Microsoft – Brankrupt of New Ideas?


ms_masthead_ltrMicrosoft has launched its new product “Bing”, which is supposedly a new search engine. From a product positioning standpoint, it appears that it designed to compete with Google’s search engine. I do not know the nuances of Bing’s capability, and I do not intend to make a relative comparison for pros and cons. In this product launch what caught my attention is the amount of money being spent on its branding exercise, its promotions, its marketing, etc. Media reports suggest that Microsoft has allocated $80million to $100million for this exercise.

In my post on opportunities of technology dividends, I had mentioned that I am wary of Microsoft’s habit of squandering cash in meaningless acquisitions (i.e. meaningless projects). I believe this is a perfect example of squandering cash on meaningless projects.

I just do not understand what Microsoft wants to do. Does it want to compete with Google Search and take some business? Does it want to develop it organically, or does it want to acquire Yahoo Search? Or Does it want to compete with Apple (remember Zune!)?

Why Microsoft does not understand that a mere attempt to replace an already established product is not going to work? How many times it has failed? It’s products (whether Bing or Zune) does not bring anything new to the table for consumers? Assuming that it has few extra features, but then how long will it take for Google/Apple to replace it?

In times of recession, what do you think of $100 million spending on marketing exercise for re-branded or re-formatted product? Can this be justified?

We all focus on Microsoft’s ability to generate cash, its towering presence in desktop and laptop notebook operating systems, and office servers. There is no doubt it has wide moat in that domain. But it has failed to leverage that for next phase of growth. It continues to bank on growth of its market segment.

Microsoft with its towering presence has the ability to shape the new technology boom. It should get rid of its fixation with apple pies. It should stop googling around. It should use its operating system capabilities and take that to newer areas like industrial applications and energy.

Microsoft of this decade wants to be “one of others”, instead of “the only one”. Instead of using its resources to create new market segments, it is more interested in competing in existing markets. This not only shows that Microsoft has run off ideas, it also demonstrates management is not able to adapt to new realities. It has failed to leverage its existing might to create something that does not require shouting.

I can see parallels between Microsoft and Detriot’s three musketeers. First, they became bankrupt in ideas, and after sometime they became financially bankrupt. Microsoft is showing all signs of bankruptcy in ideas.

Microsoft has loads of cash, and it continues to generate lots of cash. But it only knows how to waste it. It is for these reasons I am wary of considering it a potential dividend growth company.


13 Responses to “Microsoft – Brankrupt of New Ideas?”

  1. Ben says:

    MSFT has legally-condoned monopolies in the USA in two software areas: the OS and the Office suite. But is under continuing foreign pressure on these monopolies (eg: 2 EU fines, Russian court loss recently, continuing litigation in S. Korea, etc).

    As of early 2011, MSFT generates 27% of revenue from Windows and 27% from Office. Over 50% of total revenue still comes from its two key product families.

    The company has been trying desperately to diversify its revenue stream for years. It’s had both failures (eg: MS Network) and successes (eg: xBox).

    What this shows is that (1) non- OS/Office parts of MSFT can’t compete with the company’s own monopoly (2) MSFT has reached maturity in its markets where it generates most of its revenue.

    MSFT needed a strategy suitable for a mature tech company in its situation.

    It’s generally acknowledged in the computer industry that IBM has been very successful at entering new markets late, then using its cash and various alliances to buy into predominant market share. MSFT appears to be copying IBM’s strategy for success as a mature tech company.

  2. bingyboz says:

    historically, Microsoft is a copycat. when it started OS/windows at that time it was not original. it retooled IBMs DOS and apples windows. billy was great at that. They are trying to follow the same path. come from behind and dominate. so its not new for them.

    And yes, last ten years have been waste for Microsoft. everything that it as done in last 10 years has been crap and waste of shareholder’s money.

    • Dividend Tree says:

      bingyboz,

      come from behind and dominate is an interesting observation. I did not think of that. But that’s very true. I couldn’t agree with you more.

      However, can Microsoft repeat this again?

      Best Wishes,

    • McLaughlin says:

      What has been will be again, what has been done will be done again; there is nothing new under the sun. (Ecclesiastes 1:9-14)

      The car is a combo of the horse drawn carriage (few passengers) and a train.
      The train is taken from the horse and man drawn carriage-on-rails (that was used to take stones out of a quarry) and a motor (I forget which came first, coal or wood burning).
      And so on.

      There are few people that came up with original ideas. The mouse on your computer did not come from MS, but you bought one because they made you need one.

      I had an external CD player (and upgraded to an external 2x CD for my office) on a Macintosh. Mac had them standard, but Microsoft made us buy them.

      Yes, MS is using the work of others for the most of their money, that is just good business and if you look back of the first 10 years of Windows and the second 10 years, this half is much better.

      The problem in the company is not the lack of good ideas, it is the idea that they have to come up with THE KILLER APP, product or service that will make the company rich beyond anything that it knew before. Pushing this logic may eventually lead to something, but it may not work.

      Time better spent would be perfecting what exists and making progress towards the next step in the technology and not hoping to find the next ‘magic whatever’. If the magic comes, it’ll come.

      • Hello McLaughlin,

        perfecting the exists one also works if msft can do it. unfortunately it cannot. e.g. apple perfected with iPhone using all of the existing technology. apple did not spend million/billion in R&D to make iPhone.

        You have a good argument. Thanks.

        Best Wishes,

  3. James Scott says:

    MSFT has just lost its way. I just cannot understand why they are so obsessed with competing with google or appl. why can’t they invest in technology to come up with their own unique thing. you don’t need another same search engine, there is already a well established or better search engine (i.e. google). there is already a better media player (i.e. ipod).

    you want the take market share, come with path breaking product in same sector.

    look at apple, they enter phone market, and with an umpteen times better product, which is unique and quite different than others. they didn’t come out with a so called similar phone.

    I agree Bing is another waste from MFST. Just because they have cash, they can do it, is not an argument. Give it back to shareholders if you cannot use it properly.

    • Dividend Tree says:

      James,

      Apple is very good example. It entered an existing phone market with a same phone, albeit a game changing one.

      Alas! Microsoft is not able to do it. Good to know you agree with the premise of the post.

      Best Wishes.

  4. Jae Jun says:

    One method that MSFT should try is to allow their former employees to start up companies and when it becomes profitable, buy it back and increase growth this way. hehehe just a silly suggestion.

    • Dividend Tree says:

      JJ,

      That’s not a bad idea. Unfortunately, you know, its not going to happen.

      Google does it on somewhat similar lines (albeit it allows time for its employees to go and experiment/explore).

  5. Jae Jun says:

    With Microsoft still dominating the OS and office suites, they have close to saturated the market and just need to find other avenues of growth.

    My problem with Microsoft is they lost their sense of leadership and innovation and resorted copying for the last several years.

    When a leaner and more focused company came along (Apple, Google and even Sony or Nintendo) they were caught completely unaware and are too big to steer quickly enough to be competitive.

    Not just its dividends but as a company on the whole, I don’t see much value with Microsoft.

    • Dividend Tree says:

      JJ:

      I agree with our qualitative judgment. Particularly, losing sense of leadership and innovation. It is now jumping on this past products. It has forgotten to use cash judiciously.

      Best Wishes,

  6. Manshu says:

    MSFT is trying to establish a presence in the cloud. IBM established mainframe technology and was milking it, but then out of nowhere MSFT came in and changed the game with PC. The next wave is the “cloud”, where Google, Amazon and others are dominant players.

    MSFT needs to get a piece of this action and 100 million is nothing for a company that generates about 21 billion in cash flows in an year.

    • Dividend Tree says:

      Manshu,

      I wish I could agree with you on MSFT squandering cash. In last 10 years or so, all it has done is waste cash. It is resting on its past laurels and old cash cows to monkey around.

      You correctly mentioned about cloud computing. And that is what I meant. MFST now likes to be follower. Doesn’t want to (or has lost steam) to start the game. With 18 billion y-o-y cash flow, I can only imagine what can be done. But it can’t!

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