Back in the day, Microsoft didn't pay a dividend. Today, MSFT pays a dividend, which is a subtle message that Microsoft thinks that even after paying taxes twice on the money it's making, you're in a better position to figure out how to invest it. The $0.52/sh per year Microsoft pays shareholders is a couple of percent at this share price, which while non-zero is nothing to write home about. MSFT's EPS of $1.89 is something to write home about, though, and with a P/E about 10, one would tend to get interested in the company.
There are two reasons not to buy a huge, well-known cash-generating machine like Microsoft.
Losing The Market To Competitors
Microsoft's share of the web browser use on the Internet -- an indicator of the importance of what Microsoft brings to the browser world, and the relevance of the company's web-authoring and web-serving products that enable developers to leverage proprietary MSFT browser features and thus force the world to keep using MSFT's broswer products -- has continued its fall from over 90% in the 1990s to dip this month below 70%. (Data source is here.) The chief culprits? Free browsers. Firefox' Netscape-derived Mozilla codebase and Apple's KHTML-derived WebKit code base offer no-fee, standards-based browsing. WebKit in particular is nefarious, as it has garnered a number of other business adopters seeking a portable-friendly, fast-rendering, full-featured browser. With but one phone model, Apple's WebKit-based phone browser already exceeds the browser use of all Microsoft phone products combined, from every hardware manufacturer that licenses Microsoft's mobile products.
The desktop is where it hurts, though: Netscape, in a sort of Ghost-of-Christmas-Future act, has taken the bulk of Microsoft's lost browser share. By showing the world that one in five on the Internet is using a standards-based browser, Netscape has killed the "everyone is using Internet Explorer, so all you need to do is to target IE" meme and thus has killed Microsoft's browser strategy. Microsoft's browser strategy, in essence, is to use proprietary variations to force users back onto the IE shipped with their copy of Microsoft Windows in order to keep being able to use the Internet.
With developers targeting standards Microsoft can't control, Microsoft is stuck trying to keep its own web sites broken-looking, as if anyone cared what Microsoft's web sites looked like. For example, Microsoft frankly admits that it sniffs browsers' user-agent strings to determine whether to send standard or non-standard content to requesting users. This so breaks users' experience on the Internet that developers of the Opera browser now support not only lying about your user-agent string when you visit web sites, but deciding which lie to tell on the basis of the domain name you are requesting. In my own experience, most sites that claim I can't use Safari on a site and serve me a "go get a different browser" page instead of my requested content turn out to work just fine if you tell Safari to lie and claim to be Internet Explorer for Windows. This is exactly the kind of scam Microsoft pulled to combat DR-DOS, a competing pre-Windows operating system that had created pricing pressure on Microsoft and threatened to offer a complete alternative at a lower price and with higher quality. Management's instructions were clear how to combat the threat of high-quality application interfaces: "Make sure it has problems running our software in the future." This monopoly-seeking behavior ultimately cost MSFT $100,000,000 in antitrust settlement of the DR-DOS claims, but it was a small price to pay: MSFT retained its monopoly and is reaping billions to this day.
Let's remember why Microsoft entered the browser market, and why it was important that the browser be available at no charge to Microsoft's existing base of consumers. Netscape was feared to be ready to offer a programming interface for its browser, which would have enabled a "deploy-anywhere" opportunity for developers and freed them from Microsoft's operating systems, development tools, and upgrade cycles. A migration path from MSFT's operating systems and applications to a platform that could me created anyplace Netscape chose to deploy its browser was a nightmare for Microsoft, which first sought to shackle Netscape contractually to MSFT's EOL'd 16-bit Windows APIs and then decided to bury the whole company by shipping a competing browser to undermine Netscape's capacity to deploy a universal platform. Microsoft deliberately made its browser different, and ensured all its authoring tools made sites look good in MSFT's browser and not in Netscape's.
Microsoft pulled a similar trick with Java. Remember Java, the computer language that was going to free everyone from dependence on operating systems by delivering a Java interpreter to any platform Sun chose to support? Microsoft sold Java development kits that created programs that would run only on Microsoft's own operating systems. Consumers figured out pretty fast that Java wasn't write-once, deploy-everywhere -- and developers didn't want to write their apps twice, so . . . .
Google has deployed a browser, Chrome, from which it need not make any money. (Google is making its pile of cash on advertising, and it gets eyeballs because it's got both the leading search tech and an enormous community of users of services you may have seen . . . like, uh, Blogger.) Google's release of Google Gears for numerous platforms, and its integration of Gears into Chrome, means that yet another hard-to-defend front has opened in the Microsoft-is-becoming-irrelevant movement.
So I suppose, since Microsoft's whole business -- applications and operating systems -- are dependent on users or their hardware vendors paying to deploy Microsoft APIs on virtually every system that is sold, I should have thought about leading with the other market in which Microsoft is losing share: the operating system. Microsoft's operating system has just turned in its lowest sales share in fifteen years. New-sold machines used to be virtually all shipped with Microsoft Windows Certificates of Authenticity, serial numbers, and so on. Recently, the share has dropped -- as Internet Explorer droped a while back -- to less than 90%.
This is significant for a few reasons. Fifteen years ago, there was serious desktop operating system competition from IBM in the form of a 32-bit, multithreaded, multitasking product that shipped with an object-oriented development environment; the product, OS/2, became a standard feature on ATMs and other mission-critical applications and was at one time widely deployed in financial enterprises. Microsoft captured nearly all this business when IBM withdrew OS/2 from the marketplace. The best you can do as an OS/2 fan now is to attend WarpStock. Fifteen years ago, Sun was a serious computer company with an apparent future in servers. Fifteen years ago, Microsoft didn't have protected memory on the desktop and its products required rebooting so routinely that shipping a better product was trivial; it's just making an API that wouldn't force everyone to re-buy their applications ... if any applications could be found. (This API arms race and relative dearth of native applications is the reason IBM could not keep OS/2 competitive.) The fact that Microsoft can now -- when it has killed all the non-Unix competition, when it delivers a 32-bit, multitasking, miltithreaded, protected-memory user environment -- lose market share . . . wow. This is Microsoft on its best possible product deployment environment: it has enough cash to buy anything it needs to produce anything it wants, and it controls both the desktop and most of the business back-office with its proprietary APIs. MSFT should be eating this for lunch.
What Happened?
CEO Has No Vision For The Future
Mr. Gates retired from active duty to while away his autumn years deciding how to give away his ill-gotten gains so he will be regarded as a major philanthropist when he dies (and to keep people from throwing pies in his face when he walks down the street), the leadership of the behemoth that is Microsoft has fallen to the company's most senior marketing manager. Steve Ballmer doesn't have a deep grasp of the technical underpinnings of the company's products, but he sure knows bad news when he hears it. Microsoft can create interesting new highly-dependable operating systems, but it hasn't any intent to deploy them. Instead, Microsoft continues to dole out successive MS-Windows versions to stretch as far as possible the period in which it can capitalize on the API monopoly it achieved in the 1990s when it poisoned DR-DOS, choked Netscape, rigged its Java tools to sabotage Sun, and re-rigged its Win32 API repeatedly to prevent IBM from being able to make a clean-room copy รก la DR-DOS with which to ship OS/2 Warp. With its current initiatives apparently unlikely to move the needle on corporate profits (XBox' lifelong result is still red, and its quarterly numbers look good only by dint of prior accounting charges to allocate funds for ongoing warranty problems; the iPod killer Zune is virtually dead, having won market share mostly from Windows Media partners rather than from Apple; you can find products like Microsoft Bob only secondhand, and they haven't even got a fan community like OS/2 has; and technologies like WinFS can't be found at all), Microsoft's corporate strategy appears to be the milking of last century's victories to generate this century's profits.
But what is Microsoft doing now?
At a developer's conference in Sydney, Ballmer faced a serious question from one of his developer constituents:
Q: Why is IE still relevant and why is it worth spending money on rendering engines when there are open source ones available that can respond to changes in Web standards faster?Cheeky? This goes back to whether Microsoft is making effective use of capital, or should be giving the money to shareholders.
A: That's cheeky, but a good question, but cheeky.
via TechWorld
Ballmer's reported answer -- he didn't just call the man cheeky and move on, he did give an answer -- was apparently rambling. He reportedly said it was "likely" that there would be no innovation in browsers and that Microsoft would need to continue developing its own browser to be able to issue proprietary extensions to broaden its functionality. (Given what's happening in Chrome, and in client-side databases, why is it "likely" innovation will halt? No answer.) Ballmer has apparently not used products from the Mozilla project, and has no knowledge of the enormous ecosystem of browser plug-ins supported by products like Firefox. Extending open-source browsers with closed-source extensions is the whole point of the plug-in framework. Google's decision to have plug-ins run in their own address space to make sure they don't cause instability in the browser itself is an example of innovation to ensure that (a) plug-ins play nicely with one another, (b) developers can deploy plug-ins fearlessly because their operating and debugging environment will be consistent, and (c) users can choose the browser they want because the browser only requires content to meet standards, not to specifically target the browser, but users can use plug-ins to handle any wierd content proprietary vendors might foist on the internet. *cough*flash*cough*
Ballmer continued to claim that "Open source is interesting. Apple has embraced Webkit and we may look at that, but we will continue to build extensions for IE 8."
Microsoft has no current strategy to leverage open-source projects in the web area, and it doesn't describe a clear advantage to an entirely-in-house solution. Rather, Ballmer displayed the kind of out-of-touch mindset that he inavertently confessed to the world when he initially dissed the iPhone as unlikely to have a meaningful impact on the market due to its price, at a time Microsoft's Windows Mobile shipped in products that cost more.
What does the future hold for Microsoft?
The only big idea Microsoft displayed in Sydney was creating an online store opportunity to help independent vendors share their revenues with Microsoft, before they abandon the platform.
Also: Flying Cars For Everyone!
Yes, Ballmer predicted that in ten years folks "will talk to their computers, and they will respond." I hate to be the bearer of bad news, but this was a leading feature of OS/2 Warp v.4. You know, from the mid-1990s. And we know how well that went over.
Management's Deep Grasp of Application Development, English Grammar
Ballmer gave us this gem, on which I will close:
There is sure a lot of software left writing in this world.
via TechWorld
No comments:
Post a Comment