As companies age, they turn into their predecessors.
As Microsoft started to falter in the early 2000s, it began to look like IBM — overly safe, overcome with meetings, run by marketers, and bound by process.
Now that Facebook is displacing Google on top of the heap, it’s inevitable that Google will begin to look a lot like Microsoft.
In fact, it’s already happening.
Just as Microsoft lost a collection of high profile employees to Google early last decade, Google is being forced to cut multi-million dollar checks to keep employees from defecting to Facebook. And it isn't always working.
When Microsoft was first investigated by antitrust regulators in the early 1990s, it never had any idea that it would end up as a highly regulated company forced to pay billions in fines to governments and competitors. With the EU's antitrust investigation underway, Google is just now starting down the same path.
In the years after Steve Ballmer assumed the helm of Microsoft, he became notorious for his bizarre behaviour like screaming 'developers' over and over again, and gaffes like saying that Apple's iPhone would be a failure. Investors have been calling for him to step down for at least five years. Meanwhile, founder and figurehead Bill Gates gradually faded into the background, and now spends almost all his time doing charity work..
Today, Eric Schmidt is increasingly making off-putting comments about important issues like privacy, and Silicon Valley gossip is beginning to portray him as a liability. Sergey and Larry, meanwhile, haven't been seen a lot in public, although they probably still pull the strings behind the scenes.
For years, Microsoft was criticised as a one-trick pony. Today, the Windows desktop OS is still the company's top revenue generator at about $18 billion a year, and its most profitable business line, with operating margins of over 70%. Office came later, but is close to Windows with $12 billion and similar margins. The rest of the company's products would look amazing on their own, but pale in comparison to these two big monopolies.
Google is where Microsoft was in the late 1980s, with search advertising as its one trick. It hasn't built its Office equivalent, although perhaps display advertising will get there someday.
It seems laughable now, but Microsoft once inspired fear and loathing throughout the tech industry -- competitors hated it, partners were scared of it, and privacy advocates and the media didn't trust it.
Google hasn't quite inspired the same level of hatred from competitors -- you don't have the equivalent of Sun's Scott McNealy, who never passed up an opportunity to take a potshot at Microsoft. But companies are terrified that a random change in Google's secret algorithms could plunge them to the bottom of algorithmic listings or bury their ads, privacy advocates have all sorts of questions, and Google-bashing stories are common.
Microsoft famously had early initiatives in promising areas such as paid search, tablet PCs, and smartphones, but lost focus and got overtaken by competitors who now make boatloads of money in those areas. A lot of former executives and employees, including Dick Brass in a New York Times Op-Ed, blame political infighting and bureaucracy for the misses.
Microsoft hired so many people in the early 2000s that an anonymous employee called Mini-Microsoft founded a blog devoted to the idea that Microsoft needed to downsize.
Google's headcount has grown from 19,000 to more than 23,000 since the beginning of 2010, and the company reportedly has more than 2,000 openings and is adding more than 100 new employees per week. It's hard to find that many qualified employees.
Microsoft has periodically gone on acquisition binges, particularly in the mid-1990s and mid-2000s. Most of those acquisitions didn't contribute obviously to revenue or profit, although Microsoft might have picked up some IP and personnel and gained other strategic benefits, like stopping competitors.
Microsoft has dramatically slowed its pace of acquisitions in recent years, but Google has picked up the slack, with more than 25 acquisitions announced or completed in the last 12 months.
Here are the log charts of Google's and Microsoft's stock price since the two companies' respective IPOs. Notice any similarities? Google's last two years look an awful lot like Microsoft's last 10.
Despite all its supposed problems, Microsoft remains a cash-generating machine, with $8.2 billion in positive cash flow from operating activities last quarter. The massive cash flow and slow stock price growth has investors calling for a much bigger dividend.
Search is one of the few high-tech businesses to generate the same kind of cash: the company enjoyed more than $9.3 billion last quarter. How many years does the stock price have to remain flat before investors begin pressuring Google for a dividend?
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