Microsoft is Moving On — At Leasts Its Execs Are
This is in response to Robert Scoble’s post “A church switches to open source and teaches us a lesson” and the comments on that post.
I’ve got to agree with John Welch, especially his first set of comments. At least in terms of what he’s describing. In terms of what he’s suggesting, I don’t know if that’s really where Microsoft wants to go today.
When MS decided to give out the $60 billion stack of cash as a dividend to its investors, that sparked quite a conversation among my friends. $60bil is quite a bit to just let evaporate from the corporate coffers. My final take on the situation was as follows. MS isn’t evil. They’re not even out for world domination. It was a sound business decision, a statement along the lines of “We’re pretty much on top of the world right now, but things might not be so great in the future, so we’re giving our investors a good return on their money right now.”
It’s a given that just as computer hardware has become commoditized, so computer software is quickly becoming commoditized. MS had (and will continue to have, for a while) a good niche in the market. There was a very great need for a company such as Microsoft to essentially be a monopoly in what I’m sure people 50 years from now will look back and see as the dawning of the computer age. MS helped democratize computing. All these Linux hackers wouldn’t have the cheap Intel hardware to hack on, had it not been for Microsoft. Now that the market is largely saturated, with most home computer users on their 3rd or 4th machine, with improvements becoming increasingly incremental both hardware and software-wise, there is less opportunity for companies like Microsoft, and less need for them as well.
IMO, the dividend payout was an admission of as much by Microsoft: The only way we’re going is down. It’s the unfortunate fact faced by those on top.
However, it looks like MS is making a play for a horizontal sliding move to the consumer electronics side of things, which personally I find pretty exciting. Xbox Live has succeeded wildly — MS is the first company to transform console video gaming into a subscription service, and I and millions of other gamers happily pay MS $5 a month to play wonderful games on MS’s wonderful system and MS’s wonderful network. Whether this system can eventually turn a profit is another question, but the amount of consumer goodwill in this area is frankly pretty astounding, given the initial resistance to Xbox.
Once again, Microsoft has first-mover advantage and it’s pretty much MS’s market to lose. MS has shown that, given a closed system, they can create software — more than software, an experience — that makes people want to buy and use a Microsoft product, which is sadly not the case when it comes to most software, where it’s more of a default choice: “I have to use XP because…” “I have to use Office because…” “I have to use IE because…”
Again, given that Xbox is a closed system, I really think that this is Microsoft’s best opportunity for future growth, while the core PC business will gradually shrink. Probably 5 or 7 years ago, I read some quote from Bill Gates about MS being in everybody’s living room 10 years down the road. At the time, it seemed like a joke. Right now, though, it seems like it’s largely true, and becoming more true by the day.
So, in summary: No need to worry about the decline in computing this, servers that, desktop this, IIS that, SQL Server the other, oh no we’re losing market share, LAMP has a bigger community, blah blah. All that is just fine. Those markets — they’re a losing place to be. Being profitable in a commodified market is VERY difficult, especially for a company like Microsoft where margins are VERY high. MS has spent a lot of money breaking into the video game market (and the home entertainment market more generally), and the reason for that is that the people in charge understand what I just said about commodified markets. There’s no need for hand-wringing. It’s all going according to plan. Sure, there will be rearguard movements, but I’ll bet you Bill Gates doesn’t see MS being a server operating system and office suite company in 20 years. He’ll have moved to where the profit is — and it’s not in web development languages and database software. Just ask Oracle or Sun.