At a meeting with investors and analysts yesterday, Microsoft CEO Steve Balmer insisted that “there’s plenty of shareholder value growth” ahead for the Redmond software giant, a claim that’s easy to back up. Microsoft remains a money making machine. Even as investors focused on stock market darlings like Google and Apple, Microsoft continued to pump out record setting profits year after year. Yet investors remain unimpressed.
Growth remains an issue for investors. Microsoft continues to post solid results. But the stock market hasn’t given the company much credit, with the stock trading flat for much of the last decade. That’s because the company has been trounced by rivals in key emerging markets such as mobile phones, tablets, and search.
At the center of Microsoft’s pitch is Windows. Ballmer started the day talking with developers, reiterating that Windows is at the core of everything Microsoft does. Microsoft is not going to offer different operating systems for PCs and tablets, in the way that Apple currently does. Ballmer continued on that theme with analysts.
Hmm. First a technical observation. Apple is not offering different operating systems for Mac and iPad/iPhone. As anybody who has developed for both platforms will tell you, OS X and iOS are at their core the same operating system. They just present a different interface to users, designed to best meet the unique demands of the device. That’s where Microsoft went wrong with tablets in the first place: Believing that they could just slap Windows onto a handheld device, swap out a keyboard for a stylus, and call it a day.
As to uber-profitable Microsoft’s flat stock price, perhaps the problem is perception? Perhaps investors perceive that Microsoft is being trounced by rivals, because it’s constantly making grandiose boasts about its intentions to rival everybody everywhere, no matter how tangentially related to their core operating system and office application market? Furthermore, Microsoft appears to approach every market from a monopolist’s perspective, which sets an awfully high bar for success.
I mean, if you’re going to behave like the entire tech industry is a zero-sum game, then it’s easy to understand why investors might perceive another company’s success as a Microsoft failure.
It’s a different tech industry than the one Microsoft helped pioneer a few decades ago, one in which there is room for multiple winners. Perhaps if Microsoft undergoes an attitude adjustment, investors will shift their view of the company’s growth potential too?
Maybe, just maybe Microsoft’s “problem” is that they don’t have an entire army of unpaid PR flacks slobbering over their every move? I’m certainly not going to defend anything like Pocket PC, which always sucked and had the field to itself for years and couldn’t capitalize, but it’s pretty disingenuous to suggest they have a perception problem and then blame that perception problem on their own statements. Especially considering the company perceived as their rival has the most grandiose press statements in the history of everything and gets away with it. Microsoft has legitimate challenges facing it, but to suggest that a company that is this profitable, finally has reasonable strategies in place for a number of markets, does consistently interesting engineering work across a wide range of areas and has a massive pile of money is anything other than a huge success is crazy. Microsoft’s stock market performance problem, to the extent there is one, is indeed a problem of perception, but it’s largely not one of their own causing. You can mostly thank the, what’s the Stranger’s phrase? “Stupid fucking credulous hacks”? Yeah, that sounds about right.
@2: MS has plenty of fanboys. Don’t kid yourself that Apple is alone in that department.
@3: You really think Apple’s success is due to people like Goldy supporting them? People like Goldy being fans of Apple is the *result* of their success, not the cause of it.
Goldy can barely feed himself, yet he presumes to discuss Microsoft strategy?
The real issue is Microsoft’s stock price: it has been stagnant for several years – which in the recession has been kind of a good thing in that investors haven’t actually lost money in Microsoft they way many have in other stocks. Apple stock has continued to skyrocket, however.
The stagnant stock price reflects an accurate assessment of the company by investors: Microsoft is holding steady but it is not truly innovating or coming out with must-have products that would pad the bottom line. Instead the company is resting in its laurels, or rather, still recovering from the multiple flops of Vista and Windows Phone and Zune.
Steve Ballmer sees Microsoft first and foremost as a business; Steve Jobs and his cadre at Apple see Apple first and foremost as a design firm. Microsoft responds to customer demand; Apple creates customer demand.
I agree that I don’t think much will change at Microsoft until Ballmer leaves and is replaced with someone who sees Microsoft as something other than a mere “business.” I think investors agree with that sentiment, too, which is why the stock price is stagnant. Ballmer isn’t going to drive Microsoft into the ground (just yet, at least), but he’s not going to lead the company to its next peak.
Microsoft stock price will never go up. Remember when everyone at Microsoft was going to be a millionaire because of stock options? Most of those options are still out there waiting for the stock price to go up. If it goes up then the options are utilized and a massive sell-off happens which brings the price down. No amount of innovation can trump the simple math of too many stock options.
@6 – And there we have it, the wholesale regurgitation of Apple’s own mythmaking. Was anybody demanding the Xbox? No, people thought MS was crazy for getting into a console space that had clearly been “won” by Sony. What about Kinect? Was anybody demanding that?
More to the point, of COURSE everybody at Apple sees it as a business. Pretending like they have some high-minded ideal that has led to their success is bananas. They are a cut-throat corporation who has thrived on a combination of good products, fantastic PR and a relentlessly anti-competitive attitude that would make the magnates of the Gilded Age nod in approval. They shamelessly manipulate the public and press, hamstring competitors and screw partners to the ground and lock their customers into complete dependence on the company. For this, they are rewarded with panegyrics about how amazing they are from the tech press and a rising stock price. Pretending like they are different in character from any other tech company is just repeating their own lies. They are a remarkably successful business, nothing more or less, and they have been rewarded with an astounding pile of cash.
As for Microsoft’s stock price, that’s simply a matter of the stock markets being as fad driven as anything else. Pretending like the markets have gotten it right here is an incredible invisible hand fallacy. Microsoft is actually a really valuable stock to own in a lot of ways, given the incredibly strength of the business and, you know, paying dividends and stuff. If you see the stock market as purely a slot machine, then sure, MS is a loser stock. If you’re actually trying to invest in a business, though, the markets have gotten this one wrong.
@4 Yep. People want to blame the companies … well … the fans are the reason for their success only because they buy the products, they buy the products because they like the products.
MS is likely going to fracture, not die out and not gain any strength. They absorbed too much and spread themselves too thin. But most importantly, they don’t have a new hook to attract consumers. Apple keeps coming up with new hooks, and that’s their strength now, in this age when everything moves faster it’s also their edge. Apple failed at first because back then no one was interested in computer technology so the constant new hooks proved to be a waste. But times change, the market is changing.
@jjib: a decade of flat stock prices is hardly a “fad” Maybe you’re the fanboy.
OTOH: Ballmer, is that you?
I was going to say @1 FTW ’til @3 decided that Apple fans’ religion had something to do with it.
@10 – My objection is primarily to the thought that stock price is the end-all be-all of success in a company. It’s not at all. Stock prices are set primarily by the most credulous members of the investment community, and I don’t trust the most credulous part of any community to tell me anything. Those are exactly the folks that are the easiest to manipulate, through the proclamations of worthless analysts, the thumb-sucking nonsense of tech pundits and the herd mentality of a largely uninformed investment public. Stock prices tell you very little about the underlying health of a business, and pretending that Microsoft is a failure because their stock price is stagnant flies in the face of continued record profits. A sensible investing community would recognize that. Ours does not. So, the stock price doesn’t go up primarily because people don’t expect it to go up. Apple continues to rise because that’s what people expect it to do. The stock market is simply a ouija board writ large.
As for the last decade, it’s true – MSFT has been flat. It’s also paid dividends at least 30 times over that time frame.
I still contend that Microsoft, as a business, is fundamentally autistic, like it’s founder and Chairman. It pervades the entire corporate culture there, and subsequently they produce janky, off-kilter products. The Xbox is the single best product they’ve ever created. The rest of us are forced to use their agonizing OS because they used machiavellian methods to secure their domination of business computers. They’ll always be profitable, but the sacrifice is a piece of everyone’s sanity.
I realize this argument of “corporate autism” is hard to prove conclusively, but man, having worked on Windows machines for 15 years now I can say they have fundamental and pervasive design flaws. Tools that should have improved over the years remain as stunted as their Win2000 versions, there are too many confusing ways to do any one task (in virtually any MS program) and too many “Advanced” buttons that lead down labyrinthine pathways, there are deep and dangerous “secret areas” in the OS that compromise security & provide a haven for viruses, and to this day –25 years after the introduction of the Macintosh– you still cannot simply color a folder and organize a group of folders by color – a basic way humans organize things.
Windows is an OS made for robots, OSX is an OS made for humans.
The reason growth is an issue is the EU is cracking down on Ireland and other PIIIGS nations giving Microsoft (and other) firms massive tax exemptions.
Oh, and in case you didn’t know, there is a 98 percent chance of the EEC kicking Greece out of the EU common currency, and a 98 percent chance of Greek bond defaults.
A lot of this has very little to do with the Epic Fail that is Ballmer, worst CEO of Microsoft ever.
Sadly, it’s not as simple as an attitude adjustment.
The problem is that Microsoft has made (and still makes) a ton money on a model of consumer and business computing (i.e., Windows/Office) that goes back to the late eighties. They are, understandably, fiercely protective of this cash cow.
Unfortunately, their investment in the status quo makes them instinctively hostel to any new idea that might kill it off. As a result, new ideas tend to go nowhere in Microsoft, and the company has effectively ceded innovation to their competitors.
@13 People are not forced to use their OS. Linux works on all computers (even on Macs), Unix (expensive but an alternative) runs on all computers as well, and Mac OS can run on most non-Apple PCs. The OS that comes with the computer doesn’t have to run with the computer. 😉
There is also the element of alienating their long time customers at critical moments, which is actually a new problem they are running into. When they first started everyone was into keeping up with top of the line, but now most smart people just stick with what works and spend only when they can to improve their computers. Backward compatibility is a serious issue with non-Apple PCs now because there are variations in how hardware developers think something should work. So there are a lot of users with 10 year old computers (I have even seen a few 286 IBMs in high traffic use LOL) and sometimes MS forgets to add compatibility for these older models. It’s not their fault really, no one is to blame, that’s just how things are now. With all the vast variations of computer component combinations and ages, one single OS can not keep up with them all … unless you go the route Linux or Unix has (Linux has “flavors” and Unix is compile components on installation). Some Linux flavors also have the same method of Unix as well. But these factors are the only reason those two are keeping up a bit better. But since MS does still control most of the market on new PCs, most new PCs have Windows installed on them, that’s where they’re holding on, they get a profit from most non-Apple new PCs sold even if the buyer installs over Windows. I’m not that knowledgeable on how stock markets work, but from a coder’s perspective, the only way they could prevent a decline is to follow an Apple strategy, or follow an Open Source strategy.
“Apple is not offering different operating systems for Mac and iPad/iPhone.”
Right now they are, because one can multi-task and the other clearly cannot. But long term, they do plan on doing exactly what MS is doing now with Windows8, which is one OS thats scalable to multiple platforms. One copy of Photoshop that works with a dekstop, tablet or phone.
MS isnt worried about stock price. I think back in 1999 they even said it was over priced, which caused it to drop. Pissed off alot of investor, but damage was done and honestly they dont really care. Stock price or not, they still make fistfulls of cash. Investors want to go back to the days where the stock would split twice a year, but its not going to happen unless they crank out a product or service that wows everyone. Its just like how Apple doesnt care about the Mac market share, theyre happy with their 10-12% share of the desktop market and have zero plans to expand it. They will probably make the mistake of focusing too much on mobile devices, its a balloon that could burst 10 years from now.
Speaking of Attitude Adjustments, its pretty obvious that Steve Jobs has the biggest ego in the tech industry (Larry Ellison comes in 2nd). He is not an approachable person.
@7: Correction about stock options:
Microsoft stopped rewarding stock options to employees years ago, and probably only a few employees still have any that have not expired. The company switched to stock grants, so employees are not waiting for an optimal spread (original purchase price vs. today) and just can sell them whenever at the market price.