Microsoft Financials and Online
October 26, 2008
Update October 26, 2008: I just read a very interesting comment about Microsoft’s financials at Gizmodo. You can find the full text of the article here. The article’s title was “Microsoft Still Has a Vista Problem.” For me, the key analysis was:
…More people might be PCs lately, but they’re other, less profitable versions. Microsoft makes about $70 per Vista PC, but less than half of that on a netbook Windows license, which now makes up more of the Windows mix than ever. So the Windows division actually saw a 4 percent drop in operating income for the quarter. And it’s likely not going to get better with Windows 7 looming so conspicously on the horizon. [Bits]
Original Post
I was on the road when Microsoft released its financial report for the first quarter of 2009. Pressed for time, I turned to eWeek’s Microsoft Watch. Joe Wilcox does a good job of summarizing the key points about Microsoft’s view of the world. I navigated to “Microsoft Q1 by the Numbers” here and was not disappointed. I noted that Microsoft is on its way toward $70 billion. That’s good, I thought. I scanned down the discussion and noticed that the revenue for “Online Services”, a catchall for Microsoft’s various anti Google- and pro advertising-centric activities, generated $671 million in “Fiscal 2008”. The projection for “Fiscal 2009” was $770 million. Most companies would be thrilled to have a 10th of this revenue, maybe 1/100th. But in the context of Microsoft $770 million is a tiny sliver revenue. Google, on the other hand, generates about $20 billion from this sector. So, despite the solidity of the overall financial performance, I gasped at this disparity. Microsoft has been working hard to close the gap with Google. These numbers suggest that Microsoft hasn’t done a very good job. Even more unsettling was the table in Mr. Wilcox’s article that reports Online Services as a money losing proposition. Here’s the chart that caught my attention:
Mr. Wilcox’s comment is even more telling:
The division hemorrhaged capital yet again, even as Microsoft claims gains. The division lost $480 million on $770 million revenue. Online advertising revenue grew 15 percent year over year to $72 million. Agency revenue from aQuantive topped ad sales at $98 million.
Steve Lohr adds some Vista color to the overall financial results. These data are pretty negative as well. I don’t care too much about desktop operating systems, but you may find the information useful. The story “Microsoft’s Vista Problem by the Numbers” is here.
I don’t have much to add except that unless Microsoft can close the gap, Google will maintain and perhaps increase its lead in the online area. With cloud computing rushing from the horizon to Harrod’s Creek, Kentucky, Google may find that its attack on the enterprise becomes even easier. Google does not have to retool, rework, or reengineer anything. The enterprise is a logical extension of its core. In homage to the late night commercial for an absorbent cloth, “Sham Wow.”
Stephen Arnold, October 26, 2008
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