Wednesday, June 11, 2008

Eight Years of Wrongness

Warren Buffett is quoted saying that his favorite holding period for a stock is "forever". I'm not ready to go quite that far - and in practice neither does he - but I do subscribe to a long term investing philosophy generally. For example, I bought my first MSFT shares back in the early 90's. Like most holders that decade, I did very well. Then came this one, which has been an absolute disaster.
It's sobering to realize that during Ballmer's term as CEO, MSFT has underperformed almost all of its top tech peers (including AAPL, IBM, HPQ, SAP, INTC, CSCO, SYMC, NOK, ORCL, ADBE, RIMM, QCOM, Ebay, and AMZN), and badly lagged the major averages. We may even see our third plunge to test the 2000 lows during his watch. Unbelievable. There may be another major technology CEO with an equivalent or worse track record who is still in power, but a name doesn't come readily to mind. Indeed, it’s instructive to note the four companies who didn’t make my list above: DELL, YHOO, Sony and Sun. In other words, four well-publicized flameouts/turnaround stories (depending on your perspective), all of which have new CEOs. Go figure.

That performance record would be embarrassing enough on its own, but it comes in spite of going through an unprecedented amount of our cash on buybacks (nearly $43 billion worth in just the past three fiscal years) and other schemes that were supposed to drive the stock. It's also despite spending more on R&D than virtually anyone in the industry, and more than GOOG and AAPL combined (nearly $20 billion in the past three fiscal years alone). Meanwhile MSFT's senior leadership have collectively been paid billions over this period, while leading the industry in insider selling every year (net of purchases, almost 350 million shares sold over just the past 5 years). You are expected to be patient and wait for returns over the "long term" (still undefined, but has already exceeded 10 years - think Jim Carrey in Ace Ventura and “If I am not back in 5 minutes….just wait longer”.), but they want their return up front.

Against that backdrop, it should come as no surprise that a shareholder was recently driven to write about "Microsoft - A Decade of Gross Corporate Negligence and Destroyed Shareholder Value." It’s a good read, and kudos to Bishop for publishing it – that probably didn’t earn him any brownie points with management.

FakeSteveJobs (aka Dan Lyons of Forbes) also said something worth reading here:

There's something really scary in the voices here. It's in the tone. You know what I'm hearing? It's disgust. Nobody comes out and says it, but these guys are fed up with Microsoft. They're not even angry. They're just fed up. They've had it. They stuck by the company during the DOJ trial and the antitrust mess, because hey, what investor doesn't love a monopoly. The guys on Wall Street don't care if you lie, or cheat, or bully your rivals -- as long as you're winning, and making money, and as long as the stock keeps going up.

What they won't stand for is fuck-ups. Incompetence. Mistakes. And the Borg has been nothing but fuck-ups for what -- three years? Listening to these investor dudes talk I'm reminded of a time in the late 1980s when Wall Street guys began ranting about Digital Equipment Corp. For years DEC had been their darling. Ken Olsen walked on water. But suddenly Ken Olsen was a doofus, an idiot. The company which once had been so powerful and so admired almost overnight came to be seen as a loser that couldn't adapt and change.

His site is offered as humor, obviously, but he often weaves in good insight. That’s an example, imo. Certainly, there has been another major negative sentiment shift since the YHOO offer and the latest quarterly results. I've been a shareholder for a long time and I have never seen the stock as weak as it has been these past months. Down some ~14% more than the market on the year, fifth worst DOW 30 performer YTD, and trading at [just] 14.8x forward earnings. Looking at the chart, the uptrend line from February has been obliterated, and major support has been broken as well. We’re seeing a little relative strength these past few days, but even that looks tenuous.

Some readers may be surprised that I was initially a Ballmer supporter. Not for CEO necessarily (I felt that he and Gates should have resigned after losing the DOJ case), but generally. I admired his tenacity and positive outlook. I still do. I'm even happy to give him credit operationally where it's deserved. For example, a good job has been done against traditional competitors in legacy markets (with the exception of Apple). On balance, after a rocky start and some noteworthy exceptions (e.g. Firefox), he has done a decent job of responding to the newer threat posed by free and open source software. Broadening MSFT's worldwide presence with foreign R&D centers is another positive on his watch, though the company is still too Redmond-centric. The addition of ERP/CRM made sense, though it’s been botched badly imo. Maybe in the fullness of MSFT-time (i.e. decades) it will live up to its potential. Gaming, well…I guess you could credibly say that it has been the only source of “cool”. It has also contributed to revenue growth, which overall has been solid under Ballmer (though the company wasn’t exactly on life-support when he took over). On the personal side, I respect him for not bailing on his shares to the degree that say Bill has (the latter will be out of the stock completely within 10 years based on his current pace of selling). And I admire his work ethic. He may well be the world's hardest-working billionaire. Also, the most passionate. My concern is whether or not the company has been effective under his leadership. Rightly or wrongly, the buck stops with the CEO. And when I look at the totality of MSFT’s performance under his reign, it's not a pretty picture. In fact, it's an epic fail.

There are too many issues to mention, but let’s review some of the real lowlights:

  • Losing the DOJ and EU cases, which has resulted in $10B’s in fines and (more importantly) permanently damaged MSFT's reputation.
  • Failing to aggressively leverage MSFT's cash horde buying promising companies at the bottom of the dotbomb for pennies on the dollar (btw, not 20:20 hindsight on my part – I posted that MSFT should do this in real-time back then).
  • The Longhorn clusterf!*k. The long-term damage of which continues to this day, will never be fully quantifiable, really began the process of confidence erosion in both the management team and company more generally, and may prove to be a decisive turning point from which the company never recovers.
  • Allowing Xbox to dig a $6B hole in the ground.
  • The "emerging bets" which collectively have been a bust.
  • Allowing IE to stagnate after risking the company and paying $B’s in fines primarily to beat Netscape and become the browser leader.
  • The major opportunities that were missed while leadership was otherwise preoccupied/distracted (Search, Advertising, Web 2.0/SaaS, etc.).
  • Losing digital media to AAPL.
  • The financially-retarded one-time dividend and the ongoing stock buyback games.
  • The sorry performance of the stock (which has resulted in part from all of the above).

Current management tell us that the company is “stronger and better positioned today” than it was in 2000. They may even believe that, but the market clearly doesn't. And available facts support an alternate conclusion. Some examples:

1) "Vista is a success".


Management can claim it “sold” 150M licenses and call that “success”. But in virtually every other way – versus expectations, given a ridiculous 5 year gestation period and reported $5-$6B price tag, media reaction, corporate adoption, FPP retail sales, the company’s own expectations, and most important the competitive need – it’s a disappointment. Leadership are also blasé about the future implications that this underwhelming release may represent. I’m not. How many who have downgraded to XP - a significant number by all reports – will be harder to sell to next time? How many have switched or will consider switching to a competitor as a result? How many OEMs are pissed off and will now embrace other options like Acer is doing with Linux, or make comments like this from Intel’s Ottelini? And what about current impact? Windows marketshare, while still above 90%, has fallen to its lowest level ever. And others, particularly AAPL, have been steadily gaining share. More importantly, MSFT has arguably ceded undisputed technical leadership in desktop OSes - the core of what the company does - to Apple. It pretty hard to underscore how much of a strategic blunder that is.

The hope here is that Windows 7 will be the must-have product that Vista wasn’t, and the company is busy touting that promise regardless. While I’m optimistic that Sinofsky will prove more effective than his predecessor, and actually support the cone-of-silence approach he’s getting crucified for in the media currently, he doesn’t have carte blanche to make major changes - or five years to do it in - like Allchin did. I’ve long argued that MSFT needs to dump some backwards compatibility and come to market with a leaner OS to have any chance of keeping up with OS X and Linux. It should have been done with Vista, at least for a consumer version which could act as a showcase for innovation (assuming any was forthcoming). But that’s not in the cards on this iteration. So Sinofsky is going to have to focus on a few new killer features, addressing some of the major issues that still plague the Vista code base on which it will be riding, and perhaps work on the fit and finish that was so sloppy in Vista (inexcusable given the development timeframe). Bottom line? “Success” for Windows 7 will be stopping share erosion at whatever level it has dropped to by then.

See two additional pieces here:

“The inescapable conclusion” of the survey, he writes, is that “support for Vista has been battered across all enterprise sizes and corporate constituencies.” He finds that “the Vista cycle looks likely to be materially less robust than indicated in our prior survey.”

Until now, I've been advising Vista fence-sitters to wait for Windows 7. However, last week's "big reveal," in which Microsoft finally confessed that Windows 7 will be nothing more than "Vista warmed over," has forced me to reconsider my position. I'm now more convinced than ever that Windows is doomed - at least on the enterprise desktop.

2) "We have a solid strategy in Online".


MSFT's Online efforts have been a disaster. Indeed, the company's performance has been the worst of the four major players - and they all managed to turn a profit versus lose billions.

It has become clear the plan hasn't worked -- which is the main reason Microsoft tried to buy its way into competitiveness by acquiring Yahoo, a deal that died May 3, when Microsoft withdrew its bid for the Internet company.

WSJ May 17, 2008

More bad news here:

3) "We are winning this generation of gaming".


Xbox, while more successful than Online on a comparative basis, has been a financial sinkhole of epic proportions. More than twenty billion dollars “invested” over nearly a decade, not to mention countless amounts of management’s time and “talent”, for what? If it wasn’t for creative accounting this fiscal, Xbox would still be unprofitable some 6-7 years and $6B-$7B in losses later. Speaking of the warranty charge that was retroactively buried into a previous fiscal, here’s a report on what was really to blame. Short form: to save perhaps $10M’s, MSFT designed the graphics chip in-house rather than using an outside expert – eventually resulting in the $1B+ warranty/recall charge. Smart. And remember that hasty and breathless PR release a few weeks ago about being “first to reach 10M units in the US” and this metric historically determining the winner? Well, that was because Nintendo was set to reach that figure and surpass MSFT a few weeks later. Bottom line, in all likelihood MSFT will finish this console round dead last of three:

4) "We can reach 40% share in smartphones".


Microsoft has been pursuing mobile in some form or other for nearly a decade. The result? A distant 3rd to 5th place depending on whose figures you use. And while there has been better success in the smartphone sub-segment, Apple has surpassed MSFT there in less than one year, at least for North America (MSFT still holds a lead worldwide, though I will be surprised if that holds up through 2010).

And with the $500M Danger acquisition, we can assume that Mobile would join the stable of unprofitable MSFT “investments” if costs actually got apportioned properly. Unfortunately they don’t (gotta love those inter-group transfers and that convenient “Corporate Activity” slop bucket for everything else), and MSFT doesn’t break out the detail for Mobile anymore regardless (or ERP/ CRM).

More here:

Considering this set of competitors, I don't think Microsoft has a snowball's chance in hell of reaching 40% of the global market for smartphones. Not in four years, not ever.

5) “We have the best browser”


I’m not sure what leadership means by best. Fastest? Not on most benchmarks I’ve seen. Most standard? No, although the team is at least trying to catch up. Smallest/fastest install? Um, no. Best mobile experience? Not according to most reviewers. While I’m on it, how did AAPL get to market with a better mobile browser than Microsoft, the browser leader? Additionally, why hasn’t Microsoft bought and incorporated IE7 Prothe must have add-on for IE? Right now, the average IE user has to do without this functionality or, if they hear about IE7 Pro and go to download it, they get prompted to select GOOG as their search engine. Brilliant.

Meanwhile, Firefox closes in on 20% share.

6) “Zune is succeeding”


Okay, you get the picture. I won’t go into detail on all of the rest like IPTV (10 years, $10B invested, still no material return), etc.

What do you think current perception of MSFT would be like if:

  • Vista had been the must-have upgrade it should have been?
  • The company had embraced the internet and led the move to SaaS versus resisting both?
  • Online had managed to at least turn a profit, if not hold share?
  • Xbox was leading this round of gaming and was actually profitable versus just creatively so?
  • Windows Mobile had generated even half the excitement that the iPhone has?

Do you think that maybe the annual P/E chart wouldn’t show this clear downtrend, which keeps negating the positive impact on share price that otherwise might be expected from what little earnings gains have occurred?:

Meanwhile, look at some other critically important metrics:


Back in 2000, MSFT was one of the industry leaders in both revenue and profit per employee. Now look. While it’s still above average in income, revenue per employee is actually below the S&P average. Compare that to AAPL, who matches the S&P figure for revenue/employee – and they don’t have the leverage of the OEM model that MSFT does.


When you trail IBM, you know you have a problem.


As I’ve noted before, Microsoft’s marketing is an embarrassment. Their PR is too, but that’s another matter. Perhaps the most glaring example of this is the failure to respond to Apple’s PC/Mac TV ads, something that Gates denied is having a negative impact as recently as the D conference a few weeks ago. Huh? Earth to Bill, come in. This is the same company that wants to be a leader in advertising, right? And the one spending $300 million to makeover its image?

"Nobody messes with anyone in the tech industry the way Apple has messed with Microsoft," says Enderle. "It's the first time I've ever seen a major national campaign that disparages a competitor, and the competitor just sits back and takes it. If somebody tried to do that to Oracle, you wouldn't be able to find the body."

Help may be on the way, but why did it take so long? Why has the company allowed AAPL to effectively define MSFT’s own brand in a negative fashion? Why was it Lenovo, not MSFT, who came up with a smart counter ad? How come MSFT’s Vista marketing team hasn’t been able to come up with something compelling like this (albeit a little rough), even though Robert McLaws was able to do so by simply offering readers of his blog a chance to win a PC?


Like many, I have been holding out hope that MSFT would gets its act together. In the first two fiscal quarters that looked like it might be happening. But then the wheels came off the wagon and it’s been down hill ever since. I’m not just talking about the ill-advised and poorly handled YHOO bid. I think a lot of folks, myself included, reassessed after Q3 and wondered how others (AAPL, GOOG, less so HPQ, etc.) have been able to sustain successive growth and earnings surprises for years in some cases on the back of modest R&D expenditures and new product/service offerings, and yet the largest R&D spend and product line up in MSFT's history wasn't able to deliver even three consecutive quarters of the same.

As a stock, MSFT is done - stick a fork in it. And not just past and present, which has seen the terrible performance mentioned and is the reason, for example, that the QQQQ underweights MSFT in favor of overweighting AAPL and others (despite its mandate to track the index). I mean moving forward. If you want dividends, there are far better plays. And if want equity appreciation instead, make a list of MSFT’s top competitors, throw a dart at it, and invest in whoever you hit. More rationally, buy the index or one of the technology-specific ETFs. Either way, you’ll likely do much better over the next 5 years and have less volatility.

As a company, MSFT will obviously continue on for some time. But I will be surprised if 3-5 years from now (maximum), growth in the cash cows hasn’t come to a screeching halt and the company hasn’t been forced to layoff at least 10% of its employees.

All of this assumes Ballmer is still at the helm of course, which sadly is a good bet:

Don’t misunderstand, he isn’t the source of all that’s wrong. But he is the enabler that allows it to continue (with the acquiescence of our do nothing Board of Directors).

So under a Ballmer-led administration, expect more of the same. Specifically, a general lack of accountability and urgency within the senior management ranks, a myopic strategic focus on protecting the cash cows while paradoxically paying inadequate attention to the actual products themselves, a related failure to spot new trends and get out in front of them (invariably resulting in a desperate, expensive, and often unsuccessful attempt to play catch up later), a staggering annual R&D spend that produces lots of research papers but a shockingly small number of promising technologies and even fewer successful new products, variable execution that runs from great to poor but is on average weak, a marketing effort that is simply atrocious, a bunch of very expensive "investments" that have best-case paybacks measured in decades and appear to be almost totally focused on driving revenue not income, and of course the ever-present maniacal focus on the latest competitor du jour, whose market the company currently covets or feels threatened by.

Meanwhile, OSS, AAPL, and others, will continue chipping away at the legacy cash cows, gaining share and driving down margins even where share is retained. So in addition to continued PE compression, there’s a good chance that “E” itself may start to decline as well.

So it's time for me to listen to the fat lady who has been singing for years now, and finally pull the plug. I can't keep waiting another 11 years for MSFT's leadership to deliver the returns that say AAPL's have in just the past 12 months, despite struggling (and that's on top of 2000+% this decade). I'm also increasingly concerned that under this leadership team the long-term flatline will eventually be resolved to the downside versus the up, with all the implications for additional shareholder value destruction that implies. As one pundit summarized it:

In short, I think the market sees Microsoft losing its grip on computer users and having nothing to take its place when those users start leaving. Jack's right that they haven't started leaving in droves yet, but the market is a forward looking mechanism and senses that at Microsoft there's a greater chance of ramping down than ramping up.

So with that, I announce the end of my MSFTextrememakeover blogging career. The timing seems right as this is my 100th post. Good luck to all those who continue to hold MSFT. I also wish the very best to MSFT's employees, especially folks like Mini-Microsoft, Dare Obasanjo, and others who have pushed for change from the bottom up at some considerable risk to their careers. Ditto folks on product teams like Live Writer, etc. who somehow managed to get something great out the door despite the obvious organizational dysfunction. Finally, thanks to media folks like Todd Bishop, David Hunter, and others who cited me from time to time and got others to read my input for whatever it was worth - which apparently wasn't much.

Anyway, best wishes to all. Extreme out.



Update #2:


Yahoo destroyed itself to save itself. Microsoft tried to get stronger, but only ended up exposing its own weakness. Somehow Google emerged triumphant, effectively neutralizing its two biggest competitors.


Buying international properties outright may be tricky, but buying up minority stakes in overseas leaders such as (Nasdaq: BIDU) in China, or Russia's Yandex, will give you a toehold in faster-growing markets abroad.

Ya think?:


Here’s his four-part plan for energizing the company:

  • Innovate! “Multi-year investor concerns about the company’s ability to innovate have only increased in recent times,” he writes. “Outside of the “Surface” product, we have seen little from the company that could be labeled as being truly innovative. Innovation is key in boosting opportunities for Microsoft and in its battle against threats from Open Source software, SaaS, Online Advertising, Apple, Google, etc.”
  • Stop taking the iterative approach to product development. He asserts that “the ‘Hey, that was only Version 1′ approach to building software and products is ancient and creates a flood of unwanted negative publicity – Zune 1.0, Vista/SP1 are just some examples.” Parakh says that a key here is “a flawless user experience the first time any product is launched.”
  • They need a new branding strategy. “The use of Microsoft and Windows for corporate products is fine,” he writes. “However, anecdotal conversations with multiple individuals reveals that the use of Microsoft or Windows while branding consumer focused products increases the likelihood of a negative perception of the product (even if unwarranted), thanks to the immense negative publicity (news media, Mac/PC ads) received over the last several months and years.”
  • 20% time? “Microsoft also needs to be nimbler in responding to the competitive environment and provide increased latitude for employees seeking to innovate.”


  • Good luck extreme. I've greatly enjoyed your analysis over the past several years and your insight will be sorely missed!

    By Anonymous Anonymous, at 11:46 AM  

  • Very interesting read. I have been saying this for a couple of years, MS has to refine what it works on and focus on making these core items the best. They are slowing losing on 100 fronts (some more quickly than others) whereas they could be winning on 10 key fronts. Windows 7 MUST be a hit, and it MUST run better than XP (and Linux, which is getting better and faster almost daily) in UMPCs. XP is a dead end stopgap to protect the low end.

    I will be amazed if the Vista kernel based 7 runs on UMPCs well, but if it doesn't MS will lose marketshare even faster. XP as the OS of choice on UMPCs from 2010 on? Toss in AV, the experience is not great.

    Heck, take the Zune and make a real play. Hire (fire current firm) the best marketting firm, add seamless web based purchase (through client machine) over home WiFi and let the market know you exist. Apples iPod is vulnerable in 3 ways. Price, format compatibility and sound quality. For the price, the other two are just not there.

    Well, like you, I can go on and on, but if MS continues to irrationally beat Google at everything (sometimes I think Google just plays with MS) they won't realize the wheels fell off until it is too late.


    By Blogger TripleII, at 12:09 PM  

  • So long and thanks for all the fish!

    By Blogger Slappy, at 12:39 PM  

  • While I enjoyed reading your analyses and comments, you're doing the right thing. You held on too long. All the best with your new investments!

    By Anonymous Anonymous, at 1:29 PM  

  • I'm sorry to see you go! Your blog has been one of my favorites, and has delivered consistent, useful info on current and future trends.

    But then, as you point out, it's definitely for the best. I guess you're done holding out hope that they can recover, huh? Hopefully soon other stockholders will get the message!

    Maybe you should keep us posted with other projects you're working on! Best of luck either way, and may your new stocks perform better!

    By Anonymous Anonymous, at 1:50 PM  

  • Thanks for much wit and wisdom. I hope another topic drives you back to your keyboard soon.

    But one can't help feeling your analysis is right.

    By Anonymous Anonymous, at 2:03 PM  

  • Microsoft is THE most profitable tech company on the planet. As a company's revenues and profit increase, it becomes very difficult to grow them by huge percentages and as a result their growth becomes more and more predictable. Predictable growth means that the stock is unlikely to do great things. Just look at GE - great company, horrible stock.

    Microsoft has grown their operating income from $14B in 2005, to $16B in 2006, to $18.5B in 2007. OMG! Any normal company that added 1.5B in operating income would have seen their stock hit the moon. How can Microsoft grow faster? If they figured it out the US and EU governments would figure a way to shut them down for 'windfall' profits or monopoly status.

    Microsoft is also sitting on around $63B in assets even after paying out dividends... My advice, don't buy the stock, but don't fire the CEO...

    By Anonymous Alexander Muse, at 2:11 PM  

  • Good vision an analysis


    By Anonymous iPhone 3G, at 3:54 PM  

  • You could write a whole book on MSFT squandered opportunities. Just looking at my stupid Windows Mobile phone and wishing it were an iPhone reminds me that the company has just taken for granted it's power and position on so many things and now is reaping the consequences.

    So, you're out of the investment, but are you leaving the company? I tell you, you won't regret it one bit if you do.

    By Anonymous Anonymous, at 4:11 PM  

  • Fairly new observer of MSFT critical blogs, using FireFox. Apparently over 100 lengthy posts, you haven't been any more effective in moving MSFT than the executives criticized. Yup, time to move on -- to Google or Yahoo or Apple or ????

    Results are all that count.

    By Anonymous ResidentRichmond.CA, at 6:54 PM  

  • Amazing. Thank

    By Blogger Tony S, at 7:21 PM  

  • Best of luck, extreme. Enjoyed your perspective, your writing, and your passion for MSFT. I actually took your advice last year and dumped my shares, after years of holding and hoping.

    The biggest insult to me has been the relentless bullshit and posturing coming from the Entertainment and Devices division. All this talk about "winning" the console wars, taking on the iPod, etc. without acknowledging the elephant in the room-BILLIONS of dollars invested and lost forever. Bragging about $89 million in profit last quarter? Pretending they didn't take 1.2 BILLION just 2 quarters before? How many $89 million quarters will it take to make up that ONE quarter charge? And just last week, Bach had the nerve to boast about more profitable quarters coming, without a bit of irony or mea culpa? Not to mention his divestment of stock one quarter before revealing the RROD problem?

    Insulting. No wonder you are washing your hands of it.


    By Anonymous Anonymous, at 7:26 PM  

  • This is a great post with such analysis. It takes weeks to do write something like this. Great work.


    By Blogger Vishal Sharma, at 7:35 PM  

  • @Alex - you're right about the profits and cash! I just wish MS would pay a bigger dividend, then... :)

    By Blogger pffft, at 7:57 PM  

  • Thanks for all the fish.

    By Blogger Elaine, at 8:12 PM  

  • to understand failure of e&d all you need to do is work there. anyone with true talent or ambition figures out the dysfunction pretty quickly and attempts to change things then give up and leaves. the zune, mobile, xbox, mce, iptv results from those who stay are terrible but the truth is most people don't actually care about the results anyway they are just happy to collect and be comfortable. to pretend and imagine. meetings are like make-believe business like a play or movie or something. it's delusional. vp and gm in robbie bach org are allowed to fail at one business then get promoted then ditch their old org then go screw up another.

    By Anonymous Anonymous, at 9:38 PM  

  • Great article - as an ex-MSFT w/ 10 years experience, this outlook is what led me to leave in '04.

    You forgot an important division - "Developer Division" - aka the .Net dudes. The "windows development platform" is more in shambles than ever. It's impossible to know what API or language to implement windows apps in. C? C++? Managed C++? C#? VB? What about API? WIn32? MFC? Vista-generation APIs? (oh - that won't work on XP tho!).

    What about the .Net runtime? Well - what version? 1.0? 2.0? 3? Each one might incur mean a download for your clients.

    I recently dabbled in writing an OS X app. Not knowing Objective-C or Cocoa, I was able to write something reasonable in 2 days.

    I actually gave up writing a Windows version because of the headache of having to decipher which technology I was supposed to use to write a goddamn windows app. FAIL.

    By Anonymous Anonymous, at 11:27 PM  

  • Great post....Really great post. I live in Seattle yet have not owned Microsoft for years. I bought AAPL about six months ago. What really hit home for me was how Microsoft has not fought back against Apple and that YouTube Lenovo ad is fantastic; everyone looking for a laptop understood it. But here's what I see as the problem and you say it in your post: it's not at all clear MSFT has the substance to fight back and that is really scary.

    By Anonymous Dan Harris, at 11:35 PM  

  • i think it,s a great blog.

    By Anonymous indian songs, at 4:27 AM  

  • (sigh) and another falls by the wayside, done in by the sheer uselessness of it all.

    Microsoft's problem, their only one and the one that is the root of all others, is that their perspective is always always always outward. They decide what the customer wants, they decide what the market demands, they decide...that they and they alone are the authority...on everything computing.

    I worked for Microsoft for 4 years and had to leave because I was fed up with the uselessness of trying to advocate for the customer. Sure there are pockets of resistance within the company but they are few and far between and are largely individual efforts.

    Example: I have a T-Mobile Shadow and a Crackberry Curve and there is no contest. The Curve is fast, responsive and I have yet to reboot it because it's locked up. I have to actually take the battery out of the Shadow at least once a day to get it restarted.


    I am sorry to see you go but I certainly understand your emotions and wish you luck in the future.

    By Anonymous Anonymous, at 7:26 AM  

  • Great analysis as always, but I'm sad to see you go. Still, if it's an investment and not a hobby, then you surely made the right decision.

    By Anonymous David Hunter, at 8:40 AM  

  • If you look at the future prospects of the company - you see younger, more tech-savvy college students - 40% of whom plan to buy Macs in the future.

    Wasn't this the same type of person who promoted the new-yet-easy-to-use search engine "Google" to their less tech-savvy family members when faced with questions about the internet?

    Surely they'll be the biggest force for change in the coming years.

    The big draw card that Microsoft has in this market is gaming... They run the only OS that most gamers will use.

    Will the gamers move to OS's that allow much more hardware flexibility (like Linux-based OS's?) - or will they move to Mac's?

    It will be interesting to see what game developers do in the coming years as their market shifts operating systems.

    Anyway, glad you got out 'makeover, - just sorry it wasn't sooner.

    By Anonymous Brent Hodgson, at 8:54 AM  

  • Microsoft suffers from a lack of leadership and a lack of focus on the customer, plain and simple. It is run by consensus so that everybody's pet feature is included and the important stuff, like longhorn file system never quite makes it. This is exemplified in Vista where from a user's prospective, it is basically unchanged accept old programs don't work and the PCs need a lot more resources. All the programming was focused on how to suck up to the media companies not the people buying the software.

    Basically, MSFT can only continue to lose marketshare in their core platform and office products. At this stage, there isn't a lot they can do to change it, the ship has sailed. No one is going to leave OSX or Linux for Windows, it is a one way trip. Open Office and web-based office suites will keep chiseling away.

    Ultimately, they will never again be a growth stock and should become a dividend stock since it is clear management can't find more effective uses of their money.

    By Blogger Steven, at 10:16 AM  

  • Now that Apple has announced MobileMe, it's going to make it that much harder for success of a cloud-based MS Office.

    By Anonymous Joe Ranft, at 11:29 AM  

  • Sad to see you go, I've enjoyed this blog for years. Thanks for all the great work and insight!

    By Blogger James, at 11:47 AM  

  • Sorry this is the first post of yours that I am reading, and apparently my last!

    I'm a longtime ex-msft insider (was there a long time 10+ yrs, leaving almost 10yrs+ ago).

    I am not giving up on the company and it's incredible position, but many of your comments are relevant, and I hope a fire under the a** of some pretty smart folks who are there. With the brainpower I KNOW is there, when there is a will (and a marketplace position that still provides opportunity) there is a way!!

    Good luck to both you and the company!

    By Anonymous Anonymous, at 12:21 PM  

  • Enjoyed reading your blog and a great post to close the chapter. Your insights on Microsoft's performance will be missed.

    Watching Microsoft's performance in many areas over the past few years has been like watching a child grow up to do all the wrong things. A company where once we were proud to say we worked in has now become another job. Where is the innovation, where is the passion and most of all where is the leadership?

    Trust you will find something more enjoyable to write about and wishing you all the best.

    By Anonymous Anonymous, at 6:43 AM  

  • I've heard several people say now: "Jack Welch was the worst thing that ever happened to Microsoft." It is very true. MSFT needs to get back to their creative thinking and back to some commonsense. GE style management systems do not help tech companies, it destroys them.

    BTW: I don't agree with everything in this blog post, but it does make a lot of good points.

    By Blogger Timetheos, at 8:51 AM  

  • Some really nice comments there. Truly. Thank you all.

    Over and out.

    By Blogger MSFTextrememakeover, at 1:58 PM  

  • I hope you are not with msft next financial year. Msft will be fine without you.

    By Anonymous Anonymous, at 2:57 PM  

  • I agree with you to a large extent insofar as the growth position is concerned but I do believe that the stock is cheap right now regardless. Are you going to want to buy and hold a mature tech like Microsoft indefinitely? Not if you hope to achieve outsized returns. If you take a more active approach to seeking out value, though, Microsoft can offer you plenty from time to time.

    By Anonymous inept, at 4:05 PM  

  • I look forward to the day I leave Microsoft, or the day Ballmer does. Until then I can't stop caring how we do and every day it kills me a little more watching this once great company rot.

    By Anonymous Anonymous, at 4:12 PM  

  • That web site for Windows suggestions is just about the saddest thing I've ever seen. Not because it's a bad site, but because MSFT's attitude towards it seems to be, "oh interesting, customers care about fit-and-finish? Maybe we'll do something about that."

    Apparently the idea to make good products got lost in the mix. For some reason everybody spent 5 years working on WinFS when the simple ability to reorder things in the task bar would have made the world a happier, better place.

    Tells you just about everything you need to know about the current state of the products.

    By Anonymous Anonymous, at 9:48 PM  

  • Always enjoyed reading your posts. Unlike 99% of bloggers out there, you actually took the time to look at and understand the facts before arriving at an opinion.

    For anonymous @2:57, I rather think you have it backwards. I am sure MSFTextrememakeover will be fine without MSFT. In the long run, I'm not sure the reverse is true (although since leadership at MS is so resistant to listening to anything approaching reason, I'm not sure how much better off MSFT would be WITH him, either).

    For the E&D commenters, I hear you. Bach just did an interview where he's (predictably) praising the ultimately meaningless "profitablity" of FY08. Even though the interviewer points out that they only arrive at that illusory "milestone" by tucking the RROD charge back into FY07, Robbie just keeps on with the groupthinked notion that the division has somehow turned a corner. I don't work at MSFT any more, but I really think you guys should start planning your crowd chant in reply to the certain mention of this "turnaround" at the company meeting.

    E&D will never be anything but a sinkhole under Robbie Bach.

    By Anonymous Anonymous, at 2:44 AM  

  • Robbie Bach is f*cking Albert Einstein compared to Kevin Johnson and the online group.

    By Anonymous Anonymous, at 4:20 PM  

  • Good reviews and reports are unbiased. As you clearly have a problem with Microsoft, then your views are biased towards non-Microsoft companies/products. With this in mind, I'd see this as one side of the story.

    By Anonymous Anonymous, at 6:04 AM  

  • If you look at any smartphone market other than the US (a small market in global terms), Windows Mobile is virtually invisible, maybe it's 3rd or 5th, but in terms of percentage market share it's absolutely nowhere.

    The Admob metrics are rather enlightening on this aspect -

    By Anonymous Jim Hughes, at 9:31 AM  

  • Best of luck and congratulations for going out with a bang.

    I do hope to read your voice from time-to-time still. You pulled together wonderfully deep analysis and connected some very important dots. I can understand your decision and respect it, though of course I feel sad.

    And a little bit more alone now.


    By Blogger Who da'Punk, at 7:00 PM  

  • No! If all the intelligent and insightful blogger leave, then pundits are all we'll have. We'll be reduced to Enderle et al.

    Sad to see you go, but it's understandable. How long can you beat a dead horse before you have to get up and walk the rest of the way yourself?

    By Anonymous Anonymous, at 8:34 PM  

  • It's interesting to speculate that Microsoft may have delivered more value over time if the DOJ had gone ahead with its plan to split up the company. At least that way, the daughter companies might have more discipline on how they managed their businesses on a standalone basis and compelled the OS business not to act as if no competition existed.

    By Anonymous Steve, at 7:54 AM  

  • "Who da'Punk said...
    Best of luck and congratulations for going out with a bang."

    Thanks, Mini. You were my inspiration for starting this blog and your regular links provided most of the traffic.

    "And a little bit more alone now."

    I hear you. Selfishly for the company's sake, I'd tell you to keep up the fight. But I have some idea now of the toll it takes personally. So do what is best for you. FWIW, you have my everlasting respect and admiration for what you have accomplished already.

    By Blogger MSFTextrememakeover, at 8:06 AM  

  • Best of luck to you MSFTextreme... your writings have always provided clear sanity in the foggy wonderland that is Redmond. Thanks for your hard work getting the truth out there.

    By Anonymous Anonymous, at 9:00 AM  

  • Word from a developer at Microsoft (me):

    We spend less than 5% of our time coding. All the other 95% is around the process and saying the same story time and again for an immense number of managers.

    Then if you consider that MS has 19000 managers and 12000 engineers (yes, more managers than engineers), and only 1/2 of those engineers are developers, you get the conclusion that of all operational expenditures on salaries only 0.3% goes towards coding. All the other 99.7% is waste: process and management.

    So right there you see how we spend billions in R&D, countless years to build Vista and other without results.

    By Anonymous Anonymous, at 10:43 AM  

  • "While it’s still above average in income, revenue per employee is actually below the S&P average. Compare that to AAPL, who matches the S&P figure for revenue/employee – and they don’t have the leverage of the OEM model that MSFT does."

    Huh? Revenue per employee is only important if you don't have enough. Income per employee is always important and keep in mind that income is after the employee was paid!

    You point is basically nonsense. You need to look at the ratio of Income/Revenue to make sense of the numbers. The relative level of renenue is just noise.

    From your data:

    Industry had $113k/$521k or a mighty 25.5% of revenue dollars turn into income. Wow, this is a good industry.

    Microsoft has $207k/$733k or 28%! Yes that is pretty good.

    Apple actually sucks here, $113k/$1000k or 11.3%.

    Granted MSFT has not done well but this metric isn't the reason. Frankly this kind of taints your whole article.

    By Anonymous Anonymous, at 5:07 PM  

  • Hey Extreme. Great blog, and thanks for it all. I started reading when I left MS after a few years of swimming against the tide. I came from the Valley and could never really fathom the complete lack of understanding of the rest of the tech world. Outside ideas were bad, ideas from people who joined MS in 1990 were good. I think this is still true--and that's the problem. If you look at the management page on Microsoft's website, the vast majority (of the middle aged white guys) joined the company in the 80s or 90s. In the Valley people might start at Oracle, then go to an applications company or a mobile company or a search engine pioneer then maybe go back to one of their previous employers. This makes them rich in experiences they can bring to solve business problems. That is rare at Microsoft and it's a problem.

    By Anonymous Anonymous, at 9:19 PM  

  • yes, good luck ext! I really appreciated your insight.

    By Anonymous Anonymous, at 12:31 AM  

  • When asked how he felt about the fans yelling negative things at him, Dale Earnhardt used to reply that what was important is that they are yelling. When they stop yelling, it is because you are no longer relevant. With the final post to this blog, one less person is yelling at Microsoft.

    By Anonymous Anonymous, at 4:33 AM  

  • "You point is basically nonsense. You need to look at the ratio of Income/Revenue to make sense of the numbers. The relative level of renenue is just noise."

    Revenue/employee is not noise, it's a widely used "key financial ratio" and for a reason: it measures top line productivity. With the massive leverage afforded by the OEM channel, MSFT should easily lead the average on this metric. Indeed, it used to lead most of the market. Now, it trails the average.

    "Microsoft has $207k/$733k or 28%! Yes that is pretty good."

    Unless of course you look at where it was, or that the company has among the highest gross margins on the planet, so ending up only slightly better than average on a net basis is a weak result.

    "Apple actually sucks here, $113k/$1000k or 11.3%."

    The correct number is actually $201k/$1M and it shows the problem of using your metric indiscriminately. Had you compared companies that were more similar, e.g. AAPL to HPQ, it would be more meaningful and you would see their result is far superior.

    "Frankly this kind of taints your whole article."

    LOL. You might want to review my comments above and redo your analysis, only using the right numbers and comparing apples to apples. Alternatively, consider running your analysis but for MSFT only data 00-present. I'm exceedingly confident it will show a clear negative slope indicating declining efficiency. But prove me wrong.

    By Blogger MSFTextrememakeover, at 9:26 AM  

  • "LOL. You might want to review my comments above and redo your analysis, only using the right numbers and comparing apples to apples."

    You should follow your own advice!
    You are the one that decided to compare Mircosoft to Apple. They aren't the same types of businesses. The simple fact is if Apple's revenue matched Microsoft's revenue they would only earn about 1/3 as much as Microsoft. BTW, the numbers come from the source you picked.

    You better get off your high horse and review your numbers before making such nonsense comparisons!

    By Anonymous Anonymous, at 11:48 AM  

  • Revenue/employee is not noise, it's a widely used "key financial ratio" and for a reason: it measures top line productivity.

    Hmmmm ... That might be true if you were comparing the same types of businesses. Apple sells mostly hardware and more services. They seem to be actually moving away from computer software. Microsoft sells about as much hardware as Apple sells software. Both are related to computers but they aren't really the same.

    I also noticed the numbers given at the Microsoft Money site have changed multiple times in a few days ... what is going on there? It that where MSFTextrememakeover works?

    By Anonymous LookingToTheFuture, at 12:13 PM  

  • You forgot an important division - "Developer Division" - aka the .Net dudes. The "windows development platform" is more in shambles than ever. It's impossible to know what API or language to implement windows apps in. C? C++? Managed C++? C#? VB? What about API? WIn32? MFC? Vista-generation APIs? (oh - that won't work on XP tho!).

    Above taken from a comment.

    .NET rocks. It continues to improve and you can use it from many different languages. Now there are a lot of poeple creating .NET languages, like Iron Ruby and Boo. In general it seems there are more poeple climbing on the .NET wagon.

    You should check our WPF. True its implemention is a bit rough right now, but it will soon be a great tool for mind-blowing apps. True you do need to upgrade to .NET 3.5 to have it, probably 100 million or more have already done that ... afterall it is just a free download.

    .NET was something I had a hard time understanding at first. However, it is actually a very cool technology. You have to give Microsoft a strong thumbs up for .NET.

    By Anonymous LookingToTheFuture, at 12:23 PM  

  • Microsoft is THE most profitable tech company on the planet.

    I think it was in the top 50 last year, but far for the most profitable. However, the stock has not followed the growth of the company.

    Microsoft is also sitting on around $63B in assets even after paying out dividends... My advice, don't buy the stock

    I'm a buyer at these levels. MSFT has to be close to the bottem. If the company keeps growning the stock will soar sooner or later.

    By Anonymous LookingToTheFuture, at 12:29 PM  

  • "You are the one that decided to compare Mircosoft to Apple."

    My main comparison in that section was actually MSFT versus the S&P average. I did further suggest comparing that result to the rev/emp figure [only] for AAPL, which I thought was striking. Others may not. The intended focus was really MSFT now versus then.

    "You better get off your high horse and review your numbers before making such nonsense comparisons!"

    The number referenced by MSN, which I quoted accurately (rounded), differs materially from what you posted it said. The main comparison offered is valid, which is why links for it exist. The AAPL example was offered as a data point of interest.

    By Blogger MSFTextrememakeover, at 2:30 PM  

  • "The number referenced by MSN, which I quoted accurately (rounded), differs materially from what you posted it said. The main comparison offered is valid, which is why links for it exist. The AAPL example was offered as a data point of interest."

    My number also matched what was at the MS Money site and I assumed it was correct because it is inline with Apple profit margin which is typically 10% to 12%. However, your number is now posted there, even though it is clearly out of line with the profit margin. I have no idea where that site is getting it's numbers, but it is wacky at least in the case of Apple.

    Make it simple: (FY 2007)
    Apple # employees: 21600
    12 month Rev: $24B
    12 month Income: $3.5B

    Rev/emp: $1.11M
    Income/emp: .162M

    While it is actually a lot better than I expected it still isn't close to Microsoft's 28% profit margin. Apple's profit margin works out to 14.6% for FY2007.

    These numbers are highly variable depending on the number of employees picked and which time period is used. I can mean a lot when a company sees it's own numbers changing, it normally means very little when comparing one company against another, unless they are almost identical buinesses.

    So, both our sets of numbers were incorrect and the current numbers posted at the MS Money site are clearly incorrect.

    By Anonymous Anonymous, at 9:40 PM  

  • E&D is a young business and it's up against stiff competition. You don't just jump into businesses and expect them to be profitable in a few years, especially in the consumer space. Look at Amazon. Look at APPL in the late 90's. This is a tough space to compete in. It's strategic in MSFT and our core business (Windows). Xbox and Xbox online are some of the most innovative products to come out of Microsoft in a long time. It's a strong brand that excites consumers. Sony and Nintendo have a 10 and 20 years jump on Microsoft, respectively.

    By Anonymous Anonymous, at 10:39 PM  

  • "So, both our sets of numbers were incorrect and the current numbers posted at the MS Money site are clearly incorrect."

    This is getting into diminishing returns. Indeed, I only responded initially to correct the record about the value - and wide use - of the metrics provided in that section.

    WRT my "correct number" comment, it was just to note that the source I provided and which we were both discussing - MSN - showed a different inc/emp number from what you wrote. I wasn't proffering them as correct in some objective sense, though I had no reason to think they were wrong. FWIW, SmartMoney and Reuters show the same inc/emp figure. If it was important to what I wrote in the post, I'd research it further to determine the source of the discrepancy with your updated analysis. But it really isn't, since the only compare suggested for AAPL was revenue/employee and if anything, MSN understates the actual.

    "While it is actually a lot better than I expected it still isn't close to Microsoft's 28% profit margin. Apple's profit margin works out to 14.6% for FY2007."

    Not sure what your point is since I didn't argue that MSFT isn't more profitable than AAPL. But since you're making the comparison again, what's the respective CAGR for income been '00-present? More important to the original post topic, how does that 28% figure for MSFT now, compare to '00?

    By Blogger MSFTextrememakeover, at 10:44 AM  

  • E&D is a young business and it's up against stiff competition. You don't just jump into businesses and expect them to be profitable in a few years, especially in the consumer space. Look at Amazon. Look at APPL in the late 90's. This is a tough space to compete in. It's strategic in MSFT and our core business (Windows). Xbox and Xbox online are some of the most innovative products to come out of Microsoft in a long time. It's a strong brand that excites consumers. Sony and Nintendo have a 10 and 20 years jump on Microsoft, respectively.

    Robbie Bach, ladies and gentlemen!

    So we're officially back to the "excuse" stage we were in last generation. You know, before we moved on to "Damn the torpedoes! It's all about getting in first! We'll launch first next generation... ready or not!"

    Of course, given that they patted themselves on the back for this strategy for the first two years of the 360's existence while PS3 and Wii were both catching up fast despite being "too expensive" and "a kiddie toy" respectively, it's only natural that they'd have to find another spin to hide behind once they saw how dismally that "launch first" strategy was going to fail. And the fact that they couldn't even come up with a NEW spin pretty much encapsulates the lack of innovative thinking over there.

    You're right about one thing though... Xbox and Xbox Live were pretty innovative. But it's telling that the guys who actually were responsible for that innovative console design actually left years ago. All that's left now are the beancounters who are busy robbing Peter to pay Paul ("We're going to be PROFITABLE this fiscal year. Screw the next five!")

    And by the way, Bach himself promised back in 2001 that the Xbox group would be profitable within five years. And if you feel that games are strategic to Windows, why did Bach do so much to eviscerate Microsoft's PC gaming presence, a decision they'll be recovering from for years now that they seem to have realized that was a mistake?

    At least Bach is consistent. He led Xbox to a last-place finish his first time out. He's doing it again. How many more generations is it going to take for this "strong brand" to at least manage to come in second?

    By Anonymous Anonymous, at 10:59 AM  

  • "Not sure what your point is since I didn't argue that MSFT isn't more profitable than AAPL."

    You were holding up Apple as an example of how Microsoft is messed up. Apple is a fad driven company, it has been there before and it will lose it again. Microsoft on the other hand is a company that just keeps building year after year. It isn't sexy but it is profitable and powerful. AAPL could be well at another peak like it was in the 80's. MSFT is more likely at a base, if it keeps growing the stock will catch up with it someday soon.

    Google is much more a competitor with Microsoft than Apple is. However, it is still largely a one trick pony. Microsoft isn't competing well in search, but it has a lot of sources of revenue. The one thing about this industry is there are a lot of disruptions that come along. We know how Microsoft handles disruptions, how will Google? That remains to be seen.

    Microsoft has its faults, but it is still a great company. Personally, the only serious current problem I see with Microsoft is the headcount growth. I wish it would be capped to something like 1% a quarter. This is probably doing more to hold down the stock price than anything else. It directly impacts the bottem line and it allows too many oppertuinties for deadwood. Headcount growth is important as working in a company that is srinking isn't fun, however, I think Microsoft's headcount growth is excessive.

    By Anonymous Anonymous, at 11:08 AM  

  • This is by far the best article I've read on the subject. It should be mandatory reading for every exec in the company.

    Hard to believe it's been 3 (great) years since I ended my own short-lived blogging career and left Microsoft. That place just isn't worth the frustration and aggravation.

    Good luck!

    By Blogger Microsophist, at 9:25 PM  

  • This article is so well thought out and so beautifully written. Kudos and best of luck to you extreme. Your wit and intelligence will be missed.

    By Anonymous Anonymous, at 1:00 PM  

  • enjoy your work. Better than 99% of the articles I read on the topic.

    In a communistic economy, MSFT would be doing just fine. In a capitalistic environment, the competition is eating them up.

    As users, we are slowely learning we don't need to settle for MSFT software, interfaces, frustrtion, lack of innovation, over promising and under delivering...late.

    They seem to live to get a buck out of the consumer. Other companies are living to generate a great user experience and make the best software and products possible.

    I think MSFT will bleed market share over the next 2 years as word of mouth travels far and wide, there is a better way, and it doesn't involve viruses, BSOD,
    paying more to protect your software once you already bought it, etc. There is a better way.

    Good luck in your new career. I hope you post what you will do in the future. The community could use your voice in the future.

    By Anonymous Anonymous, at 9:54 PM  

  • Microsoft needs to go from being a "push" based company - gazing at the navel to identify products, then using market power to push them out - to a more customer focused company that focuses on creation of value that customers want.

    By Anonymous Anonymous, at 8:34 PM  

  • You've done an awesome job Extreme. I was holding AAPL when I was still at Microsoft over a year ago - trying to preach to those inside of the need to innovate (and market) to get the returns AAPL was getting. No one would listen or even believe me when I touted AAPL's performance. They just don't get it, nor want to.

    Now I'm even more invested in AAPL. Working on an iMac and have several iPods including a Touch (freakin' amazing device).

    I totally agree with your assessment of where MSFT is headed. One reason I left there a year ago.

    Please post here again if you ever start blogging somewhere else, your insights are much appreciated on any company.

    By Anonymous Anonymous, at 2:43 PM  

  • Just found this article, one of the best reads I have had all year, shame it is your last. I have learned so much and enjoyerd learning it. Quite a task for me.

    Couldn't agree more. I believe MS are on their way down without a serious re-think, to find out MS 7 is a warmed up vista was alarming but not a complete surprise.

    I don't see light at the end of the tunnel, what little light their is has a pengiun outline which I don't think MS will like.

    I decided recently to end my IT career of ten years because I have finally had enough of supporting MS I don't think I will be caring quite as much in six months. Vista and home server were the last straws in a long line of straws.

    By Anonymous Anonymous, at 8:14 AM  

  • In some ways this isn't a surprise. MSFT was building on sand: "Microsoft at Apogee".

    By Anonymous Anonymous, at 3:40 PM  

  • I'm sorry to have discovered you as you take your leave though I certainly understand the reasons.

    To me at least part of Microsoft's problems, as you indicate is their obsession with their cash cows Windows and Office.

    There was a golden opportunity to have a clean break with the past during Longhorn's painful period from zygote to baby OS.

    Somewhere the ball got dropped and what was birthed seems more concerned about ersatz backward compatibility than with starting over and building from scratch.

    At least, it would appear, part of the problem is that doing so may have risked Windows and would have risked Office.

    Pre Windows Microsoft would have taken the twin risks. Microsoft as it now stands won't or can't.

    You've clearly pointed out the expensive distractions that Microsoft allows itself to indulge in and little or no return on massive R&D.

    In the meantime Apple has come roaring back, at least in the public mind which is, in the end, all that really counts.

    The last 24 months has also seen a nearly unbelievable maturity occur in Linux desktops, hardware support and scalability both up and down the ecosystem.

    And, as was pointed out, MS has lost it's grip on the OEMs when Acer and others install Linux on new platforms by choice before MS can roll out a scaled down XP for the platforms to use. The Ubuntu and Linspire being supplied aren't scaled down.

    Perhaps the most telling post points out that 95% of developer time is spent productively (writing code) and 95% of the time is burned on bureaucratic chores and time wasters. As well, assuming the poster is correct the manager to productive employee ration is something like 1.85 to 1. It's probably far worse.

    Swimming in profit and income mask a lot of sins like spending money drunkenly on projects which not only yield a profit but actually lose money hand over fist.

    Not to mention time wasted on these projects (XBox, Zune, etc) while the Web and the Internet changed the world MS operates in.

    And now the only way they see of even getting to a point where they can even begin to compete with Google is to buy out #2 and fading fast Yahoo!. And goodness hows how much time and energy is being wasted there while someone decides if Yahoo is for sale or not.

    From a couple of Softie comments it seems .NET isn't a saviour as much as a mess. And a note to the person posting defending .NET. Iron Python and Iron Ruby are, at best, kludges so that .NET can handle them. MS invented neither.

    As I said earlier there was a time where MS would have taken the risk implicit in and needed with the overlong development of Longhorn which gave birth to Vista. And that was to break backward compatibility.

    One desktop Linux developer group is doing that with KDE 4 and while they're getting savaged in some quarters others are praising what they see as the possibilities this rethink of the desktop makes possible.

    KDE is taking the risk that Microsoft wouldn't. That's not saying they'll be successful, of course.

    Microsoft failed with Vista and kept backward compatibility. So it's fair to say they haven't been successful either.

    Yes, that's damned if you do and damned if you don't. But life and business are like that sometimes.

    Thank you for your sign off post. It confirmed thinks I already sensed and feared.

    Still, if one must drive at breakneck speed and go nowhere then some kind of disaster is inevitable.

    It's even worse when the light at the other end of the tunnel is the train when you realize that MS drove straight into that tunnel without anyone forcing them there.



    By Anonymous John Wilson, at 6:10 PM  

  • Yes, MSFT is indeed in trouble. Anyone who can see past the smoke and mirrors knows that Microsoft's flailing in the yahoo acquisition is a sign of their distress.

    By Blogger Fake Sergey, at 5:49 PM  

  • Good luck and I have greatly enjoyed your blog.

    It is sad indeed that MS is in the position it is in currently. In part due to the sheer incompetence and nepotism of senior management. Hope there is change for the better !

    By Anonymous Anonymous, at 10:27 PM  

  • Costs have been outpacing revenue at microsoft for years if you dig into the #'s. As an insider for a few years, the place bleeds money. For example, The MSIT Department had a Marketing Group led by a GM partner that has 100 people. For Marketing. Are you kidding me. When there was the big battle beteen Stuart Scott and Ron Mar to develop marketing materials primarily for their power point presentations, Stuart had Lynn's team spend over 10K to develop a power point header for which I could have created in 5 minutes in Powerpoint. Ron Mar's group at the same time, spent 100K for his IT marketing logos. Then becuse Steve told them to play nice together, Stuart abandonded his marketing maaterials to go with Ron's, only to have Lyn Kepl's Marketing team to develop an entirely new logo and powerpoint news letter logo set when they merged the 2 groups.

    It gets even better. They hire Stuart Scott in at a 5M package I think - - not sure how many years that spans over, and stuart, though a CIO title at GE, was no hire in rank than a Microsoft Sr Director when he came here. MSFT Recruiters were so stupid, they did not realize that GE has hundreds of CIO's. Each little popsicle stand business unit has a CIO that reports up to the big dog in fairfield. So Stuart was one of the 100 and we were so desparate for a CIO apparently, we hired a Sr Director that had has little scope and scale to run IT for the entire enterprise.

    And then what happends, he brings in all of his buddies from GE that no one can stand, then he starts sleeping around with them and then gets fired. Among many other issues of integrity that transgressed.

    Then you have other departments that spend hundereds of thousands of dollars a year on marketing to themselves so that they can ensure that when it is promo or re4ivew time that all the right people know about what they have accomplished. They take internal customer facing/marketing/networking to gross extremes.

    Then there are the redundant products, teams, vendors, and no one in control - not hat they would hire anyone that would actually know what to do because that would spoil all their fun.

    By Anonymous Anonymous, at 12:56 PM  

  • OK, the million $ question is, where did you set your sail off to? :) I really wonder...

    By Anonymous Anonymous, at 4:30 AM  

  • It will be more important for MSFT to get their game together with the increased market share of Apple and Linux. Both the of the have improved tremendously and may encroach on them. Especially after their last failure.

    I wish you the best in your endeavors.

    By Anonymous Nick, at 12:50 AM  

  • You nailed it. MSFT is going down. There used to be a time when engineers would go to MSFT but now, none of the smart ones will choose MSFT. They have been collecting the mediocre talents for the past several years, and it shows. It's going to show even more in the future.

    Moreover, the fact that research and production are 2 separate entities makes things even harder. For web for example, you want smart researchers to pitch in on the products, or make engineers have more flexibility (like Google's 20% time). At the end of the day, MSFT is obsolete on so many levels.

    By Anonymous CK, at 4:50 PM  

  • I do believe Microsoft still getting some talented engineers based on some remaining perception, but they unlikely to stay and even less likely to innovate (20% offer will not give any real intensives).

    Would you personally earn 50M by creating 1B business withing MS?

    If your spent 20% of your time implementing your big idea why give it to MS?

    Plus, your manager is more likely to hate you for spending 20% of your time on something which may not be align with his political goals.

    By Anonymous Anonymous, at 3:50 AM  

  • What a great post.

    By Blogger wesmasonphoto, at 3:06 PM  

  • I like your writings and comments on this Good luck extreme!!!

    By Anonymous Priscilla, at 12:01 PM  

  • Very good post. Something which is very close to our heart. You always have a way of making it so easy to follow your thoughts and what you’re sharing with us. Thank you very much.

    By Anonymous Copywriter Sydney, at 11:49 AM  

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