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Excellent Article on Microsoft's Woes


Parsad
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Here's a very good article on Microsoft and some of their problems over the last few years:

 

http://www.theglobeandmail.com/news/technology/microsoft-calling-anyone-there/article1628349/

 

I really think Microsoft is at a juncture where it needs to stop wasting capital on certain lines of products where they are not going to gain any advantage, like Smartphones, tablets, etc.  Focus on their core business, including gaming systems, and possibly cloud computing, then redirect the cash flows into other lines of established businesses that are leaders in their fields already.  There is nothing wrong with them taking equity stakes in younger versions of Google, Facebook, et al.  It would probably be smarter than trying to develop these lines themselves, especially when they are not attracting the new, young, innovative minds that don't want to be involved with an old, established company like Microsoft.  Cheers!

 

 

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It is hard for a company likely Microsoft, which (perhaps incorrectly) sees itself as an innovation leader and a technology leader, to vacate entire markets like wireless (smartphones, tablets) which appear to be the future of the Internet.  It's also hard to separate cloud computing from platform: soon more than 50% of the devices connected to the Internet will be wireless, and if you don't control that platform, you don't control the applications or OS (IE, Microsoft Office, Windows).  I'm not saying that I believe Microsoft will be successful in the wireless area, but I can understand why it is so hard for them to give it up to their competitors.

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This article was in NY Times yesterday. Microsoft can't give up on smartphones or tablets. There is a convergence of form factors going on. WSJ said in an article that upto 30% of all devices ( of pc form factor ) sold would be tablets by 2015.

 

Ignoring this trend will take a large chunk of their business away from them over time. They need to be present in the market.

 

Microsoft's recent efficiencies have come from cost reduction, there may have to be more of that in the future.

 

 

 

 

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The problem, I think, has been Microsoft's multiple attempts to sell integrated hardware/software solutions.  There's almost nobody who can be successful at such a strategy save for Apple.  Furthermore, MSFT's strength has always been software, not hardware. 

 

The Xbox division won't get them anywhere either.  It was a good idea when it was first released, but there are too many competing hardware devices that want to control the living room.  I wouldn't be surprised if many of the new devices that we use in the living room are run off of Android (see Google, Intel, Sony, and Logitech partnership).  Remote gaming (like OnLive) will also gain more traction and could make powerful gaming consoles obsolete in five to ten years, once we have faster connections into the home.

 

In my opinion, Microsoft needs to focus as much as they can on having a somewhat uniform platform across multiple Internet-connected devices that is less complex, more secure, highly usable and more cloud computing-oriented.  It needs to be adapted to each device based on the way one interacts with the device (e.g., touch vs. keyboard).  These OS's will need to link into Microsoft's cloud platform, Windows Azure, but MSFT will have to walk the line in terms of locking application providers into their ecosystem at exorbitant rates. 

 

The big thing for MSFT will be Windows Azure.  If it's done correctly, they might be able to get back into the game.  But right now they're in danger of losing out to Google, Amazon, Apple and other vendors in that arena. 

 

And even if they do succeed with Windows Azure and their Android/Chrome OS competitor, what's going to happen to their cash flows once their business model is completely revamped?  How much money will they be able to charge for cloud-based versions of Office?  How much market share will they be able to hold onto when they have such strong competitors (Googe, Apple, Amazon, HP, and IBM) attacking them?

 

The outlook for MSFT is very uncertain, and I would stay away unless it drops a lot lower than what it's currently trading at.

 

Disclosure: Long GOOG

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Furthermore, MSFT's strength has always been software, not hardware. 

 

 

Noooo...you don't say!  ::)

 

 

The Xbox division won't get them anywhere either.  It was a good idea when it was first released, but there are too many competing hardware devices that want to control the living room.  I wouldn't be surprised if many of the new devices that we use in the living room are run off of Android (see Google, Intel, Sony, and Logitech partnership).  Remote gaming (like OnLive) will also gain more traction and could make powerful gaming consoles obsolete in five to ten years, once we have faster connections into the home.

 

 

I was a big fan of OnLive in concept.  In execution, it's horrible: the response time of the controller lags; you need a 10 MB/sec connection to get compressed 720p (besides, 1080p is where the next gen consoles are going and you will need fiber to get the kind of bandwidth to stream that); the current game selection is horrible; there is a subscription fee of $15 a month ON TOP OF the ludicrous fee of "renting" the games to play; it's DRM, and all the gamers hate DRM with such a passion that if DRM was a business, it would be the equivalent of Monsanto, BP, or Goldman Sachs. 

 

The Xbox was never meant to control the living room.  I don't know where you got that idea.  Microsoft has been involved in gaming for quite a long time.  They created fantastic games on the Windows platform.  After doing some work on the Dreamcast, it was a natural progression for them to attack Sony's highly profitable PlayStation.  The Xbox was all about gaming.  Besides, does the XBox have the ability to turn off the lights, heater, and what not?  What do you mean by "use in the living room"? 

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Furthermore, MSFT's strength has always been software, not hardware. 

 

 

Noooo...you don't say!  ::)

 

Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

 

The Xbox division won't get them anywhere either.  It was a good idea when it was first released, but there are too many competing hardware devices that want to control the living room.  I wouldn't be surprised if many of the new devices that we use in the living room are run off of Android (see Google, Intel, Sony, and Logitech partnership).  Remote gaming (like OnLive) will also gain more traction and could make powerful gaming consoles obsolete in five to ten years, once we have faster connections into the home.

 

 

I was a big fan of OnLive in concept.  In execution, it's horrible: the response time of the controller lags; you need a 10 MB/sec connection to get compressed 720p (besides, 1080p is where the next gen consoles are going and you will need fiber to get the kind of bandwidth to stream that); the current game selection is horrible; there is a subscription fee of $15 a month ON TOP OF the ludicrous fee of "renting" the games to play; it's DRM, and all the gamers hate DRM with such a passion that if DRM was a business, it would be the equivalent of Monsanto, BP, or Goldman Sachs. 

 

Yes, but you're talking about the first iteration of this product.  Once the concept is proven, competitors with deep pockets will probably enter the field. 

 

I'm not so sure you will need fiber to get the necessary bandwidth for this sort of remote gaming solution.  It remains to be seen whether DOCSIS 3.0 will be fast enough to deliver games without any lag.  But I would not be surprised to see the cable companies create facilities close to their end users to make this happen.

 

Hardcore gamer probably hate DRM, yes.  But what about ordinary folks who are increasingly getting into games?  What if your subscription fee is folded into your Cable/Fiber Internet bill and you pay $15 per month to rent a game? 

 

If there were no lag, I would be willing to rent, say, God of War for $15 a month.  Renting content is not a ludicrous concept.  I love Netflix because I feel I get a lot of value -- there's no need for me to buy or illegally download movies.

 

 

 

The Xbox was never meant to control the living room.  I don't know where you got that idea.  Microsoft has been involved in gaming for quite a long time.  They created fantastic games on the Windows platform.  After doing some work on the Dreamcast, it was a natural progression for them to attack Sony's highly profitable PlayStation.  The Xbox was all about gaming.  Besides, does the XBox have the ability to turn off the lights, heater, and what not?  What do you mean by "use in the living room"? 

 

 

This is just wrong.  The strategic relevance of the Xbox was always to get a toehold into the living room. 

 

The idea was to extend Microsoft's royalty stream onto any devices with screens attached.  There are at least three screens that Microsoft has attempted to get a royalty stream on: the PC, the TV, and the phone.  (See Buffett to Jeff Raikes letter for more on the concept of MSFT's royalty stream.)

 

One way of getting a royalty stream in the living room -- hopefully with the smart device connected to more than just one's TV -- was to create must have hardware for technophiles.  Once you get users hooked on your solution, you could be a gatekeeper for media and applications made for the living room, assuming the telcos and cable companies didn't fight against you tooth and nail. 

 

Hence the Xbox.  This is also why MSFT bought WebTV back in the day. 

 

Sony had the same strategy with the PS3.

 

But MSFT and SNE were too slow, and they faced strong resistance from media companies and telco companies.  Now neither MSFT or SNE will be able to lock people into their own integrated hardware/software solutions for the living room since there is a pretty good open source software solution available for web-connected devices -- Android.

 

 

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Guest Bronco

I have written in the past that Microsoft has strayed from its core competencies.  I still think they have some very good businesses though, and generate a ton of cash.  I agree with some others that the capital allocation of that cash has been poor in many cases. 

 

That being said, the real question is how long can MSFT keep up with their cash cow businesses.  I am not expert, but I would imagine for a long time.  The operating system, business applications, and network software are still widely used.  Would love to see this company start paying massive dividends - let the owners (shareholders) allocate capital appropriately. 

 

I am actually starting to warm up to GOOG as an investment down near $400 (just too cheap), but I fear long term they will end up like Microsoft (not focused). 

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http://www.engadget.com/2010/07/02/life-and-death-of-microsoft-kin-the-inside-story/

 

This link offers some inside perspective of the organizational problems facing msft.  I've been reading similar articles for many years now.  I think things like this never mattered in the past since their core was throwing off so much cash.  I think their leadership is definitely an issue.  Ballmer always struck me as a corporate sales guy and definitely not a tech guy.  I really think a company in their position needs to be run by people who understand consumer technology.  I think J Allard may have been the only guy with a decent vision at the company and now he's gone...

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Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

Never say never, I guess - and you provided a counter-example in your assertion too!  ;)

 

 

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Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

Never say never, I guess - and you provided a counter-example in your assertion too!  ;)

 

 

Yeah, really.  I was about to debate with the guy, but might be like arguing with a brick wall.  ::)  By the way, I disagree with that assertion.  I think Zune is a great competing product to Apple.

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I always thought that their real strength was in salesmanship.  Have they ever come out with a "new,  truly inovative" product?

 

MS has come out with some good products... but I agree their historical strength has been in salesmanship as well as copying competitor's products (such as office) and improving upon them. It was rare for MS to be first out of the gate with a new poroduct.  Visicalc --> MS Multiplan --> MS Excel,  Word Perfect --> Microsoft Word, PC DOS --> MS-DOS.  (I probably got some of these details wrong)

 

 

 

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Guest longinvestor

Before you all write MSFT off, here is an interesting blog post with numbers, and an interesting 'interpretation' of those numbers by another writer:

http://blogs.technet.com/b/microsoft_blog/archive/2010/06/25/microsoft-by-the-numbers.aspx

http://techcrunch.com/2010/06/26/microsoft-numbers/

 

Right on. I've met younger, educated (typically IT- types) who have been in denial about Microsoft's success in the real world for more than a decade! Obviously MS provides value to the real world as evidenced in the numbers posted

 

People pointing out that Wordperfect such a great thing versus the copycat MS-Word needs another pair of glasses, like the one the real world uses to see value...lest we forget, Wordperfect was priced at $800 in 1987.

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Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

Never say never, I guess - and you provided a counter-example in your assertion too!  ;)

 

 

True, never say never.  But if I had to handicap it, I would say that the probability of MSFT being successful at such a strategy is low. 

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Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

Never say never, I guess - and you provided a counter-example in your assertion too!  ;)

 

 

Yeah, really.  I was about to debate with the guy, but might be like arguing with a brick wall.   ::)   By the way, I disagree with that assertion.  I think Zune is a great competing product to Apple.

 

Actually, I'd love to hear some responses to the points I made in my prior post.  I'm always interesting in hearing how people agree or disagree with me -- that's the whole point of posting for me.

 

Or you could just keep rolling your eyes . . . 

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Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted).

 

Never say never, I guess - and you provided a counter-example in your assertion too!  ;)

 

 

Yeah, really.  I was about to debate with the guy, but might be like arguing with a brick wall.   ::)   By the way, I disagree with that assertion.  I think Zune is a great competing product to Apple.

 

Actually, I'd love to hear some responses to the points I made in my prior post.  I'm always interesting in hearing how people agree or disagree with me -- that's the whole point of posting for me.

 

Or you could just keep rolling your eyes . . . 

 

::)    ::)      ::)    Ahhh... you were just asking for that.  :D

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For what it's worth, a mall near me (in Lone Tree, CO) has one of the very few first retail stores Microsoft has opened. I was in the mall yesterday and stopped in to the Microsoft store to check it out. My first reaction was that the store's layout and design is a blatant copy of Apple Stores. My 2nd reaction was that there were only about 7 customers in the store, 4 of which where kids taking advantage of being able to play on their X-Box's. The Apple Store about 40 yards away probably had about 55 customers in it.

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IMHO Microsoft has lost whatever initiative they ever had. I think that the only thing that has driven their success over the past 10+ years was their monopoly position in desktop OS.  This gained them their entry into the business market and also allowed them to establish Microsoft Office as a standard.  All of the claims made during the anti-trust trials about Microsoft "tying" their products to their core OS were dead on.  Their only successful products are those that were tied to the OS, and were only chosen by consumers when consumers didn't have any other choice.

 

The company is now clearly adrift strategically.  The Kin debacle is one of many examples.  They can probably continue to coast on their past success for a while, maybe a long time, but I think their days of growing substantially are over.

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