Record profits equal a failing company? Color me confused

If you read some of the recent headlines, you might think Microsoft was on the brink of bankruptcy. In reality, the company posted record-high revenues and profits for the fiscal year that just ended. What's behind the discrepancy?

Last week, Microsoft reported a dramatic increase in net income with record-high revenues of $69.94 billion for last fiscal year (which ended June 30). Fiscal fourth quarter profit was $5.87 billion. Despite the gloom-and-doom reports that the PC is dying and will take Microsoft with it, the company made up for flat Windows sales by leveraging the popularity of Xbox and Kinect, while Office 2010 and server applications showed strong sales in the business division.

When Apple reports good news like this, the media goes wild, investors sing its praises, and its stock value shoots up. How is this Microsoft story being covered?

  • "Microsoft Windows Fizzles Even as Results Top Street" (TodayOnline)
  • "Microsoft's Windows Faces Erosion, Competition" (eWeek)
  • "Microsoft Strong on Revenue, Weaker with Consumers" (KPLU Seattle)

The headline from AppleInsider was (not surprisingly) even more disingenuous: "Microsoft's Windows Revenues Disappoint with 2% Decline in Fiscal 2011," with nary a hint of those record profits.

To be fair, not all the press is negative. There are some reporters out there who still just, well, report. And that's nice to see. Opinion and commentary are appropriate and desirable when they come from commentators and analysts. Heck, opining and commentating are what this column is all about. My beef is with those "news" outlets that blur the line between reporting and analysis, with opinions inserted as if they were fact into front-page stories marked as "news." The anti-Microsoft bias is sometimes subtle and sometimes glaringly obvious.

It's not, after all, as if Windows sales have been dismal. According to reports, Windows 7 has already sold over 400 million licenses after 20 months on the market, whereas it took Windows XP -- often hailed as Microsoft's most successful OS -- about 50 months to reach the same sales figure.

Redefining "failure"

With former Microsoft executives such as Dick Brass proclaiming in public statements that Microsoft is failing, it's no wonder some segments of the media are taking that ball and running with it.

It's just a fact that anything and everything Microsoft does is seen as a failure by some (very vocal) people. When Steve Ballmer acknowledges that Windows Phone 7's market share has remained small, the headlines almost joyously announce that "Ballmer Admits Windows Phone Was a Failure."

Here's another case in point: Following the death of singer Amy Winehouse, a Microsoft Twitter account publicized her last album and Microsoft was immediately pounced upon by critics, who called it "crass" and said Microsoft was "failing at social media." The headlines blared: "Microsoft Forced to Apologise after an Inappropriate Tweet." Meanwhile, Apple iTunes and Amazon both did basically the same thing. This was mentioned in the linked story but left out of the headline. The problem with that is that many people today don't read beyond the headlines.

Putting it into perspective

Let's take a more objective look at this "failing" company. While Windows market share may be dropping (and the press is making a very big deal indeed of this fact), according to NetMarketShare statistics, it's still at over 88 percent -- and that's counting not just personal computer operating systems but those for smart phones and tablets (Symbian, iOS, Android) and even game consoles (PlayStation) as well.

In the tablet space, despite the fact that most folks "in the know" who want to run Windows on a tablet are waiting for Windows 8, which will come in an ARM-based version, Microsoft increased its global market share from 1 percent to 4.6 percent in the last year. That puts it ahead of the Blackberry Playbook, for which many had such high hopes. And before you scoff at that not-quite-five-percent figure, let's remember that, as of the end of June, the OS market share for Mac OS (all versions except iOS) was only 5.37 percent. Linux had less than 1 percent. Yet we keep reading about how adoptions of those operating systems pose a threat to Microsoft.

Bing, which many said could never present a real challenge to Google, has been slowly but steadily gaining market share. In fact, Bing was the only search engine to show increased market share in June and now stands at 14.64 percent, while Google declined slightly (although it still has more than two-thirds of the market). Even better, if you count Yahoo searches, which are powered by Bing, the market share jumps to over 30 percent.

Meanwhile, Xbox is hot, with Microsoft gaining 48 percent of the U.S. market share in June with over half a million sales for the month, which is almost twice as many as second runner-up Nintendo Wii. In fact, Xbox has been the best seller for 12 of the past 13 months. In March, Mashable reported that Microsoft had set a new Guinness World Record for "fastest-selling consumer device" by selling more than 10 million Kinect controller systems during the first three months after launch.

But that doesn't mean Microsoft is turning into a gaming company. They're still going strong in the enterprise market, too, with sales of server applications such as SharePoint, Exchange, Lync, and Dynamics CRM continuing to accelerate.

With cash on hand of $52.77 billion, which ranks it number one of 800 in the technology sector and number 17 of 4,281 companies overall, Microsoft hardly looks like a failing company. For comparison, Apple ranks number five in the technology sector and number 31 overall with $28.39 billion.

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Breaking the habit

Why, then, are so many pundits calling Microsoft a failure? One problem may be that when you're at the top, there's only one direction to move, and that's down. Microsoft was the world's biggest and wealthiest software company for many years, as well as one of the country's largest corporations. Any downward motion is seen as failure.

In May 2010, Apple overtook Microsoft in market capitalization. Microsoft's ranking among Fortune 500 companies dropped from number 36 in 2010 to number 38 in 2011. The company also dropped 4 percentage points this year on CNN Money's list of the 100 best companies to work for.

Another factor working against Microsoft is that when a company (or an individual) achieves great success in business, he/she/it almost inevitably becomes the target of those who hate to see anyone succeed. I have a couple of longtime acquaintances I call my "foul weather friends" because, unlike the folks who flock to your side when you're on top and drop you like a hot potato when your fortunes take a turn for the worse, these people are there for you with all sorts of encouragement during tough times. But if your life improves, if you bounce back from the layoff by getting a great new job, get past the divorce and find a mate who makes you happy, have a smooth surgery and get a clean bill of health, they seem disappointed.

Many of the doomsayers who find a cloud in every silver lining when it comes to Microsoft do have a dog in the hunt, and maybe they're engaging in a little wishful thinking. They want Microsoft to fail, and they think maybe if they say it long enough and loud enough, it will be true. The big fallacy that some don't seem to grasp is that the tech business isn't a zero sum game. One company doesn't have to fail in order for another to succeed. Sure, one may have more cash or a higher market cap than the other, but both can be successful simultaneously. Those people look at it like a horse race, where only one pony can come in first, but they forget that gamblers don't make their big money betting on one horse to win; they do it by hitting the exacta or the trifecta.

Maybe the primary reason for all the anti-Microsoft sentiment is that "we've always done it that way." Old habits are hard to break, and finding fault with Microsoft has become an automatic reaction for many people. That's evident in many of the assumptions I hear people make about Windows -- that it crashes daily, that it's far less secure than any other OS, that it's inevitably slow and clunky -- which might have been true many years ago, but no longer are. Habits can be broken, though, and sometimes all it takes is a confrontation with reality.

A while back, a friend deluged me with his list of complaints about Windows. Turns out he was running Windows XP, a ten-year-old operating system, on a machine that was almost as old. I invited him to try out my Windows 7 computer. He liked the experience so much that he went out and bought a new computer running Windows 7, and a month later he came back to me singing its praises and suddenly very happy with Microsoft.

He's not the only one who has experienced an "attitude adjustment." In an article from the Enterprise CEO Forum, Kevin Tea wrote about how his misconceptions about Microsoft were turned upside down when he had the opportunity to talk with a group of real, live Microsoft employees. Even investment analysts are starting to rethink the popular notion that Microsoft is in an unstoppable downward spiral as some of them have recently begun finding some love for Microsoft.

My take

I don't understand how anyone can look at the numbers and call Microsoft a failure. A bit less fat and sassy than its former self at the peak of world software domination, sure. A very successful company that now has some very successful competition, absolutely. A company that has made some false starts and stumbles? No argument. But I don't see Microsoft as a failure because Windows sales didn't grow by leaps and bounds last quarter, any more than I see Zenyatta as a failure because she came in second in her 20th race after winning the first 19.

I know many readers will disagree. I also know this article will inevitably result in the usual accusations that I'm a Microsoft "fangirl" (and some will probably use far less diplomatic language). That's OK. As I used to say back in my pre-techie days when I was working the streets as a police officer, it's a tough job but somebody has to do it. Am I biased? Sure -- everybody is biased one way or the other. Do I express opinions along with facts? Sure -- that's what commentators do, and that's why commentary is more interesting (and garners far more passionate responses) than straight reporting.

I like Microsoft, because the folks there have done some amazing things over the years. But I also frequently criticize the company when it makes what I see as bad decisions. I get hate mail from both Microsoft lovers and the anti-Microsoft crowd -- sometimes in response to the very same article. It's sort of like how I make both liberals and conservatives mad when I talk about politics. I guess I just have a penchant for being a contrarian.

I believe there's room at the top for Microsoft, Google, Apple, and a few more. I don't believe the success of one depends on the failure of the others. If that's a hopelessly old-fashioned belief, so be it.

Discussion topics parameters

Is Microsoft a failing company, even as it takes in record profits? Does any loss of ground in its flagship area define a company as a failure, even if it gains ground in other areas? If so, does that mean Google is now a failure in the search space, since its market share has declined slightly? Should Microsoft focus on Windows now, or does it make sense for the company to put more efforts into other products such as Xbox and server applications? Would the tech industry be better or worse off if Microsoft failed?

By Deb Shinder

Debra Littlejohn Shinder, MCSE, MVP is a technology consultant, trainer, and writer who has authored a number of books on computer operating systems, networking, and security. Deb is a tech editor, developmental editor, and contributor to over 20 add...