Photo: Associated Press
It’s easy to bash Microsoft.From its CEO, to its massively popular operating system, the company does not exude the cool, hip style of Apple. Nor does it exude the wide-eyed optimism of Google.
For these reasons, and others, Microsoft is regularly bashed by the tech-set who drool over Apple and Google.
It’s not just the tech scene. Wall Street is cool to Microsoft. After crushing earnings, Microsoft’s stock is underperforming the market.
Well instead of piling on, we’re going the other way. Of all the major tech companies out there, Microsoft is one of the most successfully diversified, exciting companies going.
It has two major cash cows, but it’s also grown 8 billion dollar businesses in the last decade. Does anyone think Google, or even Apple, could do that?
All the attention on Microsoft is focused on its two big cash cows, Windows and Office, but its servers and tools business is also impressive. For the 2010 fiscal year the division did $15 billion in sales and $5.5 billion in operating income. That's just $3 billion less in revenue than Windows, and about half the operating income.
Here's something very few companies can say. Microsoft has 11 billion dollar revenue business lines. Todd Bishop at TechFlash rounded them all up:
- SQL Server
- System centre
- Unified Communications (Exchange)
- Developer Tools (Visual Studio)
- Dynamics (ERP & CRM)
- Online Advertising (display & search)
One current Microsoftie boasted about the success of Xbox Live to us. For the twelve months ended June 30, 2010, operating income in the Entertainment and Devices division, where Xbox resides, is $679 million. That's really good. And it could get better. Microsoft's Xbox Live sales probably topped $1 billion. And analysts think the Xbox motion system, Kinect could drum up $1 billion in sales.
BUT! We think Bing has impressively forced Google's hand repeatedly. The most embarrassingly obvious move was when Google added Bing-like backgrounds to its main Google.com search page. Google also quickly announced Twitter integration after Bing, and redesigned its layout to steal some flair from Bing, too.
We asked one ex-Microsoftie what the company does well. Here's the response. Treat this as an anecdote, since we didn't bother getting Google to confirm or deny (assumed Google would deny):
'They do give employees great benefits. I know of a specific incident where some ex-MSFTs left MS to work at google Seattle and they complained to Eric Schmidt that Google's benefits (real benefits like medical, dental, eye) were way behind MSFT. When Eric went back to look at the the cost of matching MSFT in Seattle, he decided against it since it would have increased their Seattle office insurance costs by $2 million. This is something that is much overlooked by the press. Google may give free lunches, but at MSFT, I never had to pay out of pocket for anything (medical, prescription, etc).'
Any time we've talked to anyone about Microsoft inside, outside, former, or current, we've always heard the place is filled with smart, talented people. Some of them might be trapped due to the internal politics of the place, but it's definitely a positive.
The company also makes training people a priority according to one ex-employee, and 'They also allow employees to move around into different groups and they do not have that 'engineer vs. the other employees' mentality that Google has. '
Windows Phone 7 looks like it's pretty good. Better than the iPhone? Better than Android? Early reviews say no and no. But, Microsoft's phone is innovative, it's not just a rip of the iOS format. And with Xbox Live, Office, and Zune integration, Microsoft could have a really neat all-in-one package on its hands that rivals Apple and Google.
The trick here is that Microsoft is playing comeback kid, and it's not going to be a big cash cow because the price it can charge for its software is pretty low. So, it's an exciting product, but it's not clear how exciting a business it will be.
Microsoft apologists have lately tried to say that Microsoft is a great enterprise company, but not so much a consumer company. A Microsoft rep dismisses that. He points out Microsoft has over 1.1 billion Windows users which is more than Apple and Google combined. Not to mention there's plenty of Xbox and Bing users.
Finally, the most impressive thing about Microsoft is its fortress of a balance sheet. Operating income is growing, revenue is growing, and then there's its massive pile of cash.
Here's the thing. We can talk about how many things Microsoft is doing right until we're blue in the face. The problem is Microsoft is stuck in a cloudy position. And that's giving the haters plenty of fuel:
- In mobile, even if it's successful, it will not generate big sales or profits.
- Windows and Office are under attack from Google and Apple. They look like they'll be fine for now, but in five years, who knows. That's enough doubt to keep investors weary.
- It insists on burning BILLIONS on a foolish pursuit of search that probably won't ever pay off.
- The company has over-hired. There's no reason to have 90,000+ employees. It's clogging up the works.
- Ballmer has put the wrong people in charge of divisions, says an ex-Microsoftie.
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