Articles

Lock, STOCKs and Two Smokin’ Companies…

In Business on November 22, 2010 by psills

So, what is up with Microsoft stock?  It sure isn’t Microsoft!

microsoft_certMicrosoft’s stock has gained approximately 0% in value over the last 10 years, while rivals Google and Apple have come to dominate the technology sector.  How come?

  • Are Microsoft’s products not performing?
  • Are Microsoft’s Gross Revenues down?
  • Are Microsoft’s Profits suffering?

No.

  • Microsoft’s Windows 7 sold in excess of 240 million units in its first year – becoming the fastest selling OS in history.  Windows Phone 7 has just been released and lauded as a major step forward for mobile phones.  Microsoft’s revolutionary Kinect for the XBox 360 sold over a million in just its first week.
  • Microsoft’s Gross Revenue for FY 2010 was about $62.5 Billion.  FY 2000 was about $23 Billion.
  • Microsoft’s Net Income for FY 2010 was about $19 Billion.  FY 2000 was about 9.5 Billion.

So what’s going on?  With such strong sales, and an increase in Gross Revenue of 271% and and increase in Net Income of 200%, why hasn’t Microsoft seen a corresponding increase in its share price?  The reason is fear!

The stock market is no longer run by the knowledgeable few who do elaborate research and determine fair market values for their offerings (perhaps it never really was). The stock market today is run by the small investor, the mom and pop investors who play with the 401k’s and their IRAs, buying and selling as they search for a fast buck or great opportunity.  In this market, your actual earnings potential means less and less, while your “street cred” means more and more.

In other words, in this market, your “flash” means more than your “substance.”  Microsoft has never been a “flashy” company.  It has shied away from making overt claims and promises and tried to deliver solid products to the marketplace year after year.  For this reason its stock price has remained moribund within the 2000 levels of $25 – $30/share.

microsoft_stock

Apple

In the last decade Apple and Google have both done an outstanding job of increasing their “street cred” and thus their market caps.  Apple has led the world in internet music with the iPod and iTunes.  Today its iPhone is a market leader with about 28% of the mobile phone market, accounting for about 42% of Apple’s gross income.

However, there are problems in Apple’s outlook which need to be considered.  First, this dramatic percentage of sales being tied to a single product is worrisome, especially in such a hot marketplace.  This last quarter Google’s Android based phones accounted for 27% of all smartphone sales, while Apple’s iPhone slipped to only 23%.  If this trend continues, it could put some serious hurt on Apple’s cash-cow.

Also, how much of a cash-cow is the iPhone really?  Delving into Apple’s accounting practices shows that Apple recognizes all of the revenue “up-front” for the iPhone – even though, as part of its revenue sharing programs with its partners, it could take up to two years (the standard contract time-frame) to actually receive this revenue.  This methodology seriously skews Apple’s revenue models to the positive.

Google

While Google’s Android phones are just now beginning to gain market acceptance, the mainstay of their business has always been internet advertising.  Google’s FY 2009 Gross Revenue was about $23.6 billion.  Of this amount, about $22.9 billion (about 97%) was from advertising.  This could turn out to be a significant Achilles Heel for Google as the value of web advertising comes under scrutiny and newcomers such as Facebook begin to grab even bigger slices of a potentially shrinking revenue pie.

Microsoft

microsoft_planMicrosoft’s problem is that they are ubiquitous and (frankly) boring.  They are the “old (mostly) reliable” company.  However, they are also significantly more diversified than either Apple or Google and as such, better positioned for future volatility.  Microsoft has its hands in many, many pots – perhaps this is the problem.  Is Microsoft a “Jack of All Trades, and Master of None?”

Perhaps.

As we go forward with this Blog we will further examine this observation and see what recommendations we can put forth to address this in the ever changing marketplace for mindshare. 

In the meantime, the facts are quite clear and striking.  Microsoft represents a tremendous value in todays stock market; one which is sure to bear fruit for the patient amongst us.  Additionally, market managers are beginning to speculate that Apple’s shares may be overvalued.  While no one can predict the future (especially not this blogger) – keeping a careful eye on the underlying metrics is a good way to catch the upside.  Relying upon emotion and market hype, while good in the short-run, can catch you in a crash as reality steps in again.

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Articles

Why “Dear Microsoft”?

In Commentary on November 21, 2010 by psills

Why create a Blog to “complain” about Microsoft?

First, let me be clear, the purpose of this blog is not to complain, but to provide thoughtful criticism and insight as to how we on the outside perceive Microsoft.  Now, while our insights may be faulty, it may be (and hopefully it is) useful for those on the “inside” to know how they are perceived here on the “outside.”  Additionally, it is our outsider perspective which may be best to evaluate some of Microsoft’s business, marketing and product strategies – and provide suggestions on how to improve them going forward.

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Make no mistake, this is not a form of arrogance on the part of one user.  It is simply a desire to express oneself and to accomplish some of the following goals.

Vent Frustration

This is probably the most obvious of the goals for this blog.  As you can see from the About page, I have a long history with Microsoft.  In general, this has been a very good history and I have put a lot of effort, both professionally and personally, into supporting the company.  However, this does not mean I always agree with them.  As both an entrepreneur and a marketing professional, I often find myself scratching my head in disbelief at some of the actions of many “high-tech” companies – Microsoft chief amongst them.

Through this blog I hope to share some of my frustrations, as well as share with you some of my thoughts as to how they can perform better as a company.

Outside Perspective

As I’ve already mentioned, another goal for this blog is to provide an outside perspective; hopefully one which is thoughtful and contemplative, and one which can provide true value to those working at Microsoft.

One of the greatest potential threats to any large and generally successful company is the “staring at your belly-button” scenario.  This is generally the condition whereby said company does not often look outside of itself for advice and perspective and instead relies upon its own insular culture to provide feedback and direction.  This can be fatal to a company as it becomes moribund in its growth and developmental life-cycle.

Microsoft has been, since about 2000, a company in desperate need of another voice.  Its perception by the consumer has lagged and a company which was once the poster-child for advancement and innovation is now considered the “Old Gray Lady” of the industry it pioneered.  Hopefully, additional voices can correct this.

microsoftAffect Positive Change

I would be untruthful if I did not acknowledge that there is indeed a desire to see some change at Microsoft.  I view Microsoft as possibly one of the greatest companies of all time.  At its peak, its concentration of brilliant minds was unsurpassed.  However, this is no longer the case, and Microsoft is in danger of falling to smaller, faster, more focused companies – just as IBM fell to the upstart Microsoft in the 1980’s.

Again, do not think we are arrogant enough to direct Microsoft into the future.  Do not think we are arrogant enough to know what is going on within Microsoft today.  Do not thing we are arrogant enough to “second-guess” decisions made by those close to the day-to-day concerns and decision-making processes which drive Microsoft forward.  However, instead, take this as some friendly advice from those looking through the window (sorry) into the inner-workings of the company and providing feedback on what we see.

Moving Forward

This blog will always be one of Microsoft’s staunchest defenders and fiercest advocates (when warranted).  Without Microsoft we most likely wouldn’t have the technology industry we see today.  Without those in charge of Microsoft, we most likely wouldn’t have the Internet (instead it would still languish as a government infrastructure).  Without the innovations of Microsoft and its fierceness as a competitor, we would not be the world’s leader in technology and technological advancements.

We owe this company a lot.

Hopefully this blog can do its small part to get all of our ideas, impressions, suggestions and thoughtful criticisms to those who work in Redmond for the company Bill built.