Wednesday, June 14, 2006

Repeat after me, "We're on the cusp of..."

Is it just me, or is that the new corporate tag line for MSFT executives? Gone is orthogonal in every second sentence and in its place we have "on the cusp of". As in: Microsoft is on the cusp of a year of innovations; Xbox is on the cusp of beating Sony's Playstation; Vista is on the cusp of shipping. I guess when you can't actually deliver results, then saying you're on the cusp of sounds a whole lot better than "we've failed so far" - not an unimportant consideration especially for senior executives hoping to take home a boatload of SPSA grants at year-end or those about to face skeptical analysts and angry shareholders. So speaking of on the cusp of and failure, we have this interesting article:

In it, James Utzschneider, general manager of Microsoft Dynamics marketing, tells us that MSFT Business Solutions is - you guessed it - on the cusp of profitability. Sarcasm aside, it's an interesting read and James seems to actually have no problem with the truth (which you'd suspect will be a career killer in the current MSFT):

Utzschneider admitted that MBS had struggled to integrate its new acquisitions, blaming "indecisive leadership" for its struggles.

"Indecisive leadership"? Whoa there big fella! At MSFT? Now, it's unclear who he's referring to exactly (maybe he has some political smarts after all) but since he credits "better overall leadership" under Orlanda Ayala, one gets the impression that it could be former MBS head Doug Burgum - who in the Alice in Wonderland upside-down world that is MSFT executive accountability, got promoted to Chairman of course. In any event, I give credit to Utzschneider for doing more than either Ballmer or Raikes and that's state the obvious: MBS has been poorly led and that has resulted in years of false starts and missed opportunity. When MSFT first entered this arena in 2001, I didn't buy into Jeff Raikes' asinine "MBS will be a $10 billion division by 2010" fantasy, but I did think MBS offered to most obvious payback of any of the so-called "emerging businesses". Which is why I have been deeply dissapointed by the constant screwups and excuses in the intervening years while folks like and Rightnow have been on fire and even industry giant SAP has been putting up better growth numbers. The good news is that MBS finally seems to be on the right track and may start consistently contributing to the bottom line versus detracting from it. I still question the growth rate of 25-28% as that isn't anywhere close to either or Rightnow and seems insufficient to take share against any of the main competitors in the space - which is what the goal should be and what SPSA bonuses should be judged against.

On another note, Mini-Microsoft referenced my humble little blog today. Thx Mini! I've been a long-time reader and fan of your site. I'm under no illusions that my efforts here will have anywhere near the same impact your's have had, nor do I have your gift for writing, but I figure every bit helps and I especially wanted to provide a forum for the MSFT shareholder.


  • I am amused by the sprouting up of all these blog sites - presumably all from Redmond. I worked in Redmond for three years in the product group and I work in a subsidiary now. I have seen the sausage factory that is making product as well as the field across many of our subsidiaries. I have been on the business, marketing and sales sides. First, most of the engineers, program managers, product managers in Redmond fundamentally do not understand how our business works.

    Picking on this post in particular - the Dynamics businesses are growing at a multiple of the core Microsoft growth rate. Your comments also show a basic lack of knowledge about how we measure internal profitability for our businesses, what the challenges have been for dynamics and why that business line is so important.

    Also, in relation to your stats about shareholder value destroyed "since 2000", that is a joke. Shareholder value is measured over a longer term than 5 years and your selection of that particular time period demonstrates your ignorance. Shareholder value - in terms of free cash flow - is directly created by the company. Assigning a value to future free cash flow is outside of the control of the company (aka the "multiple"). As Warren Buffet stated in the short term the stock market is a voting machine, but in the end it is a weighing machine. Microsoft generates an amazing amount of free cash flow - something like $2.50 for every single person on this planet per year. Take a step back and think about that for a moment.

    There are good things and bad things happening for microsoft right now. On the postive side, there are some amazing products coming down the pipeline. RTC and the office servers are fabulous products, CRM is growing at an amazing rate. On the flip side, the most profitable franchises created in the history of technology are hitting the law of large numbers as well as some saturation points.

    I have a high degree of confidence in Bill and Steve - and so should you. The best management team in the business, hands down. I see a lot of whining coming from Redmond.

    I have a simple answer for the whining. Step out of Microsoft and do a startup. Build the product(s) you think Microsoft should and when it is built - and if it is good - Microsoft will buy it from you. You don't need to worry about the curve, you can get seriously paid and you can have all of the towels you want. I say this with all seriousness because I think that's a super healthy model.

    By Anonymous Anonymous, at 7:32 PM  

  • Hey, I like this post and your site. Keep up the posting. While your site may not have the traffic and controversy that Mini-MSFT did, I do like the financial perspective and a little more meaty strategic business perspective.

    I know JamesU and although he is honest, his friends in high places protect him to be able to say that. If he weren't in the "club" that he's in (a partner) then he wouldn't be able to say these things. Still, the fact remains that James has "helped" Microsoft make some really classic blunders and bad choices. He's just as bad as the rest of them.

    By Anonymous Anonymous, at 10:01 PM  

  • This is James Utzschneider. The reporter who did the interview this week misquoted me, I never said "indecisive leadership" or even talked about the subject. And I said we were on the cusp of "sustained profitability in FY07", because, well, we are. Sorry I used a word others at the company are using, I try to be original in my interviews. Besides, we already hit profitability in Q2.

    If you notice, there are several other big mistakes in the article, including his calling ERP "Enterprise Research Platforms" and his typo at the end where he talks about companies inside of Microsoft.

    I normally don't respond to anonymous blogs, but I thought I would set the record straight here. Hope you don't mind ...

    By Anonymous James Utzschneider, at 6:09 AM  

  • Don't listen to the first poster. Sounds like a field exec protecting his bonus in what looks like a very shaky year for sales yucks. Fact of the matter is that "shareholder value" is a term defined from the POV of the shareholder, whoever that is. If you have held shares for 6 years (which is fairly long as the market defines it) then you hate MSFT. If you've held MSFT since the IPO then of course you're fat and happy (and complacent) which is what Bill, Steve et al are currently.

    Bill and Steve are NOT amazing managers...gimme a break, stop being such a yes man/woman. This blog and others are saying (and rightly so) that the stock price is lagging behind every index and peer in the market. End of story, nobody is making any money as a shareholder.

    By Anonymous Anonymous, at 11:08 AM  

  • "Picking on this post in particular - the Dynamics businesses are growing at a multiple of the core Microsoft growth rate. Your comments also show a basic lack of knowledge about how we measure internal profitability for our businesses, what the challenges have been for dynamics and why that business line is so important."

    Is MBS trying to be the leader in this space or just an Office (and related) delivery mechanism masquerading as that and content to grow at some modest multiple of MSFT's core? If it's the former, then IMO the relevant metric is how MBS is doing relative to key industry competitors and several of those are growing at at least 2X the rate of MBS currently.

    By Blogger MSFTextrememakeover, at 11:27 AM  

  • I posted the first comments...yes I am an exec in the field. No, I am not a "yes" person. Yes I spend every day with our customers. Yes I understand the profitability model. Most people in Redmond actually don't, probably because it is super complex the way we run the business. In terms of MBS - you're talking about a $1B software business growing at 18-20% per year. Tons and tons of opportunity there - obviously there are things we are can do better. If you pulled MBS out of the subsidiary operating model, I think it would grow faster and be more profitable in the short term, for sure. But the core strategy of having Dynamics/Office integration is absolutely the right one and our customers love that so we need to work through the short term pains. If we had unconstrained investment we could grow much faster but I think you give up the integration value in the long run.

    Truth is - if you owned shares of almost any tech company in 2000, you have "lost" money (Dell, MSFT, ORCL) on paper. I'm not going to spend time here educating you on valuation models, but if you look at the current and future cash flow, it is pretty astunding. One of the big issues regarding wall street is just what happens with the cash we have, is it better used strategically (can we use it that way) or should we return it as a dividend.

    If you are internal, spend some time on mslibrary, read some of the best wall street research on Microsoft and you'll see that people who are paid to take a longer term view of value see it there. Bernstein has a price target of $35 on the stock, that's 67% appreciation - and they are the best research house on the street.

    I would say there are some major challenges, most of them with the product development model. Regular innovation is the lifeblood for the company, and we have had some great products come out. LCS is the one of the coolest products I have seen in years and customers absolutely love it. Windows Mobile - another super successful product.

    The $100B question is really about client and office...if the product teams can figure out how to do regular, innovative releases using a services model, we can absolutely recharge that business which drives much of the underlying growth because of the size of those businesses.

    I like seeing the blogging and the open discussion coming out of Redmond, but there is a lot more complaining than action.

    Please show me a management team with a better track record for generating cash, because at the end of the day that's what it's all about. I agree that there are some people who need to be very publicly executed (Will Poole, Allchin). But I am more optimistic about the outcome because I see the people we are competing against every day and quite honestly we have much more opportunity.

    I think the next couple of years will be painful - as we switch from our monlithic, optical-media driven model of delivering software to something more streamlined and innovative. And I think if you hold the stock for the next 5 years you will get 10-12% annual return.

    But for all of you Redmond "yucks" reading this - you are at the greatest software company in the world. Supposedly you are the best technical talent everywhere. Can you rechannel all of your apathy about the stock price in passion for the customers and the technology?

    By Anonymous Anonymous, at 7:02 PM  

  • I'm not sure what kind of exec you are, but if you think that all this kvetching about stock price is "apathy" then you seem pretty clueless. Or maybe you misspoke. You wouldn't be Steve Ballmer, would you?

    By Anonymous Anonymous, at 8:14 AM  

  • There was a time when we had a common MSFT culture. Frequently people would say, "as a shareholder, I'm not going to do that" when they wanted to shame another team into building equity instead of their own fiefdom. These days I am regularly in discussions where we aren't doing something because "the income might be recognized in the retail channel instead of the OEM channel" and the OEM folks have no incentive to grow MS overall if it makes their bonuses go down this year. (I'm picking on these people as an example, but I see this everywhere.)

    By Anonymous Anonymous, at 8:18 AM  

  • no, i'm not steve. but it would be cool to have that kind of cash...and i would love it if the stock price went way, way up. At the same I personally think the real issue around that is also the basic comp plan at microsoft which is not that great. The point I was making about the stock price is simply that there are a) factors outside your control, including a huge fluctuation in valuation multiples and b) a longer term view than 5 years from the biggest meltdown in technology stocks. I think Steve is a great CEO personally.

    By Anonymous Anonymous, at 4:29 AM  

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