Microsoft’s Revenue Vulnerability
July 5, 2009
Not long ago, I read an article by Glyn Moody. The story was “Why Microsoft Hates – No, Really Hates – ODF” here. The ODF stands for the Open Document Format. (You can learn more about this from the OASIS organization itself.) The idea is simple. Save text files in a format that is not proprietary.
The “hate” angle is, according to Glyn Moody, tethered to Microsoft’s dependence on revenue from its proprietary Office file formats. Open formats would make it easier for organizations struggling to pay hefty client access license fees to shift to another suite of application software. Glyn Moody mentions Open Office, but other options that cost less than Microsoft’s products exist.
For me the most significant part of the write up was:
What this means is that Microsoft is only making big money on its Office suite, for whose luxurious margins it must therefore fight tooth and nail. Which, judging by its behavior at the ISO, and some more recent stories, is exactly what it is doing in the face of growing pressure from open ODF-based alternatives like OpenOffice.org.
As I thought about her argument, I thought about the threat that Google’s push into the enterprise represents to Microsoft’s financial stability. Hypothetically Google could nibble away at Microsoft’s revenues from its breadwinning applications software products just enough to force Microsoft to dip into its cash reserve, raise prices, or make a foolish decision. Google does not have to win big to create a cash problem for Microsoft.
If Glyn Moody’s financial assertions are on target, Microsoft has a revenue vulnerability and a reason to fight initiative such as the ODF. I find it interesting to think about Microsoft having to undergo the type of staff reductions and cost cutting that Yahoo is now enduring.
Google does not have to do much or move quickly. Once the bleeding starts, Microsoft may have a tough time healing the many tiny wounds that Google seems to be trying to inflict.
Stephen Arnold, July 5, 2009
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