Is Microsoft about to collapse?
Thats a pretty bold question when you ask it about a
company with $56 billion in cash, but just take a look at it from a business standpoint
fortunately we have a solid example for comparison (thats how
does this sort of thing.)
Take GM (Ford is similar but less dramatic) GM makes cars
and trucks which fewer and fewer people want except for a few enormously
bloated, expensive, and resource-hungry SUVs.
What people want are comfortable, safe, low-cost, efficient,
well-designed and, above all, reliable products which are readily from other
GM needs a minimum of 3-5 years to produce a new product and
those are so similar to older products that most potential buyers dont see any
>Product development is a weak component.
As a company General Motors had a relatively captive and
competition-free market (except for Ford) for decades but, once the market
turned against it and competition arrived, management failed to respond. Consider
how much worse shape GM would now be in if they had NO competition from Ford!
GM has far more employees than it needs to produce what people
actually want to buy and, compared to other workers with similar job skills, GM
pays them far too much.
A major problem at GM is the way they offer guaranteed
lifetime employment not a recipe for encouraging innovative employees. GM
even has to continue paying workers who arent working, to the tune of about
$120,000/year in total costs.
Last weeks riots in
(many of us know how wonderful it is to deal with French shop employees) were triggered
by a new law which would make it possible to fire a new employee within two
years without going to court. (Quick – name three highly successful French
It only takes a glance at a Chrysler dealership to see that
some companies can make both rapid and successful product design changes.
What does all this car talk have to do with Microsoft?
GM got where it is by having, a near monopoly essentially being
able to print money which lead to complacency in product design, quality
control, and even in the way employees are paid.
Microsoft when you make billions of dollars by essentially
duplicating CDs, you can pay employees as much as you feel like and load on the
benefits, which is what they did.
But, how many people does it really take to develop a powerful,
relatively secure operating system?
Im not certain, but I bet Linus Torvalds could make a good
guess and it would probably be about ten thousand fewer than Microsoft needs to
NOT turn out products on time.
Lets say 10 people could develop a reasonably secure OS according
to the latest annual report, Microsoft
spent $6 billion on research and development last year.
Now, how many people does it take to publish, pack, and ship
Well, we could ask the various groups which deliver multiple
CDs with multiple versions of Linux. They sell them for little more than the
cost of shipping. Certainly less than a double decaf late
Microsoft spends $12.8 billion on marketing its products (some
of which is the cost of publishing and shipping.)
I bet Amazon.com could handle Microsofts production volume
with a couple hundred people.
Are you beginning to see a trend developing here?
Now, you would be right to point out that Microsoft also
produces Office true, but the situation is identical (see openoffice.org).
Office XP has a lot more features than OpenOffice, but how many of them do you
Microsoft is still making a lot of money. But so was GM a
few years ago, so what clues are there that I might be right?
Well, Wall Street is often a lot smarter than people think,
so lets check their opinion of Microsoft.
MSFT (Mr. Softie to the street) stock hit a split-adjusted peak
of about $60 a share early in 2000, since mid-2002 it has never gone above $30
and, in the last year has hovered between about $24 and $28 not exactly a
screaming bull market.
I realize that Microsoft does a LOT more than just sell
Windows and Office there are server, Internet, development software, and
enterprise products, but other companies also sell those things. The big
difference for Microsoft is Windows combined with the Office suite.
What brought this all to everyones attention was the way Steve
Ballmer and Jim Allchin totally failed to produce Vista AND Office 2007 by the deadline
that would have put them on computers and in stores for the gigantic Xmas 2006
buying season (which is the same as the end-of-the year capital investment tax
buying season for businesses.)
MSFT signs of the time
Number of employees 56,000
Canary in the mine clues:
>Stock benefits to employees being cut to save $60
>Medical benefits to employees cut drastically (proposed
$40 drug co-payment will save another $20 million.
>Vacation time cut for new employees from three weeks to
>Paid parental leave restricted.
>Flagship product shipment delayed past peak selling
>Competitors selling equivalent products for far less
actually many competitors are simply giving away equivalent (even superior) products
such as Firefox and FreeBSD.
>A stock value that has declined for five years in a row when
you factor in just the governments claimed rate of inflation (thats the one
which ignores the surge in cost for housing, food, and energy.)
Now Im not saying Microsoft is on the verge of collapse; it
certainly isnt. But, although people always fail to see it, water eventually
runs downhill and the trend isnt promising.
Lots of once gigantic companies have lost their way and become
small players some common factors involved include:
>Formerly highly innovative, new products have become predictable and cheaper generic
>Management and employee payrolls become so bloated that
rapid changes to meet competitive challenges becomes impossible.
>Founders who build a company on one or two ideas become
less involved in the low-level product development.
>Market dominating complacency leads to massive waste and
lack of quality control.
Just my opinion of course but I can tell you that, even if
it werent unethical for me to own stock of a company I report on, I wouldnt
be lining up to buy MSFT I might think about shorting the stock but I have to
cover all my GM short positions first and the tax consequences of taking THAT profit
would be horrendous!
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