Comments on: Microsoft's online gamble could be smart bet

Analysts grumble that Microsoft is pouring a lot of its Windows and Office profits into its online efforts. CNET News' Ina Fried argues that's not such a bad thing.

[MSSlayer]

That is why Microsoft is a failure online. They are going after advertising dollars without having anything to drive people to them. Like usual, they are completely ass-backwards on this.

Develop a search engine to rival or beat Google.

Develop free online tools that people would want to use.

Handle privacy issues better than Google has.

Once they do that, the advertising dollars they are so focused on will come. Until they accomplish this, they will fail again and again.

That is why they get ridiculed for investing so much money, especially when their flagship products are failing.

[catch23]

Failing?
http://tinyurl.com/62o6ft
heck, even Vista in "failure" has 2x the users (in under 2 years) that Apple has been able to achieve in what, 20?
http://tinyurl.com/6oeasw

I think your using the wrong word here.

[Penguinisto]

New users, or existing users? Because currently, Windows isn't even keeping up with current growth rates for the whole PC industry (while Apple OTOH is beating that curve two-fold and then some).

[catch23]

Penguinisto,
That is like saying someone who starts with 1 and now has 2 (100% growth!) is doing better then someone starting will a million and adding a thousand....
Lies, damn lies, and statics. i see you have them all down.

[The_Decider]

catch, I see you are duped by statistics as well. It is well known that MS fudges useage and sales data via nonsense such as channel stuffing.

Apple is growing, Windows is shrinking in market share that is a fact you either missed or simply just ignored. Windows is not growing anymore, unless you consider a negaitive groth rate to be growth.

Vista is a failure by any and all measures. Why do you think they pushed Windows 7 up so much and they actuially hired someone to rehabilitate Vista. You don't need to rehabilitate a success.

[Penguinisto]

@catch23: you're exaggerating a bit too much there. Apple is currently the third-largest computer seller in North America and #6 world-wide, to give a perspective (ref: http://www.bloggingstocks.com/2008/07/18/apples-pcs-take-over-the-3-spot-in-u-s-sales/ ).

Given this, I sincerely doubt that MSFT is out-selling Apple 1000:1, or even 100:1, or even 10:1 (since Dell and HP don't really have any figures at all as to how many of which OS they sell with their products, or even how many have an OS included).

But - to be charitable here. Let's say that MSFT is doing 10:1 better in sales over Apple, with their current growth rates (15% and 33%, respectively) remaining constant. if MSFT is only growing by 15% YoY, but Apple maintains 33% YoY, then it'll only take roughly 7 years for Apple meet ~45% of Windows' (by then) marketshare, and 12 years to match it. Note that this does not count either company doing better or worse... only even.

Now if we were to be real nasty about it and count adoptions as a true growth curve and not as a constant growth factor, then Apple would likely match MSFT unit-for-unit in less than 5-7 years (assuming both it and MSFT continue their growth curves).

On top of all that, we haven't even touched on the tipping point - the point at which developers, OEM,s and vendors begin to abandon the dominant OS either in search of richer markets, or because they want to fend off competition from those who are profiting from those who already found themselves in it. We also haven't considered developer mindshare, etc etc etc...

Either way, MSFT is in long-term trouble unless they can pull a rabbit out of their nether-regions and make Windows 7 at least somewhat compelling...

[Kwasiowusu]

@ "The_Decider" Vista is a failure is it? Is that why vista has sold over 180 million units, in just over a year, , which is more than all the Mac's Apple has sold in the past TWENTY years? Some failure. Apple should be so lucky. You Apple zombies just crack me up. LOL!

[Kwasiowusu]

@ Penguinisto, there you go again with defending the indefensible. Bottom line: Worldwide, Windows is actually increasing market share. Apple?s worldwide market share FELL from Q2 to Q3, and Apple?s market share in the world?s biggest and fastest growing markets, outside the US(China, India, Brazil, Russia), continues to flounder, as windows PC?s stomp all over Apple Macs. Get back to me when you actually have anything to say, that makes any difference, instead of your normal chaff.

[The_Decider]

You are relentless Kwas. Those number are bogus. That represents all viata AND XP licenses "sold" and copies shipped.

Glad to see you haven't encountered reality and you slink through the hall of shills on the MS campus.

[Kwasiowusu]

@ The_Decider, its you who is plucking numbers out of your butt. If according to Gartner, 70 million Windows were sold in the second quarter alone(and that is SOLD not shipped), {http://www.marketwatch.com/news/story/gartner-says-pc-sales-rose/story.aspx?guid=%7BDB17DF5F-7D1C-49A1-BFEA-D29A76351546%7D&dist=msr_2} making annual Windows PC sales of over 250 million, perhaps you will explain to me exactly how the combined XP and Vista sales since Vista was launched over 20 years ago, can come to just 180 million? FACT: Vista has been sold 180 million PC?s since launch, and that trumps ALL Apple Macs sold in the past 20 years. With pitiful Mac sales in the huge, fast growing Chinese market, and in India, Russia, etc, Apple does not even begin to compete.
Perhaps you might consider slinking back to and join your fellow cultists in Apple alternate reality world, and continue to imbibe Apple Kool Aid.

[The_Decider]

If you are you correct, which you are not, 70 million doesn't even cover the costs of the lawsuits and security hassles. Not even close.

Didn't your mom tell you to get to bed?

[bensobel]

People are quick to write off whatever Microsoft does as failure. Microsoft was written off completely when they entered the game console business against Sony. Now they have a sizable market share.

[MSSlayer]

Too bad it is a money loser.

[Penguinisto]

market share != profitability. the xbox has been losing money all the way up until (maybe - jury's still out) last year.

[Kwasiowusu]

@ "MSSlayer"..ummmm.....Microsoft MADE a profits on the XBOX business in the just ened fiscal year(year to end of June), of over $400 million. Yiu'd better check your figures dude. MS Slayer huh? You couldn't slay a fly if it landed on ya nose.

[The_Decider]

Um wrong. If MS has broken even by now that would be something, but $400 million profit? Only if you discount costs associated with the Xbox project. 1 year ago the XBOX project was in debt and that was before they had to sink another $1 billion into the project to cover their incompetence. Nice try though.

[john55440]

Yup, Microsoft is right. They are investing in the future, a sound long term strategy.

Stock analysts only care about the next quarter. They can't grasp the concept of long term strategies.

[Renegade Knight]

True enough. I am NOT a MS fan. They cost me money and I avoid their products at all costs. However their future isn't with their old software. Tha'ts the cash cow to payfor whatever the next big hit is. Maybe that's online. Maybe that's something else. At least they are looking for it becuase they already know their old business line is going to shrink.

[Penguinisto]

Actually, MSFT doesn't have much choice but to invest online.

Operating systems are almost mere commodities now. OEM's have razor-thin margins as it is, and nowadays Windows licensing per-machine eats a VERY substantial portion of the costs... As competition increases, I can easily see OEM's looking to reduce that cost from their budgets, by turning to Linux (as Asus has big-time w/ the Eee PC, and Dell has begun to), or by putting pricing pressure on Microsoft. This in turn leads to lower income for MSFT in the face of rising competition. On the Enterprise front, Linux dominates with drastically lower TCO and an even smaller cost up-front.

Office? Their only real medium-term hope, but one which is steadily seeing competition (from Google, from OpenOffice, etc), and which is itself becoming a commodity. On the apps side in general, Open Source is taking the enterprise by storm, and there isn't much that MSFT can do about it (though not for lack of trying, and to their credit they did manage to confuse and FUD some of it back, combining that with enough vendor lock-in to give them some breathing room).

MSFT has been casting about for new markets for a long time now - their xbox venture might see a profit this year (after 8 years or so), but the margins won't match what they need to stay competitive there, let alone stay alive long-term at their current rate of money consumption. marketshare for the xbox is also eroding in favor of the Wii and the PS3, which doesn't bode well.

The Zune? Pfft! It's pretty much dead minus the corpse knowing about it. See also "Ultimate TV".

Online, Google has proven that there is an obscene amount of money to be made in search and in online adverts. Microsoft naturally wants a piece of that. Problem is, they already have a long history of failure in this arena (MSN the ISP is pretty much a minor player at best --and would be dead if not for Qwest--, Hotmail has become a ginormous spam-hole, MSN Messenger doesn't make any real profits to speak of, and MSN/Live is a distant third place in nearly every metric...) and is the case in spite of Windows' once-absolute dominance.

But... online is one of the only similar markets left where Microsoft actually has a chance at surviving 10 years hence. Problem is, Google got there first, and unlike w/ Windows, MSFT can't simply swipe and co-opt what they need to compete. Again, not for lack of trying (see also the attempts at buying Yahoo).

As recent as five years ago, MSFT might have stood a chance of being ahead online - by bolstering MSN, doing something to actually curb Hotmail's spam-o-rama (instead of counting all those accounts as some sort of proof-of-popularity), and monetizing MSN Messenger in a way that made sense. If they also had done something useful with their search business instead of trying to soak the page in adverts, as well as provided useful features like Yahoo and Google does today, they might be in a far more favorable position today. As it stands, they are not, vis-a-vis online.

The Internet blindsided Microsoft in ~1995... but they managed to recover from it. Problem is, they didn't really learn what they were supposed to from it. If they had, they would've gone to incredible lengths to charge ahead and pour as much as they could into pushing their online presence... instead, they dithered and did half-measures, buying what they could to establish what they could. Now, they're stuck with a long, hard game of catch-up... and I daresay that they're going to have a very hard time of it at best.

[FutureGuy]

What are you trying to say? "xbox is also eroding in favor of the Wii and the PS3" XBox didn't have a market share a few years back, today its way ahead of PS3 in terms of total market share.

[Penguinisto]

Simple: The xbox is sliding against the PS and Wii. If you want to really get pedant about it, then count PS2 and PS3 sales combined versus xbox and xbox360 (which would be far a more accurate count)... MSFT falls quite short.

Sure, MSFT didn't have a slice of the market 8 years ago, but they're still #3 in a three-player market. Sony (who sits at #1 in "total market share"), and a resurgent Nintendo (who has regained a massive lead over the xbox franchise with the Wii) are outselling Microsoft in this field, hype be damned.

Now I have no kick against MSFT actually becoming a player in this market, but man... look at how much money it has cost them so far just to get where they are, and it took 8 years to get to the point where they can barely eke out a profit (unless you count the $1bn sunk into excess warranty costs recently).

Do you realize how much any actual innovative ideas could do with just a fraction of that money?

[solomonrex]

If MS was serious, they would REALLY put Office online. But they aren't. They have to milk this franchise for as long as possible and hope they can catch up in the end. But that's a bad strategy. They've abandoned VBA and by the time office online is ready, all the developers will have salesforce, google, iphone, etc. alternatives. They're losing the platform battle.

[The_Decider]

That in itself won't help much, especially if they charge massive fees and can't guarentee reliable data access.

[NewsReader_]

One of your more insightful posts. Good stuff.

I agree that Microsoft is making a wise investment. It demonstrates good vision is is really a very safe bet. The industry is moving in that direction and they would be foolish to resist.

It always amuses me to read comments about how Microsoft's platform business is dead or dying. The numbers simply do not back that up. Year after year, they have consistent revenue growth from those businesses. If you do not want to take my word for it, look at the numbers yourself. Stats do not lie. $16 billion in revenue is nothing to sneeze at.

http://www.microsoft.com/msft/earnings/FY08/earn_rel_q4_08.mspx

There is certainly a "perception" that Macs, Linux, Google Docs, etc. are putting a dent in those businesses but that is all that it is. People like to talk about market share but you also have to realize that the market is growing. That means even if you lose 1% of the market, the gain in the size of the market still generates growth. Microsoft is actually gaining market share in the server market despite the perception that Linux is out performing it.

By investing in online services, Microsoft is ensuring continued growth. It is a move to have a more diverse portfolio of revenue generating businesses. Unlike Google which has a single source or revenue, ads, Microsft already has a multitude of sources. That is why Google is taking more of a beating in the stock market right now.

[Penguinisto]

Nobody is arguing that MSFT isn't making a profit (or even some growth) from platform sales... just that they are seriously lagging behind the curves exhibited by their competitors, and in many cases the whole industry overall. This in turn impacts their stock performance, as well as impacts their overall share of the market at large.

Also, when you speak of marketshare, be careful to discern sharply between money and users... for two main reasons: No credible stats company will refuse to admit that it is nearly impossible to count the number of installations for an OS that can be had for literally $0.00, then copied at will and whim. Second, just because Microsoft upped license/product costs does not mean that they suddenly increased the number of customers they have by the same percentage as their profits.

Yes the market is growing... but the market growth overall is a baseline, and Microsoft is struggling to keep current with it. This much is very obvious.

If, come next quarter, their biggest bump is from the fact that OEM's no longer sell XP, then they're going to be in far bigger trouble than they can hope to avoid. This quarter's bump most likely came from a massive number of people trying to buy an XP-only OEM machine before the deadline... which again is not a good omen.

[t8]

Microsoft's biggest asset is momentum. They maybe travelling at 16billion dollars per year, but they are slowing down, and the smaller engines like Google who are traveling at a quarter that speed are speeding up. At some point Google might just drive straight past Microsoft. TO curb this Microsoft is revving up it's engine with similar tech to Google, but it will truly take them many years to do that, by then Google has moved on again. Even worse for Microsoft is that they have no cool factor like Google and Apple have. So Microsoft may be travelling at 16 billion dollars per year, but a sizeable chunk of that will be swallowed up in trying to catch Google. It isn't really 16 billion profit if they spend it again to catch a competitor.

[Kwasiowusu]

@ Penguinisto , you do go on don?t yo? In their just ended quarter, Microsoft grew revenues by 16% to nearly $16 Billion, and grew profits by 42%, that is bigger than Google?s profit growth in the last quarter.
Another thing, Google?s earnings and revenue growth came in below market expectations, leading to a massive 10% fall in Google?s share price on Friday.
As for your nonsense claiming that ?credible stats company will refuse to admit that it is nearly impossible to count the number of installations for an OS that can be had for literally $0.00, ? that is utter garbage. The PC counters at Gartner etc, count the # of physical PC?s that are shipped from the various manufacturers, including the ones with Windows pre-installed. So unless you are going to tell me that people spend money, buying PC with Windows pre-installed (which is included in the price), then turn round and remove the Windows and put Linux, than you are talking nonsense. No one does that. If you want a ?naked? PC, you can always go buy one, Not to mention, Dell and HP are now shipping PC?s with Linux pre-installed.. only thing is, most of their costumers prefer Windows.

[Penguinisto]

"In their just ended quarter, Microsoft grew revenues by 16% to nearly $16 Billion, and grew profits by 42%, that is bigger than Google?s profit growth in the last quarter."

...now how much of that came from Windows (assuming you're not just making the numbers up?) Not the 14% growth that the PC industry overall has been growing, which is what I'd been saying.

"The PC counters at Gartner etc, count the # of physical PC?s that are shipped from the various manufacturers, including the ones with Windows pre-installed."

Indeed they do - but they cannot possibly count what happens to the vast numbers of OS-less computers sold to the Enterprise.

"Dell and HP are now shipping PC?s with Linux pre-installed.. "

Yep - but only certain models, and you really have to go looking for them. Come back when the OEM's offer Ubuntu (or any Linux) on ALL of their product lines.

[The Harper]

Most of these CNet blg postings are utter crap. Poorly written, not very insightful, and very much "bandwagon"-ish in their diatribes. But I must say, this is one of the better written ones. I applaud that.

[letterrepdotcom]

MSFT's failed bid for Yahoo tolled the death knell for proprietary software and signals the true dawn of open-source. Welcome.

Had MSFT been successful, with Yahoo!'s directory and huge member base, we would likely have been looking at a longer life for Windows, Office, etc., of some form.

Ubuntu watched the showdown closely and released Hardy with bugs just shortly before Yahoo!'s answer to MS was due. It didn't make sense to release a 'free' (open-source) OS with bugs.

[RegCrowder]

Okay, I will buy the argument that Microsoft has to DO SOMETHING new to avoid fading slowly into oblivion. But if they don't have a plan that relates to reality, throwing money at undefined problems is NOT going to save them from themselves.

(Microsoft would do well to learn from Pogo and adopt the motto: "We have met the enemy and it is us.")

MSFT is becoming an IT clone of Citibank. When the macro economy pushes huge amounts of profits into the lap of Citigroup (a/k/a Citicorp, a/k/a Citibank, a/k/a, Citi, etc.) it buys companies and bulks up, talking all the time about synergy, blah blah blah. Then the economy turns and they "slim down" by selling off non-core businesses. Then the buy-sell-buy cycle repeats. Over and over and over again.

Microsoft seems to have joined Citi wandering around in left field with this finger up its nose.

When Microsoft rolls out something new, it always looks to me as if it was designed to impress the Board of Directors of a Fortune 500 company - NOT me. I think that's it.

I will part company with your premise that it is between Google and Microsoft. Any of a hundred early-stage private companies being built today by fresh, hungry innovators could out-compete and out-perform both Google and Microsoft in the next five years.

Make that two years.

I think Google is doing quite well, by the way. It seems to have a clear focus of the need to continually reinvent itself. So, none of this is intended to suggest that Google isn't going to be a formidable competitor to anybody and everybody for a few more years. But if Mr. Google decides to lay back and relax and take a snooze, when it wakes up it will discover that somebody has eaten its lunch, chopped off its legs, run off with its wife and hound dog and stolen the pickup truck. As well has having snatched the bank cards and found all the PIN numbers written on the last page of the desk calendar.

IBM ruled the world of computers once. ITT ruled telecommunications once. Who are these guys? Exactly.

REG CROWDER
Freelance Financial and Investment Writer
London, UK & Brittany, France

[http://www.utalkmarketing.com/Blogs/UserBlogs.aspx?UserID=6304]

[http://www.journalistdirectory.com/journalist/TgTQ/REG-CROWDER]

[Penguinisto]

"When Microsoft rolls out something new, it always looks to me as if it was designed to impress the Board of Directors of a Fortune 500 company - NOT me. I think that's it."

Exactly. Between that and their utter reliance for Moore's LAw to cover for the ever-increasing bloat, I think we have a solid prosecution of what's wrong with the latest and greatest products coming out of Redmond.

[Sumatra-Bosch]

Battle between Google and MSFT? Ha. Haha. Hahahahahhahahahaha. Like a sword fight between Jet Li and a blind quadriplegic.

[Kwasiowusu]

@ Sumatra-Bosch,
Ummm..Microsoft is making over 4 times as much money per year as Google. and has vastly more money in the bank than Google does..and while Microsoft's last quarter profits were up over 40%, Google's last quarter profits were up less than 40%. Remember, Microsoft is much bigger than Google. And is supposed to growing slower than Google, yet Microsoft beat Google in profit growth in the last quarter. Meanwhile, Google?s stock was down a massive 10% on Friday, after Google earnings came in below market expectations. You might want to look at that analogy of yours again, dude.

[The_Decider]

You truly are an idiot. On the internet MS is a very minor player and Google is the leader by a large margin. Microsoft fails online because they do not understand it and as they have proven time and time again they can not succeed on a level playing field.

[Kwasiowusu]

@ the laughable creature that calls himself "the decider", Microsoft is a minor player on the internet huh? Pray tell me, how many users does Apple generate on Apple web sites? From the latest Comscore figures I have, Microsoft sites generate the third biggest amount of traffic, with little difference between the top 3 of Yahoo, Google and Microsoft. When it comes to search, Microsoft is the 3rd biggest search provider on the internet. On profits, Microsoft makes more profits than any tech company on the planet, more than Google and IBM combined, and over FIVE times as much profits as your pipsqueak Apple makes. Get back to me when Apple even begins to play on the same ball park will ya?

[The_Decider]

Like a true moron you can't differentiate between internet and desktop. What does hits on general web pages have to do with it? Nearly all of that profit is on the desktop not from the internet.

Microsoft is a bit player online. Yahoo is bigger than MS online. Google is bigger. Apple hasn't really tried to compete on this space yet. But lets compare traffic generated from iTunes and the Zune.

Like MS, you don't have the first clue what this discussion is even about.

[Kwasiowusu]

@ the "the_decider" aka the clown, FACT, Microsoft is much bigger on the internet, than Google is in their funny, puny, Microsoft Office clone business that they have been going at for over 4 years. In fact, Microsoft's Hotmail, is by far the biggest online mail system on the planet, making Gogle's Gmail look like a bad joke. When it ciomes to Instant messengers, Microsoft's MSN instant messenger, is the biggest instant messenger provider on the planet. It beats Google's Google Talk by a very wide margin. Microsoft is a fiant online. Not to mention, Microsoft Windows Server currently has the biggest market share by far of any server software on the planet, selling as much as 3 times as many units as Linux. Apple is exactly close to ZERO in server software. About the only market online that Googke dominates is search. That's it. Google is strictly a one trick pony. Even their online office appliucxations business, which they started with so much fanfare and noise from the liberal media, who claimed it was going to take down Microsoft Office, has gone exactly nowhere, as Microsoft Office goes from srengtth to strength.

[df561]

it's a branding game. Google is synonymous with search, until that changes there's nothing MSFT can do to win in that space.

[chlamydia-test]

Give Microsoft some credit here. They were written off but now they have a sizable market share. (Editor's note: Ad link deleted.)