MSFT

[goldfinger]

Nobody asks questions about GOOG?  Yeah, right.

Look I have been in this business for almost 2 decades now and I have almost every day heard complaints about MSFT. Actually no, every day is more correct! I produced a lot of them myself because it can be a nightmare to work with some of their technologies at times. Very different attitude with GOOG. Ballmer is probably the most insulted man in history! Especially since last week.

[ERICOPOLY]

http://newenterprise.allthingsd.com/20110418/office-365-hits-public-beta-today-so-microsofts-ron-markezich-gets-seven-questions/

 

With this you’re making fundamental changes to how a key Microsoft franchise that has brought in billions upon billions of dollars is sold. Can this new model ultimately catch up with and supplant the old one?

 

It’s even more than that. We’ve made a version of Office that anyone can use online for free. But as a business model we see this as something that can be beneficial to Microsoft in a couple of ways. One, every customer that has bought BPOSS, we see their total software spend with Microsoft go up. Even that customer I told you about that saved 50 percent, they still are spending far more than they did before. For one, they were just buying Exchange Client Access Licenses. Now they’re buying Exchange CALs, plus spending some money for the service. Now we don’t make as much profit margin, but we make some profit margin on that. But the biggest reason is that most of the time, they buy other things from Microsoft. They buy new versions of Office, they might be buying Active Directory if they didn’t have it before. They might not have had Sharepoint or Lync, and now they’re buying those. So every one of these customers, we see their total spend with Microsoft go up anywhere from 2 to 6 times what it was before. The other thing is that if you look at the total industry spend, most of it is on activities where there’s no value added. Every dollar you spend on software from Microsoft, you spend $6 trying to get it to do anything. What we’re trying to do is drive that six dollars to zero.

 

[goldfinger]

In your article there is this:

"What makes Google not ready?

 

They’re taking a consumer service and trying to provide that to businesses, and architecturally there are a lot differences. As a consumer you probably don’t ask where your data is going to be stored."

 

That's exactly the kind of things I was referring to a few posts ago with Apple targeting the end user/consumer business.

[Myth465]

HPQ, DELL, and Google seem a bit better....

 

HPQ and DELL at this price I agree.

 

GOOG: it is cheap and has a lot going for it, but I think most under-estimate the competitive pressures they may be facing in the next decade... They have been spending tons and tons of money in non-directly accretive projects but since they are not MSFT but GOOG nobody asks questions...

 

What they invest in at least looks cool (Windmills, cars that drive themselves, and that big facebook type flop (well that didnt look cool). MSFT just takes money, goes outside on a windy day, and hopes for the best.

 

But I cant say thats the case, they could have a yahoo or Skype purchase every 2 years or so. Jerry Yang saved them a few years ago but not everyone will turn down free money.

 

They might have purchased Washington Mutual if Mohnish had his way (he suggested Bill Nygren manage their cash).

 

Also give that cash to the true Genius. Buffett, Also where is Gates? I would assume he would have to sign off on these things. Buffett could have made 10% on that cash from 2008 till now by just loaning it out to solid companies.

 

I dont mind swinging for the fences. But we have 22 pages, and hundreds of articles online about Skype. No one has really offered a truely moving reason for the buy, and at best people are willing to give it time. No one is downright excited.

 

INMO the profitable section of MSFT (OS, Office) is in runoff. I dont think we will be computing in the same way (desktop / office) in 10 to 15 years.

You know software technology patterns recurrently come back: we are getting back to a renewed client/server paradigm and also multi-device paradigm. Last time it didn't destroy SAP and other ERP systems. But I do understand your concern and some of it is justified.

 

SAP is different inmo. They have companies by the balls. Great service business, and once you are in. Its hell on Earth to switch, then one of the other ERPs have you buy the balls again. I would buy at a PE / Cash Flow yield of 8 or 10%.

[ERICOPOLY]

 

That's exactly the kind of things I was referring to a few posts ago with Apple targeting the end user/consumer business.

 

Apple also can move on to the hip new thing and drop support for the last thing they sold you.  This keeps their R&D costs low (support is a component of R&D).  And it allows them to bring fresh architectures without the legacy ball and chain software support.

 

Sound like exactly what corporations want to jump ship for?  Nope!  I didn't think so either.

[Guest VAL9000]

You seem to be very passionate about MSFT - wondering if you are related to MSFT in anyway.

 

I think this is just a bit of spurious correlation.  I'm passionate about business and investing.  MSFT is just a channel for that lately because I have a contrarian viewpoint and there are participants in this thread that challenge me on these views.  You'll find that if you examine my opinions on other threads, I exercise the same diligence that I do here.  Just, when I'm bashing RIM or praising SSW there seem to be more people on my side of the fence...

 

The other element is that this MSFT thread seems to have a lot of cheap shots lobbed in.  One liners like "Windows is buggy", "Microsoft has no significant cloud presence", "Skype is overvalued", or "Bing is a waste of time and money" are specious observations about very complex topics.  Whenever I encounter those types of comments I work hard to debunk the statement when I think there's something fundamental to disagree on.  You'll note that I leave comments like "Ballmer sucks" unmolested :)

 

[nodnub]

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

 

My wife has a hotmail account linked to her YouTube account.

 

Today she got an email from service@youtube.com requiring her to link her YouTube account to a Google account (she doesn't yet have one).

 

"Don't be Evil"

 

How is requiring Youtube account members to shift over to a Google account evil?

 

If you're going to criticize GOOG for being evil, you should go after them on the privacy front.

 

 

txlaw,

 

I think this is the privacy front. Google wants to be able to collect all the data they can on you and associate with a single user account.  Wait for Google ads to show up on random web pages related to the types of videos you watch.   They want to be able to compete with facebook's rich database of user information.  If you dislike targeted marketing as much as I do, then you might call it evil!

 

 

[EdWatchesBoxing]

Totally! All I am saying is the cost of deploying integrated solutions with windows software/server and systems is very low in most cases now. We are not talking about the same layers.

 

OK, I see now. Yes, MS helps out a lot with that!

[ERICOPOLY]

Bing still doesn't do as good a job as Google as far as I've seen and MSFT has thrown billions into it.  

 

How much has Microsoft actually lost on Bing so far?  

 

I found somebody else who is saying that Bing is costing billions:

http://www.businessinsider.com/microsoft-bing-losing-billions-2011-4

 

He is counting the costs of the datacenters.  The datacenters will be leveraged for hosting software as a service on a subscription basis -- for example, companies who want their Microsoft Exchange services run in Microsoft datacenters (rather than hosting and maintaining their own Exchange servers).  These datacenters will also keep on hosting Bing.

 

Microsoft cannot sell hosting services unless it has these datacenters.  No?  So who is to argue that these operating costs can all be charged for Bing?  If so, then the coming hosted subscription app services will be VERY high margin.  I mean, because the infrastructure costs are charged 100% to Bing, then those new hosted apps will be extremely profitable as their infrastructure costs will be zero.

 

So... how much does Bing really cost?

 

If you don't build them, they certainly won't come.

[Guest VAL9000]

"Don't be Evil"

Unlike everything else Google does, this one thing is not scalable.

[goldfinger]

But we have 22 pages, and hundreds of articles online about Skype. No one has really offered a truely moving reason for the buy, and at best people are willing to give it time. No one is downright excited.

Most articles are negative but I have seen a few that are not actually. Monetization of some of the user base can make it accretive pretty quickly (that's what Ballmer is talking about but since everyone says he doesn't know what he is doing that's probably true...).

To me the deal with Nokia + adding Skype can create critical mass in the phone business in a much cheaper way than either acquiring RIMM or doing it on their own (they don't have time and it is not constructive at their level). Skype goes beyond that however and will be present in many different offerings and products. Can I suggest without being bashed that they may actually kick ass with that stuff at some point?

[txlaw]

Tough way to make a buck, I think one must take a basket approach to really make it work. The only one I have confidence in over the short to medium term is Google.......

 

My wife has a hotmail account linked to her YouTube account.

 

Today she got an email from service@youtube.com requiring her to link her YouTube account to a Google account (she doesn't yet have one).

 

"Don't be Evil"

 

How is requiring Youtube account members to shift over to a Google account evil?

 

If you're going to criticize GOOG for being evil, you should go after them on the privacy front.

 

 

txlaw,

 

I think this is the privacy front. Google wants to be able to collect all the data they can on you and associate with a single user account.  Wait for Google ads to show up on random web pages related to the types of videos you watch.   They want to be able to compete with facebook's rich database of user information.  If you dislike targeted marketing as much as I do, then you might call it evil!

 

That's what I was getting at.  

 

It's not the forcing of the YouTube account holder to sign up for a Google account, per se, that should be criticized as evil.  Sure, Google is trying to steal business away from Hotmail and cross sell its other services to the newly minted Google account holder, but that's the norm in a competitive market.

 

It's really the ability to create a more comprehensive digital dossier of the individual (by tracking the videos the user watches and cross referencing with other info gleaned from the user's use of Google services) that can arguably be criticized as evil.  

 

It wasn't clear to me that that's what Eric was criticizing.  

[Guest VAL9000]

To me the deal with Nokia + adding Skype can create critical mass in the phone business in a much cheaper way than either acquiring RIMM or doing it on their own (they don't have time and it is not constructive at their level). Skype goes beyond that however and will be present in many different offerings and products. Can I suggest without being bashed that they may actually kick ass with that stuff at some point?

I won't bash you, as we share an opinion on this one.  I think it ends up looking different (explained elsewhere) but we're in the same neighbourhood.

 

RIMM would be an awful acquisition for Microsoft.  Partnering is much smarter.  In a previous discussion there was mention of RIM converting their OS to either Android or WP7 and I maintain that this is a good idea for all parties except Apple and the non-chosen OS.

 

One thing that I can't understand about Skype is how it takes 1,000 people to run it.  Looking at what the tech does, how it works, and how the business works, I can't see this being more than a 500 person operation, and I'm being very generous there.  Regardless, cut just 200 of those people and this business goes from red to black overnight.

 

[goldfinger]

One thing that I can't understand about Skype is how it takes 1,000 people to run it.  Looking at what the tech does, how it works, and how the business works, I can't see this being more than a 500 person operation, and I'm being very generous there.  Regardless, cut just 200 of those people and this business goes from red to black overnight.

Sales and marketing and support will be integrated inside Microsoft and then there will only be engineering! Then your numbers will be right!

[ERICOPOLY]

It wasn't clear to me that that's what Eric was criticizing.  

 

Nope, I was just criticizing the totally unnecessary new requirement of having a Gmail account.  It has nothing to do with YouTube, and this kind of behavior is what people once accused Microsoft of doing... which spawned new slogans by rival upstarts such as "Don't Be Evil".

 

Don't be Hypocritical.

[ERICOPOLY]

Like it or not, a lot of people (especially young people) are embarrassed to be seen with their products (when do you ever see people showign off their new Windows phone to their friends?).

 

Xbox actually is a product that young people aren't embarrased to own. 

 

That's perhaps the only reason I can think of that would get me to buy a Windows 7 Phone (only Windows Phone 7 will have Xbox LIVE).

 

Could be fun joining in on a game with friends while killing time in the back of the van on the way in to work.

[jegenolf]

INMO the profitable section of MSFT (OS, Office) is in runoff.

...

HPQ, DELL, and Google seem a bit better....

 

This isn't really directed at you since I'm seeing it from several folks on this thread, but the thought process is confusing to me.

 

Under what circumstances is Dell a better long-term buy than MSFT? If MSFT is in runoff, DELL is toast. MSFT has a shot at hitting a monster home run with Azure. What does Dell have?

 

And just to clarify, I do think DELL is toast. It confuses me that Fairfax and many other very smart investors are buying Dell and I'd love to know what the long-term long thesis is.

 

 

 

[EdWatchesBoxing]

Xbox actually is a product that young people aren't embarrased to own. 

 

That's perhaps the only reason I can think of that would get me to buy a Windows 7 Phone (only Windows Phone 7 will have Xbox LIVE).

 

Could be fun joining in on a game with friends while killing time in the back of the van on the way in to work.

 

Someone drives you to work?

[shalab]

Under what circumstances is Dell a better long-term buy than MSFT?

 

Dell is cheap from a cash flow standpoint. I also like it more than MSFT but dont own either DELL or MSFT. MSFT would be great if it is in run-off but it is not. The bleeding investments in search, skype and other areas are done to protect the windows franchise.

 

If you think of Microsoft as primarily the "windows" business, Dell is key for this business. You can't be long on MSFT by being short on Dell. It is growing quite nicely in emerging markets but it doesnt have  the "build to order" thing going on for it like it had in the U.S.

[Guest misterstockwell]

I'm not at all saying that Microsoft of going to go out of business soon or anything like that; just that their future is pretty cloudy, and they've shown an inability to execute well under Balmer. Worst of all, the Microsoft brand is eroding. Like it or not, a lot of people (especially young people) are embarrassed to be seen with their products (when do you ever see people showign off their new Windows phone to their friends?).

 

With kids,  there is very little, if any, anti-MSFT bias like the first generation of iDrones has. My kids asked me to install Office at home(and I agreed) since OpenOffice is such a buggy piece of crap and they have lots of school projects requiring the various components of Office. I have seen kids showing off Windows phones. It's all about "new and different"--the iPhone is blah now. What are you going to "show off" with an iPhone or a Droid? Your fellow iClone doesn't care. Droids were the rage for awhile, but so common now too. The NOK/MSFT-Skype-Xbox combo will be a hit for this very reason. Xbox rules gaming like no other platform. The teenagers that only had PS3 or Wii have been peer-pressured into buying an Xbox. I see it all the time. I am even seeing a rebirth of PC gaming. Whole groups of kids(using Skype now instead of the old Ventrillo) are playing games on PC. I have been asked by my son's friend(an all laptop family) to build him a gaming rig for the upcoming Battlefield 3 release. They have no pre-conceived notion that "windows is buggy"--my kids use a range of Windows 7 machines that are far from buggy. They just plain work. It's a different world now, and a generation with an odd anti-MSFT bias is passing.

 

 

[ERICOPOLY]

Someone drives you to work?

 

1)  Not since I quit in Jan 2008

2)  Prior to that I did commute in a vanpool for prior 3.5 years

3)  My commute was 2 hr each way (nice to not be driving)

4)  Depending on the day, sometimes we had 12 people packed in that van!  Normally about 7

 

This is the program:

http://metro.kingcounty.gov/tops/van-car/commutervans.html

 

The county owns the van.  We each paid monthy to ride in it (actually my employer paid for it)

 

Dropped off and picked up at the front door of my office building -- no walking from the bus depot (it rains a lot here so this is key).

[ERICOPOLY]

They have no pre-conceived notion that "windows is buggy"--my kids use a range of Windows 7 machines that are far from buggy. They just plain work. 

 

The new era of system stability can be traced back to the introduction of this testing/debugging tool: Driver Verifier:

 

http://support.microsoft.com/kb/244617

[prunes]

Under what circumstances is Dell a better long-term buy than MSFT?

 

Dell is cheap from a cash flow standpoint. I also like it more than MSFT but dont own either DELL or MSFT. MSFT would be great if it is in run-off but it is not. The bleeding investments in search, skype and other areas are done to protect the windows franchise.

 

If you think of Microsoft as primarily the "windows" business, Dell is key for this business. You can't be long on MSFT by being short on Dell. It is growing quite nicely in emerging markets but it doesnt have  the "build to order" thing going on for it like it had in the U.S.

How does Dell distinguish itself from HP at the business level? Speaking from the consumer level, my family will never by a Dell machine again due to quality issues with several of the machines we bought. How does Dell's moat prevent it from competition from cheaper Chinese upstarts?

[ERICOPOLY]

PCs are only a small part of DELL's business and HPQ's business. 

[Guest VAL9000]

By comparison, about 27% MSFT's sales come from Windows & Windows Live.