Looking at Microsoft’s recent annual report, filed on June 30, 2010, Microsoft generated 83% of its revenues and 98% of its profits from the following three divisions: Windows & Windows Live, Microsoft Business Division, and Server and Tools. While these divisions include a collection of products and services (e.g., Azure), it appears that most of the revenues and almost all the profits of these divisions is driven by Windows (desktop and server) and Microsoft Office.
Its remaining two divisions – Online Services and Entertainment & Devices – encompass all of the company’s consumer products outside of Windows and Office, such as the Xbox 360, Bing, Windows Mobile, and Zune. In 2010, these two divisions accounted for the remaining 17% of Microsoft’s revenues, and had a collective operating loss of $1.676b. In fact, between 2008 and 2010, these two consumer-focused divisions generated an aggregate of $3.353b in operating losses.
Looking across its five divisions, we can conclude that Microsoft generates a majority of its revenues and nearly all of its profits from Windows and Office. And while Microsoft has found some success with other enterprise products (e.g., SharePoint, Microsoft SQL Server, and services), its consumer strategy, outside of Windows and Office, is struggling.
From my vantage point, the two key questions for Microsoft are:
1. In what timeframe will Microsoft face downward pressure on its Windows and Office revenues and profitability, given the transition from desktop computing to thin devices and cloud services?
2. Can Microsoft develop and execute a corporate strategy in the consumer or enterprise markets, outside its stronghold of desktop computing? And will this strategy substantially compensate for any disruption in its core market of desktop computing?
My sense is that the transition from desktops to cloud services and thin devices is accelerating due to rapid innovation and growing competition among Amazon, Apple, Facebook, Google, Netflix, Salesforce.com and others. Further, Microsoft has thus far underperformed in cloud services and thin devices, from search (Bing) to smart phones (Windows Mobile). In view of Microsoft’s dependency on Windows and Office, and its inability to gain significant share in newer growth markets, I am concerned about its long-term prospects in computing.
The biggest argument for this that I can see is their online services division -- i.e. Bing -- which lost more than half a billion dollars in one quarter (they lost a similarly gigantic amount in Q1 2009), and hasn't had a profitable quarter since 2005 [see http://www.businessinsider.com/chart-of-the-day-microsofts-o... ].
Even Microsoft publicly acknowledges that succeeding in online services is key for future growth, but they show no sign of being able to even begin approaching profitability in that space -- instead, they are losing more and more every year.
iOS and Android don't look like Windows killers today, and they aren't. But they are harbingers of things to come. In 1975 the MITS Altair didn't look like a mainframe / mini-computer killer, and it wasn't. In a mere 10 years since the Altair (a toy computer) hit the shelves the entire industry had been overturned, and mainframes/mini-computers were dying out while micro-computers came to the fore. Micro-computers grew up a lot in that time frame, but the essential elements of their superiority were there from the beginning (simpler, cheaper, more mass-production friendly, performance tied to components not overall construction, faster/cheaper innovation loop, etc.)
The same is true for mobile OSes and for web-apps. They have a lot of growing up still to do to compete with Windows everywhere, but the core is still there, and they have far less to grow than the Altair did. In another 10 years how much more sophisticated will be the iPad, iOS, android tablets and phones, and their native apps etc? In another 10 years how much more sophisticated will be webapps? In 10 years a VPS (or equivalent "cloud" instance) with hundreds of gigs of RAM and a terabyte of SSD storage and the CPU power to match will probably cost the equivalent of $20 a month in today's dollars. Add to that powerful new technologies like web sockets and all the other html5 technologies, along with new things we haven't even imagined yet. In 10 years gmail will be nearly 3x as old as it is today, imagine the innovations that will happen in that time.
And I'm supposed to imagine that somehow there's no chance that Windows will lose its footing amidst all this innovation? Perhaps it won't, but I can't predict the future, and from what I see it looks like there are huge very real risks to Microsoft's cash cow.
1. One future state is that most people transition from desktop computers to smartphones, tablets, etc. We then dock these devices for doing intensive work.
2. Another possibility is that we have smartphones and tablets, but transition from desktops and laptops to thinner laptops (e.g., netbooks, new Macbook Air, etc).
The issue for Microsoft and others is then - what operating system and office software becomes the standard in this future computing environment: Windows and Office, Android/Chrome and Google Docs, Apple's iOS and iWork, or some other solution (e.g., OpenOffice)?
Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.
How many more years does Microsoft need to get increasing revenue from those two before that will stop? Or will they just keep saying it, year after year, until it's true. You could have said "people are going to start cancelling their landline phone service" every year since 1950 and you would have gotten to be correct eventually right? Just hang in there.
We're massively ramping up as we get closer to our 2011 Q1 RTW ship dates, and the product is way more polished and functionally relevant than our competitors. Heck, I even think our marketing team has bought some massive advertising on money.cnn.com
We're very excited.
Try this: mouse-over "TRY IT TODAY" and then try to click on "GET STARTED".
The natural instinct is to linearly move the mouse to "GET STARTED", but in doing so you trigger the "REAL-TIME INSIGHT" mouse-over action.
So, relatively speaking, those people on Slashdot may have had somewhat of a point. As others have pointed out, IBM still makes billions, but are no longer the leading force in computing. Microsoft appears more and more destined to a similar role.
I don't think soliciting votes is necessary around here.
Looking at Google's recent annual report, filed on October 28, 2010, Google generated 96% of its revenues and 99% of its profits from the following one division: advertising. While this divisions includes a collection of products and services (e.g., mobile), it appears that most of the revenues and almost all the profits of these divisions is driven by AdWords.
Microsoft might be a little behind, but they are definitely serious about "cloud". Plus, Windows Phone 7 does not look too bad. It might not be as complete as its competitors in features, but it is definitely a strong ground work.
Let's just sit and watch how those folks in Redmond will monetize better from the cloud.
- Apple: May be in less than five years a cheap generic chinese mobile clone will have all the iPhone capabilities.
- Google: Search irrelevant, a lot of competition in the advertising arena.
- Facebook: P2P or other kind of social networking.
- Twitter: P2P too.
Apple now makes something like 60% of its revenue from products that didn't exist 5 years ago. I'm sure they realize this and will continue. When they stop they wont be center stage anymore and they probably know this.
Google has been trying almost everything there is to try. It's been almost exclusively failure but their pockets are deep enough that they'll probably get a hit eventually. I guess in that sense they are the closest to Microsoft's current position but they haven't built up nearly the same amount of bad blood yet.
Facebook I have much less faith in. Everyone I know who uses it only does so because they can't find a good alternative. That's a bad situation to be in if you're going for the long term
I don't know enough about Twitter to make a comment.
It was obvious to some over 10 years ago that this was a movement that Microsoft had to embrace to stay relevant and yet they have completely failed to get it. It is obvious to anybody who enjoys coding that the great developers prefer free and open source software. There isn't a single category of product that isn't built using this methodology now. The worlds fastest supercomputers wouldn't dream of using Microsoft's operating software. Why is that? If Microsoft makes such great software, why can't they power the world's fastest and sexiest computers?
Microsoft is obsolete to many until they address this core issue. You can say all you want about them not making this or that online play but their core business as you point out is operating systems and office tools. Free and open source operating systems and office tools will one day break into that cash cow and when it does Microsoft had better be ready. I can't put it any more plainly than that.
You may now return to your scheduled programming :)
Why am I being down-voted? Others on this page have stated that Microsoft shall not be as profitable going forward for reason X or Y or Z. I have stated why I think this is the case. I can't of course _prove_ it which is why I said that I have a bias up front. But if you look to the mobile phone landscape you have a situation where Android and Symbian are free software. It took a long time to happen and it took two technology giant neither of whose core business was operating systems and office tools per se. Don't you think that this is significant? Let's repeat this, nobody had any success competing with Microsoft at its core competencies until open source competition came along and even then the market that Microsoft "owns" is still firmly within their grasp. Somebody else on this very page expressed their opinion that the technology disruptor would be thin clients/cloud computing and didn't get down-voted for it. But I do. Please do not down-vote me if you disagree with my opinion, express yourself and tell me why you think I merit down-voting. Thanks.
The culture may be suffering a malaise right now, but they have a lot of money, and a lot of talented people. And they seem to be making many violent changes as we move away from the Windows/Office hegemony years, which is clearly the right strategy.
They may never have the robot-cars culture of Google, but they will always have a great-software culture.
I'd say they've already started to successfully turn the ship around.
Of course, it's not to late to recover: they've got huge assets, and Windows and Office have a few more years to run. But so far the progress hasn't been anywhere near what's needed ...
I sold my stock a while back and this current rally seems like a swan song.
Why buy other set top boxes if I can get all of their functionality plus amazing games at the same time?
I think quite the opposite. They're pushing the envelope nearly everywhere. But you don't make money by pushing the envelope. It's by finding what customers want to spend money on. The iPod wasn't pushing the envelope. But it was sexy.
Courier was sexy, but not realistic. I say Kinect is their most exciting product.
It takes more than money and good people to avoid "death".
Installed MS Office for someone on their Mac, then said yes to checking for updates. The updater ran, downloaded 2 updates and then told me it to please quite the following programmes before it could continue. List of programmes was everything running at that time, including the updater itself.
http://www.appleinsider.com/articles/10/10/28/apple_beats_mi...
Microsoft is still more profitable, for the moment.
