Come From

derrida writes "Microsoft is the largest, most profitable software company in the world. In case you had any doubts about where Microsoft's profit comes from, there's nothing better than a graph to make all those numbers clear. As you may have guessed, the desktop division is quite profitable, while the online division is a money pit."

Comments

Interesting graph!

[erroneus]

What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff. This is clear indication of the power of vendor lock-in and tying unrelated products together.

What I would find interesting is to know what events occurred during the valleys and rapid climb moments indicated in the graph. Specifically, what happened in Dec '06 and Sep '09?

Re:Interesting graph!

[timeOday]

What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff.

Are you sure that isn't just how the graph looks because it is stacking the data series on each other?

What surprises me is the massive boost in OS profits in Dec 09. Could that really be Windows 7, and if so, how? It costs about the same as XP/Vista, and it's not as if people are buying Windows 7 off store shelves to upgrade older computers (are they?)

Re:Interesting graph!

[Amanieu]

I believe that the two drops and spikes correspond to a new version of Windows being release. Prior to release, people will stop buying the old version, which would be seen as a drop in profits. After the release, a lot of people will upgrade, which accounts for the spike in profits. The second spike (2009) is bigger than the first (2006) because Windows Vista wasn't as successful as Windows 7.

Re:Interesting graph!

[fullfactorial]

What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff. This is clear indication of the power of vendor lock-in and tying unrelated products together.

No. It's a clear indication that TFA used a Stacked Line Chart. If you were to move Office and Server to the bottom of the stack, you would see that they both account for relatively small sales bumps (~1 billion), with the real movement coming from the release of Windows Vista (Mar '07 bump) and Windows 7 (Dec '09 bump).

Normally you avoid data distortions like this by putting the least-variable data at the bottom of a stacked chart. I think "Chart of the Day" needs a better-trained Excel monkey.

Ok, let's see

[JamesP]

We look at the graph: MS is losing like 500Million per year on the Online Division

Then we look at the other graph and sees that Windows and Office has a 2Billion a year profit, EACH

And then we have to read crap like this: "We wonder when Microsoft will finally decide to do what it should have done years ago: Save its money and flush its entire online division down the drain."

No hon, SteveB is stupid, but not as stupid as you. It's called 'strategy', look it up. If it's working or not it's a whole different matter.

Re:Ok, let's see

[erroneus]

They are not "expanding their business." They are keeping potential competitors at bay.

Do you recall what MSIE did to Netscape who, at one time, threatened to make their own OS?

There is a reason they are willing to lose lots of money in online activities. Their willingness to lose money will mean that any emerging competitor will also have to be willing to lose money. Is Google a competitor? Is Sony with its PS3 or Nintendo with its Wii a competitor? You betcha! Even though they are not "desktop" competitors now, they are changing the market in favor of appliances -- network enabled appliances -- the kind of computing that has been foretold by many for the past decade. The OS may become irrelevant so long as file format and protocol standards are non-proprietary.

You are right in that Microsoft has a larger vision -- it sees its own demise and is actively working to keep anything new from rising up to render them irrelevant.

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[account_deleted]

Comment removed based on user account deletion

Eggs all in one basket, and an old basket at that

[Palestrina]

They make their profit on their monopoly products and lose money on almost everything else. That is why the methods they use to maintain these monopolies continue to be the subject of antitrust investigations.

This also demonstrates that they are very good at maintaining their monopoly, but not so good at successful new product development. With a stagnant pipeline, they are especially at risk as FOSS alternatives like Linux, Firefox and OpenOffice become less "alternative" and more "maintstream".

Re:The chart is mis-labeled

[TheRaven64]

I don't know, what can you do with Win7 and Office 2010 that you couldn't do with WinXP and Office 2000? What new improvements in productivity do you gain from them? How did they lower your other costs (e.g. hardware)?

Re:The chart is mis-labeled

[DesScorp]

I don't know, what can you do with Win7 and Office 2010 that you couldn't do with WinXP and Office 2000? What new improvements in productivity do you gain from them? How did they lower your other costs (e.g. hardware)?

Well, new versions of Office simply exist to force you into their new file formats. Office 97, simply put, does everything anyone could want, and does it well. The only real selling point for the latest iteration is the collaboration technology in it, and even then, that's only good for you if you're using it in a business or groups. There's really no practical justification for a home user to upgrade Office.

Windows 7 though, that's a bit different. It appears that MS has really given us a reason to move on from XP, with better graphics support and better security, without the bugs of nags of Vista. Windows 7 is really what Vista should have been. And it would be more compelling if all versions of 7 were 64 bit native, as CPU's have been 64 bit for quite some time now. The 64 bit part would be the real selling point here, as it would allow all versions to move past that 4 GB memory limit, hardware permitting. For a lot of people, the only reason they really had to move to XP from 98SE was the file system limits on FAT32. While 98 was more stable than 95, the reason I upgraded was the 2 GB FAT limit that was smashed with FAT32. Microsoft too often forgets that we need practical reasons to upgrade, not just shiny eye-candy. And real practical reasons, not artificially forced situations like their new Office file formats. The only reason they did that was to force businesses away from 97 and 2K.