"In December 2000, Microsoft had a market capitalization of $510 billion, making it the world’s most valuable company. As of June it is No. 3, with a market cap of $249 billion. In December 2000, Apple had a market cap of $4.8 billion and didn’t even make the list. As of this June it is No. 1 in the world, with a market cap of $541 billion."
In other words, Apple is currently about where Microsoft was when they started paying dividends a little more than a decade ago...i.e. The point where they went from a growth company to a the sort of "blue chip" held by index funds.
The past decade has been spent securing their place in enterprise - their core market and one in which Apple, Google, and Facebook offer little competition. With loads of cash, a conucopia of brilliant personnel and Gates and Ballmer as the two largest shareholders, the whims of Wall Street bloggers don't have much effect.
Yes, Microsoft has a safe market in the enterprise.
But in 2000 they still had a growing consumer market (remember Windows 95 was only 5 years ago).
Now they are struggling to protect that consumer market, while markets they expected to dominate (remember when Windows Mobile + Exchange was supposed to kill off Blackberry?) have proven to be no only complete failures for Microsoft, but have become weaknesses through which other companies are pushing products into the Enterprise.
Just about every CIO in the world said the iPhone would never be allowed in the enterprise, right up until their CEO demanded it.
Then the same CIOs discovered they could sell using Google Mail in their enterprise as "Oh, it's just the same as GMail", while cutting their costs hugely over Exchange.
Then VMWare came along and allowed CTOs to run non-homogenous platforms in the datacenter, and do it much cheaper than the old way.
Make no mistake: Microsoft makes good money and is still a force, but the last decade truly was a lost opportunity for them.
GMail is not even close to a replacement for exchange in a large company. Small companies like mine can use it just fine but I can't see it working as well in a large company. In fact if I still had to write large quantities of mail (which I used to) I would still use outlook as a client as it has much more developed workflows and a richer set tools.
Outlook works just fine talking to Google Mail; our Windows users connect to Outlook. The rest of us Mac folks use Sparrow (which is not long for this world, unfortunately).
Everyone has iPhones, which work great with Google Mail and Google Calendar. I'm exceptionally happy that, for most small and medium sized businesses, there's no need for anything other than Google Mail.
I'm not entirely sure why "Enterprises" would need Outlook, but I'll cede that's a market I don't know very well, so there may be very good reasons for it.
In 2000, everyone had a growing consumer market because so many people were still buying their first computer.
Today, Microsoft's competition in the enterprise market doesn't come from any of the companies people use as a basis for comparison when making allegations that Microsoft is stagnant, i.e. the enterprise competitors are companies like Red Hat and Oracle, not Google, Apple, and Facebook.
It kills me when people say that MS had a lead on smartphones with Windows Mobile OS, as mentioned in the article. That product sucked hard, along with others that sucked at the time (e.g. Palm, Symbian, etc...). The lead was an illusion because there wasn't anything good to compete against it and consumers barely tolerated it.
Once iOS, then Android, appeared on the scene, the house of cards that was Windows Mobile collapsed in no time. Microsoft didn't have any kind of smartphone lead.
While I am a confirmed Microsoft hater, the one place they shine is in providing an environment (.NET + SQL Server + whatever) for the building of medium sized (10 to 1000), internal, pointy-clicky applications. There is no equivalent in Unix or Mac, and this is a massive market -- all the lower level office workers who get some small data thing from somewhere (a customer order, a change order, whatever), enter the data after a little bit of thinking, and move on.
I am a data analyst forced to work on MS environments, and it sucks ass (I have a parallel Unix toolchain installed, plus we use SAS (which sucks ass, too, but that is a different story)). It would suck ass if I was building and deploying internet apps. But for pseudo custom form based applications designed for non-programmers to do glorified data entry, it rocks.
Also, there are probably 40 million "analysts" who don't even know what scripting is and are utterly dependent on Excel, even though they could probably increase their productivity 100-fold if they got a little bit of command line and R and SQL under their belt. However, they don't even know they have an alternative, so Microsoft is totally safe in this zone for at least a few years.
There are several flaws in this article which was pointed out in a Forbes article [1]. It highlights the failure of a company's strategy against the background of changing macroeconomic factors.
Also, here is Ballmer's reaction [2] to this article.
That first piece is gobbledygook. I waded through all his pomposity about historical and structural factors being so much more important than Eichenwald's naive emphasis on personality, waiting for his actual explanation, which finally appears on page 3:
As the Internet emerged, creating a sort of supercritical soup of technological mixing and matching (not to mention viruses from a newly anarchic Russian sphere — the world is a big place), the relatively open PC platform became increasingly unstable and confusing. It was too open, too vulnerable to the natural chaos that hides in openness. At the same time, as consumer markets and graphical capabilities became increasingly important, and vertical integration began to offer serious advantages.
Huh? That's a just-so story made of MBA word salad. You could just as easily concoct the opposite narrative, which ironically is his complaint about Eichenwald.
But it's Eichenwald who has the stronger prima facie case. We're supposed to believe that Gates-to-Ballmer didn't have a major effect? I don't buy that. And that Amelio-to-Jobs didn't have a massive effect? I mega don't buy that.
Besides which, Eichenwald spent a lot of time talking to current and former MS employees, so what he wrote is at least based in real reporting.
From the article:
"So what happened? Why did Microsoft lose its lead?
Simply put, the technological winds shifted, starting around 1997, to favor vertical integration."
Well ok.. I mean, "is the sky blue"? Tell me something I don't know. And next time, (to the author) tell me on page 1. Don't make me wade though 2 1/2 pages of historical crap to get your point.
My thoughts on the author's profound (sic) reason:
Change is constant. Those who recognize that win. MS didn't. They might in the future though. Look, not even [his holiness] Steve Jobs recognized change. He finally came around after failures; like the near collapse of Apple; or him being forced out of the company he help create; and of course Next. I remember when Next was first shown at Comdex. What an amazing machine. I was working for Novel at the time (anyone remember Netware?) at the booth. I ran over to see this Cube. It was beautiful. Ahead of it's time. Which is why it' failed. Actually I think Next marks when Steve did recognized change. He just had bad timing. Eventually it all came together for him... I mean look at the Mac now.
Of course I state all of this in hindsight. I didn't recognize change either. Though my guesses are better now. That comes with age. :)
Sorry got off topic.. look my point is, isn't not seeing change the reason ALL companies decline? MS will either reinvent itself, or when enterprise dries up, it will too.
I mean when there is no "enterprise" market. Tech is changing, devices are getting smaller and more powerful. The need for "enterprise" software/hardware is slowly dying.
Eventually "enterprise" will mean big servers of data. And that's about it. Look at Google Apps (and others like it). It's fee for services to anybody. You pay for what you want and it's accessible to everyone - corporate and the joe on the street.
Now granted, Google Apps (and all the rest) have a long way to go. But they will get there. And sooner or later, companies won't have to buy 10,000 copies of Office, or spend $300,000 on a database.
I see the day when a company joins Google Apps, and says "I need 25TB on Big Table".
I think what was meant was something like "when the enterprise market reaches a tipping point and gravitates en masse to substantially less expensive but more or less equally effective technologies, the way that consumers and smaller businesses have already done."
[1] is utterly unreadable. The original Vanity Fair article is 1000x better by comparison.
Microsoft started to crack around 97. They failed several times to build a database application for Windows/Office.
Eventually, they managed to get MS Access (Cirrus) out, and Visual C++ 1.0 had been out for a while already.
That period was the last time that Microsoft really did anything exciting. aside from .NET perhaps.
Not to say that much of what they've done hasn't been good. But XBox, they ground that one out. Bing, they ground that one out. Courier, killed. Surface, Windows 8, ground it out in response to external events.
Ballmer needs to go, but even Ballmer leaving won't fix them. Maybe Jim Allchin was their last great hope as a leader, but that opportunity has now passed.
Just read [2]. On the question of "do you miss Steve Jobs?", Steve Ballmer comes across a bit insensitive, and not very willing to credit Steve Jobs for changing the industry. As a whole, reading the interview somehow made me like him less.
As the lone MBA in the comment thread, I want to point out that the "culture" and "incentives" of your company have a lot to do with it's success. Microsoft (and Amazon, which hired a bunch of fucksticks from MSFT) made it impossible to build great new products internally and suffered for it.
Microsoft has positions in all the right places. They were in tablets, phones, and other devices early. However, the execution was poor. They did have a good shot at emerging tech markets and they still do.
Microsoft still dominates business/enterprise. Apple, the consumer end.
Microsoft is just being displaced. They have a limited time to respond before it really starts to erode their profits.
"Microsoft has positions in all the right places."
This.
Microsoft today is still one of the world's biggest companies, with a lot of talented people and considerable inlets into practically every home and office in the developed world. Apple of yesterday grew to eclipse Microsoft in a matter of years--there's no reason Microsoft can't pull off a similar reversal with the right maneuvering of its own considerable resources.
One of the reasons Microsoft is unlikely to pull it off is precisely that they are one of the world's biggest companies.
When Apple bought NeXT, Steve Jobs had a tight cadre of very talented people who he trusted greatly. It was basically his invasion force. Apple at that point was in crisis, and wasn't particularly big. Market cap: $2 billion. Revenue $7 billion, down from $11 billion two years before. Employees, 9,300. They were doing basically one thing, selling computers, and they were obviously fucking it up.
Microsoft is much larger ($250 billion market cap, 92,000 employees), and they're still fat and sassy on their monopoly rents from Windows and Office. Few there feel any reason to change. The company is so much larger than Apple was that just getting a handle on it is a massive task. Actually turning it around is a very tall order.
Even though Apple was much smaller, it was something like 7 years before things really started to take off. Even if somebody could turn Microsoft around as quickly, how will they get the board and the investors to sit still for such a long period? Jobs could do it because Apple was his baby and Jobs was Jobs. But who has the mojo to do it with Microsoft?
A much more likely path is the one Yahoo is on: slow decline plus musical CEOs as a variety of highly paid people rearrange deck chairs over and over.
Methinks you both might be missing the economic meaning of "lost decade". It essentially refers to a gradual decline. There can be no doubt that, from its shares, it _has_ been a lost decade. Even breaking even would be considered a decline in comparison to other similar investment options.
Also, talking about what Microsoft might do in the future, doesn't magically erase the financial and business criticism of the past. If anything, past performance is a better indicator than "if XYZ can turn around, so can we". Momentum is huge.
As for Microsoft having "positions in all the right places". They have an amazingly strong position in two massive markets. Again, lost decade refers to growth and decline, and unfortunately for Microsoft, neither of these markets is seeing nearly as much growth as other markets. No one is saying that Microsoft isn't making a fortune on desktop and enterprise sales, they are saying that they are failing to capture key markets, such as mobile and tablets. In some markets, like internet or entertainment, their market share isn't horrible, but it's costing them a fortune.
In short, Microsoft's stock price is horrible. If Microsoft thinks the stock is undervalued, they should be buying it back. They are insignificant in a number of important markets, and in those markets where they are a player (but not a leader), they tend to be losing massive amounts of money.
I do think that last statement depends on how you're looking at each company's products. As often as the debate is set up as "Microsoft v. Apple", they are two different companies that aren't always directly competing. When Apple released the iPod, it didn't directly hurt Microsoft but built up Apple. Even the iPhone, while taking away from Windows Mobile, didn't do much to really stop Microsoft, but once again built a major market in an area that was typically focused in on as specialized. Apple wasn't competing directly with Microsoft at this time, it was competing around them. It wasn't until the iPad that Apple really hit a market where Microsoft was investing resources into with little return, and took potential growth from them.
I think that to say that Microsoft has the chance to retake Apple with the direction they're taking misses the core reason why Apple has become so big. Apple didn't build their company back up through competition, but through creation. That's not a statement saying that Apple was in their own bubble and not taking massive amounts of inspiration from others. It is saying that they as a company defined the market, leaving companies like Microsoft at a step behind no matter what. It's like Apple joining the gaming console market. Microsoft, Nintendo and Sony would have way too much of a lead to make it easy, and if they focus on developed markets they are going to be constantly fighting to keep up instead of pushing the fight forward.
As stated in the article, the iPhone alone brings in more revenue than Microsoft's entire product line, so it's difficult to see how they can dominate the consumer end by 'a very large margin'.
Microsoft underperformed the market indices in the past ten years (SP500, Nasdaq, Dow Jones). That means its shareholders would have been better off selling the stock and investing in a diversified fund.
What I haven't seen discussed is the impact of the anti-trust action against MS back in the Netscape days. I wonder what the effect on the corporate zeitgeist was then and how it all unfurled over time.
Do you remember when startups were terrified that MS would move in and crush them? MS would make them an offer that they couldn't refuse, sell out or be crushed.
In other words, Apple is currently about where Microsoft was when they started paying dividends a little more than a decade ago...i.e. The point where they went from a growth company to a the sort of "blue chip" held by index funds.
The past decade has been spent securing their place in enterprise - their core market and one in which Apple, Google, and Facebook offer little competition. With loads of cash, a conucopia of brilliant personnel and Gates and Ballmer as the two largest shareholders, the whims of Wall Street bloggers don't have much effect.