Microsoft FY08Q4 Results
FY08Q4: sorry, Microsoft, folks are saying your lipstick just doesn't help that pig much: Microsoft’s Annual Revenue Reaches $60 Billion Fastest annual revenue growth since 1999 fuels 32% increase in earnings per share.
Pre-announcement portion: my favorite post-analysis sites for the end-of-FY08-results:
Leaving the list is the departed MSFTExtremeMakeover, though the final post is a good read.
Most analysts are expecting a solid quarter:
- Microsoft Tests Its Might - TheStreet.com: "Analysts expect 17% year-over-year revenue growth to $15.65 billion and earnings growth of 20.5% for earnings per share of 47 cents, according to Thomson Reuters."
- Microsoft expected to post gains amid Yahoo turmoil - MarketWatch: "Sanford Bernstein analyst Charles Di Bona wrote in a note to clients Tuesday that he expects Microsoft to post a 39% gain in online services revenue to $960 million for the recently-ended quarter, though he noted a spate of recent reports showing a decline in its online search presence."
I'd expect solid numbers, too, especially with Office and SQL Server, and some shine being put on Vista numbers, especially with the departure of XP. It will be interesting to see the write-ups today, given that Google is announcing their quarterly results today, too, so some compare and contrast might arise.
With the Yahoo! foolishness going on the Online business will get extra scrutiny on the call, along with any sort of probing around the edges concerning Yahoo! plans and how it affects Live Search scale-out. Next week is the Microsoft Financial Analysts Meeting on campus, followed by a Friday morning "Word from Wall Street" meeting that I highly recommend (prediction: for at least the 3rd year running, Mr. Charles Di Bona will insist that Microsoft increases its dividend to something of significance to make up for the total lack of stock performance).
If you're in a good mood, avoid looking at the one-year chart for the MSFT stock. Yes, we did hit up in the $37 range. Yes, just a short time ago, we dead cat bounced onto $25. Mr. Ballmer insists he doesn't pay attention to the Microsoft stock price, but all this hammering on Yahoo!, and the dissatisfaction around Yahoo! stock price we're leveraging, has to come back to stick on Ballmer one of these days.
Jack Welch got the nickname Neutron Jack. Mr. Ballmer's gonna be due a financial nickname soon, whether due to his Ahab pursuit over Yahoo! or finally investors giving up on his inability to channel solid profits into a worthy stock price but rather kneecapping the stock quite often. Flatline Steve? Ballmer the Embalmer? I think I need some Wall Street wit to help out here.
Later, after the announcement...
Once again, our stock is kneecapped, this time it would appear thanks to the ongoing Yahoo! foolishness.
- Microsoft Watch - Corporate - Microsoft Q4 2008 by the Numbers by Mr. Joe Wilcox. As always, if you only read one write-up, read Joe's. Nice take on the conference call, too. Snippet, with my disgruntled bolding: "While Microsoft posted strong year-over-year growth in revenue and earnings, earnings per share came in at the low end of guidance. During a conference call this afternoon, Microsoft CFO Chris Liddell expressed disappointment about earnings per share, which he partly attributed to weak economic conditions and uncertainty about the failed Yahoo acquisition."
- Microsoft profits miss Wall Street estimates
- Microsoft’s Online Services Business posts $0.5bn loss in Q4 2008 - LiveSide - News blog by Chris over at LiveSide.net. Okay, let's not judge our losses by Xbox multiples: "...posting a $0.5bn loss in one quarter is bad, no matter how you try to paint it, and makes the need for acquiring Yahoo look all the more greater. Admittedly its still not as bad as the $1.2bn loss posted by E&D, the Xbox and Zune division, in Q4 2007 - the entire OSB loss for 2008 is only $1.3bn."
- Brier Dudley's blog Microsoft earnings tidbits Danger costs, plus MSFT's mortgage issue Seattle Times Newspaper Blog - Brier digs around some of the R&D cost ramping up in Zune land.
I wasn't too happy with the Shinola that has crept into the reading of our numbers. I like enthusiasm, but even I was a bit put-off. I also didn't like how useless most of Mr. Liddell's answers were on the conference call. Of course, folks were trying to ask oh-so-hard questions like "When will Online Services turn a profit?" Not 2009. 2010? If you were to pull the plug on MSN and Spaces tomorrow, who would notice? Or, should I say, who would not be able to find a similar (perhaps even profit-making) service to immediately start using? Inconvenient? Yes. Essential? No.
81 comments:
yeah, results look to be ok. seems at least 2 of the businesses met their budget numbers.
E&D is back to its traditional boat anchor status. Almost 3 years of manufacturing 360s and they're still taking a loss on the hardware? I thought keeping the design work and IP as "in-house" as possible would help avoid a situation like the first Xbox where royalty payments on the hardware were a permanent drag.
The only reason they're showing a FY profit at all is because they took a one-time $1.1 billion dollar charge last FY to cover repair issues. If they hadn't done that the FY would be completely underwater in the nine figure range. Again.
Xbox 360 unit losing money again ?
http://biz.yahoo.com/ap/080717/earns_microsoft.html?.v=13
"The unit responsible for the Xbox 360 lost money in the quarter, but ended the full fiscal year in the black, a milestone analysts have been watching for two years."
"Mr. Ballmer insists he doesn't pay attention to the Microsoft stock price"
And it shows.
Its unexplainable. In spite of having a strong quarter, our stock went down. I think the yahoo thing is a big drag on MS stock price. Whoever is involved in this crappy yahoo deal, I hope they will decide something soon.
Dude. MSN and Spaces MAKE money. Pulling the plug on them would only harm the situation. There is a money sink in online, and it shall remain unnamed. You can easily identify it by the percentage of partner level managers per IC dev headcount in GAL.
How to handle underwater options -
Vmware did it right:
http://blogs.zdnet.com/BTL/?p=9368
I remember when MS did the underwater option buy-back a few years ago.. lame.
"Its unexplainable. In spite of having a strong quarter, our stock went down."
Missed consensus EPS despite higher than expected revenue. Guided down significantly versus consensus for first quarter. Lowered 09 guidance slightly for operating income and EPS ranges (revenue up, which just raises more questions about margin pressure). EDD is back in the red. And OSB more than doubled their loss to almost .5 billion. Inexplicable isn't exactly how I would describe the subsequent stock reaction.
Looking for nicknames?
Ballmer the Erratic!
Ballmer the Goog Killer Dreamer!
Ballmer the Chair Throwing Tantrum!
>"Its unexplainable. In spite of having a strong quarter, our stock went down."
Everybody is losing some money on expectations these days. It is about not meeting forecast, despite the relatively strong profits on Vista and other new products.
Forbes.com:
http://www.thestreet.com/s/microsoft-disappoints-update/newsanalysis/tech-update/10427340.html?puc=googlen&cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA
TheStreet.com:
http://www.forbes.com/markets/2008/07/17/google-ibm-merrill-markets-cx_er_transvideooutlook.html
But really, the stock is going down because the market has gone down significantly in the last few weeks, and I think too, that analyst confidence is waning because of lame leadership from Balmer and that idiot Icahn keeps injecting his nonsense trying to recover profits from his risky investment in Yahoo, dragging Microsoft into the fray, while Balmer has confirmed he has been talking to Icahn, which, right or not makes Microsoft look really slimy by association.
http://www.bloomberg.com/apps/news?pid=20601103&sid=afP.srckUR88&refer=us
"How to handle underwater options. Vmware did it right"
As interesting is to see whose decision that was -- Paul Maritz!
BillG always worried about us turning into IBM. Today, we should be so good.
Get a clue Bill, fire your buddy SteveB before he destroys the asset base for your charities.
Maybe it's time to develop a new compensation scheme for divisions that aren't able to do much more than create work for themselves (Live, where product name changes are more important than winning).
People are too comfortable and not willing to push to win. Unless we know we're going to win, why waste time building out massive data centers for products we should be cutting? No startup in the world could afford to do that, yet these groups feel it's their right to spend spend spend instead of deliver. It creates more work than it need be.
It's obvious that executive management is willing to fund level inflation, with its fixed promotion schedule per org, in lieu of delivering the MSN-Live-Zune profits that are always "coming.. uh.. tomorrow.."
Keep the big orgs that make cash as they are... but totally change the game in the losing groups. Give family men and women time to interview elsewhere in the company. Recruit hard-working individuals from Google, Yahoo, and internal. People who want to sign up for a few years of hard work, and do nothing until they win, and the company wins.
Getting the innovation back - treat those groups like work hard, play hard startups. Offer massive-upside deferred compensation or stock, contingent on everyone - IC through your upper level management - delivering true business success over a 2- or 4- year timeframe.
Implement a partner ceiling: you can be on the bench, but until the org. wins, nobody gets a fake title without a winning record. Would you ever let a lawyer represent you who made partner but whose track record was that of losing?
If it doesn't work, pack up and go home. Ok, just rambling now.
Fear not, we have Ray Ozzie! Come to think of it, has anyone actually seen Ray Ozzie?
I can't wait to cash my partner level bonus check.
Hm - so buying AMD finally cost Ruiz his job. Any chance for a Ballmer/YHOO repeat?
As interesting is to see whose decision that was -- Paul Maritz
I've heard that the reason Maritz left was because he was denied the CEO spot. My God, can you imagine what MS might've been?
"I wasn't too happy with the Shinola that has crept into the reading of our numbers."
Like we "met or beat all of our guidance", only referring to guidance going into the year versus the updated one provided last quarter (where we missed operating income)? Agree that Liddell's answers were weak. Once again the quarter was blown through something ostensibly within our control: overspending.
>Hm - so buying AMD finally cost Ruiz his job. Any chance for a Ballmer/YHOO repeat?
Of course you meant `buying ATI'.
The stock price is really simple. If I think MSFT is worth $X/share and I expect you're going to earn Y cents per share this quarter, if you earn more than Y, you're worth more than $X/share. If you earn less than Y, you're worth less than $X/share, because the price was based on the expectation.
Now, you can say that the price should be a lot more than it is given the massive scale of the earnings, but you may be failing to account for how insanely many shares there are.
It occurs to me that XBox and online aren't really the problem. Yeah, they're losing money. Microsoft would have made a couple more billion without them.
Would that have helped? Yes.
How much would it have helped? Not a lot, really.
Microsoft needs something that adds ten or twenty more billions, not just one or two.
MSS
"Citigroup analyst Brent Thill wrote Friday that the stock's low price-to-earnings multiple reflects investors' fear, uncertainty and doubt: fear that the product cycle will never deliver margin expansion, uncertainty that Microsoft will ever do a deal with Yahoo! and doubt that further online investments will pay off.
Thill dropped his one-year price target to $36 from $41. Microsoft is an investment banking client of the firm."
The Microsoft conundrum
Commentary: Company is being distracted by unproven models
http://www.marketwatch.com/news/story/microsoft-conundrum/story.aspx?guid=%7B84ACBEFC%2D6CD7%2D479B%2D8959%2DBE0712A0F0BB%7D&siteid=yhoof
Acutally, MSN and Space is pretty good. Space is becoming one of the TOP blog websites in the world (at least in Asia, most of my friends on Live messnger start using Space).
Google is good in US market, but rather a under-dog in Asia, where MSFT actually has a better position.
I find it interesting that while Microsoft is always making a ton of money, people complain about Microsoft investing in the future. The reason Microsoft has over $1B of profit a month is because of investments made years ago. The Ad business could be as large as the rest of Microsoft in 10 years, why not try? If Microsoft gives up on it, people will rip it when Google is the $100B / year company.
Liddell: "One final comment before we get into the details; clearly we’re disappointed that our strong financial results are not reflected in our share price because of general market turbulence combined with Microsoft specific issues, including the uncertainty over the outcome of Yahoo! discussions."
Yeah, confidence in management and our strategies isn't a factor.
As a member of the eHome team, working on the only thing that makes Vista Ultimate worth getting, I am proud to prop up my fellow E&D comrades in Zune and xBox.
E&D...christ. What is the endgame here?
Everyone keeps saying "just wait til all those profits roll in-its a battle for the living room".
The original Xbox lost 4 billion. The 360, despite the crowing about a profitable fiscal year, must still be DEEP in the red, not even counting the 1.1 billion charge for the RROD fiasco that was artfully taken all in one quarter to hide its effects over the next couple years. The Xbox360 hardware, 3 years in, is STILL not profitable.
By the time Xbox360 shows any consistent profit, they will be onto the next gen console, where everything (R&D, hardware loss leader, etc.) starts again.
What is the endgame here?
Microsoft: Suddenly, It’s All About The Internet
Also, Legg Mason sided with Yang. So Yahoo! is probably going to win their proxy battle.
Analysts are starting to pull no punches:
Walter Pritchard, an analyst for Cowen and Co., said Microsoft was stretching the definition of long-term investing by offering so few returns after so many years of spending.
"You could go back three years ago and say, these guys are still in the same situation. (They have a) quasi-strategy in online that isn't really clearly defined. They keep throwing money at it, and they're not getting any results," he said. "At the pace they're investing, they should be able to grow faster."
http://www.miamiherald.com/business/technology/story/609234.html
Is there anything that I can do that you people would be happy with?
Steve Ballmer said...
Is there anything that I can do that you people would be happy with?
I thought you'd nver ask. How about starting your charitable foundation and go work on that full time, like your college buddy Bill :)
To all of you Steve Ballmer fan girls/boys at Microsoft, I’d like you to consider the following.
Contrary to the conventional wisdom from Microsoft’s leadership, there is more to stock price performance than financial results. There are also the market factors of confidence and perception, which the CEO and the senior leadership of the company are primarily responsible for.
Now, institutional investors are paid based on the relative performance of their portfolios. In other words, unlike Microsoft GMs and VPs, investors who invest in Microsoft only get paid when the stock price outperforms other alternatives.
So given this, ask yourself some basic questions.
If you were an institutional investor, would you bet your lucrative livelihood and reputation on the chance that Microsoft’s senior leadership won’t say or do something that periodically blows up the stock price?
Would you bet on a senior leadership team that openly, and proudly, states that they don’t care about the stock price, or what investors think?
Would you bet on a senior leadership team that insists on growing headcount, and the related cost structure, in an unsustainable manner (layoffs are a question of when, not if)?
And finally, would you bet on Microsoft’s senior leadership team to deliver a clear, consistent and winning strategy around its multi-billion dollar investments in online services, despite a repeated inability to do so (sorry, “trust me” doesn’t make the cut anymore)?
You may very well answer “yes” to all of these questions, but the undeniable reality is that fewer and fewer in the market are agreeing with you over time.
Peace, out.
Windows Live Expo is ceasing service on the 31st of July.
I've been using the service for as long as it's been up. It had a few weaknesses (search tools could have been better) but it was very good overall and user-friendly enough.
Biggest problem was: few people were using it. Lots of MS employees are users of course, but in my experience even there the majority was not aware of it. The oh-so-forgettable name was a big problem for sure. I can't remember the name of the damn thing for more than 20 mns at a time, and I'm a user :-)
Several times, I had better luck selling stuff via Craig List that I had also advertised on Windows Live Expo without getting any replies there.
I think the online business won't take off until SilverLight goes in full swing. There's no money to make in the world HTML/JAVASCRIPT. SilverLight is going to disrupt that and produce a chance.
"E&D...christ. What is the endgame here?"
There isn't one, except maybe to make MS revenue growth look more robust overall. $8.1 billion in sales with only a $426 million profit, and even that artfully created as you indicated (otherwise an almost $700 million loss). Wii and PS3 killed 360 in June:
http://www.informationweek.com/news/personal_tech/TV_theater/showArticle.jhtml?articleID=209101065
And the new price drop just happens to coincide with a new fiscal year, where the hide-the-losses game can start all over.
"SilverLight is going to disrupt that and produce a chance."
Whenever I hear comments like this, I laugh. Can somebody tell me -why- Silverlight will suddenly disrupt things and cause online profits to flow to this division?
Silverlight is not some huge new innovation that's going to change the world. Why would it cause us to even make OSB profitable?
A friend of mine made a great comment about our online strategy - "I wouldn't use Live even if they paid me for it...oh wait, there's CashBack, they are!"
Yeah, that really helps our profitability. Silverlight isn't the magic bullet.
>"The stock price is really simple. If I think MSFT is worth $X/share and I expect you're going to earn Y cents per share this quarter, if you earn more than Y, you're worth more than $X/share."
I know that this explanation makes some sort of sense to some people who study economics, and there are mathematical formulas to back it up. The truth is that this is absolute hogwash because in today's wall street shares are worth exactly 0$ + the price somebody is willing to pay for it. Icahn just bought 5% of yahoo and a fat lot of good it does him.
"To all of you Steve Ballmer fan girls/boys at Microsoft, I’d like you to consider the following.
Contrary to the conventional wisdom from Microsoft’s leadership, there is more to stock price performance than financial results."
I could not agree more. Those who think that replacing Ballmer could make the stock climb are right on the money. It will go something like this: Get CEO contract worth 1000x what Ballmer is getting paid (not hard, Ballmer is working for the CEO equivalent of peanuts). Take a look at expenses, cut what does not make money, cut budgets on everything else, put a bunch of flunkies in place that will do same. Stock goes up because numbers look good, then company collapses and CEO gets "fired" taking a few billion dollars with him.
The day Ballmer retires leaving a non career Microsofty in place we become Wallmart. With all the good and bad that that will entail. As an employee I am not looking forward to it.
Wow, I couldn't believe it when I saw on MSN Money that MSFT's P/E ratio was now under 14. It's a sure sign that the market has completely discounted Microsoft as a growth stock.
The best thing Ballmer and his boys can do right now is adjust to this new reality. Act like what you guys have become (a large cap stock) rather than like what you wished you were (a startup with explosive growth).
A higher dividend wouldn't hurt. Instead of blowing all that money on a one time $3 dividend the geniuses in charge could've simply doubled the dividend. Those $3 would've been distributed over something like 6 years and that would've actually rewarded LONG TERM ownership of the stock rather than encourage fly-by stunts by day traders.
When I see this mess I don't regret for a second my decision to leave.
If Ballmer decided to leave/was ousted from his CEO role, hopefully the obsession with "killing fu#$% Google" would go with him. That single reason alone should bring some sobriety to MS management and the never ending story of loosing money in those divisions competing with Goog.
65 billion and earnings growth of 20
Isn't it time for ToddHol to leave? As VP in charge of XBOX HW he surely knew about the yield problems early and it's clear that the systems he put in place still aren't delivering good enough quality at low enough prices after all these years. Time for a change and time to show some accountability.
>> "The stock price is really simple. If I think MSFT is worth $X/share and I expect you're going to earn Y cents per share this quarter, if you earn more than Y, you're worth more than $X/share."
> I know that this explanation makes some sort of sense to some people who study economics, and there are mathematical formulas to back it up. The truth is that this is absolute hogwash because in today's wall street shares are worth exactly 0$ + the price somebody is willing to pay for it. Icahn just bought 5% of yahoo and a fat lot of good it does him.
But, see, "the price somebody is willing to pay for it" was exactly the point. If the market consensus (what people are willing to pay) is $X/share when people expect that the company will earn Y cents per share, and the company does better, then people become willing to pay more, because they perceive the company as being more valuable.
MSS
maybe msft should do what yahoo did: outsource search to google :)
Fresh off the MGX company koolaid fest for this year. Good event, but could be shorter and allow for more internal networking.
Ballmer was his usual self. The MACH hires were bordering on annoying but can't help but love the general enthusiasm.
KT was not so impressive IMHO. His preso was almost the same as last year's MGX. He preached more than he presented and for the love of god will someone please educate him on the software business and that partnering in the world of software is DIFFERENT THAN THE BEAT THE CRAP OUT OF VENDORS WAL-MART STYLE that he grew up with. Seriously, this needs to stop. He may be able to wrangle costs, but I would argue not so well there given the stock performance. He may drive for results, but let's be real, the coersion management style is wearing thin. Did he deliver the revenue growth - yes and should be rewarded for this. Has he set MSFT up for success - NO - because he has failed along with Chris Liddell to drive a highly productive P&L for the company. Revenue growth yes. Cost structure to fend off competitive attacks, strategically enter and own new markets, and an HR strategy to make top talent line up outside the doors in Redmond - no. This is our core problem. We can build all kinds of amazing stuff we just don't know how to monetize it.
Wall Street seems to have grown tired, and rightfully so, of our "we'll figure it out" and SteveB's famous we'll-keep-coming-at-it-again-and again-and again approach. For goodness sake, haven't we learned anything from all these attemps?!?!?
On a lighter note, it was good to see some orgs at MGX that are new (aQuantive) and old but previously opted out (OEM). Other surprises - Elop was a great presenter, not sure how he'll do post-Raikes, but was impressed with him at MGX. The scorecard discussion put most of us to sleep - please, this was ridiculous - if you've ever had a job and not seen a scorecard and don't know how to manage to one then we shouldn't have hired you into SMSG. Veghte did better than expected but danced around specifics so that falls into the stay-tuned category.
Personally the BOD needs to kick some behind into gear. The BOD commitments for FY09:
1. Do a real succession plan for the senior execs. I'm certain we have these, but are they the right people.
2. Pay execs on LT P&L viability. They should be paid off some P&L index metrics across the software industry and other large companies.
3. Prune, prune, prune - cut the businesses we really don't need. Sell them or just pull the plug, but prune out the weeds and move on so the grass can grow greener.
4. Partner comp and eligibility overhaul. Is this program really delivering what the company needs? Does it breed the exec leadership the company needs for the next 10 years?
5. Offer an early retirement package based on tenure in SMSG. I see too many people treading water that have been around a long time. Laziness breads complacent attitudes which breeds the kind of P&L mess we have.
6. Get online services right - insulate that org and keep the old-timers out. This is a new business and doesn't fit MSFT's culture generally speaking so give them some of the oxygen they need and hold them accountable to the outcomes without forcing them into a process that doesn't align to that business.
7. Buy some duct tape and don't let SteveB talk so much.
That should keep them busy enough.
>If Ballmer decided to leave/was ousted from his CEO role, . . .
As much as I like to comment on Balmer's favorite position as Corporate kick ball, incompetence couldn't be assessed as long as Microsoft keeps raking in the billions. Even the `disappointing' results show a healthy profit relative to the markets miserable condition.
Balmer will likely stay as long as the cash kow keep kicking $ into the koffers of MS. If Microsoft gets control of Yahoo, a new cash cow conceivably is in the offing. And, sadly, Yahoo caved today giving Icahn three seats on the board, so it won't be long before Yahoo is turned into a worthless brand after Balmer starts playing with it.
As a Yahoo customer, the moment a deal is consummated, I'm outta there.
>maybe msft should do what yahoo did: outsource search to google :)
Maybe you missed it, but the deal with google was structured so anybody can outsource search to Google and receive $ in return. Kinda like Amazon will sell your stuff for a commission.
Anyway, If Microsoft gets Yahoo, Microsoft will be in-sourcing search to Yahoo anyway. Win Win either way, don't you think? :(
How about I tell you SilverLight enabled SAAS apps are going to blow away whatever AJAX apps Google has. Do you still ignore SilverLight's impact? SilverLight will further boost .Net existing popularity and open the door for Softy's SAAS and Clouding play.
Here's one reason our stock is going absolutely nowhere:
http://seattletimes.nwsource.com/html/microsoft/2008062982_gobi21.html
This takes the cake as the boondoggle of all boondoggles. Do we really need to send Redmond based MS FTE's to the Gobi Desert in Western China to learn about team building?
"Here's one reason our stock is going absolutely nowhere:
http://seattletimes.nwsource.com/html/microsoft/2008062982_gobi21.html"
It doesn't say it was MS sponsored. I know a few people that do these extreme events together at MS - and all of it is on their own dime. It would be odd to have MS sponsor team building of three people out of a much larger organizational pyramid.
Looks to me just like some co-workers decided to band together on an event rather than going at events solo.
> How about I tell you SilverLight enabled SAAS apps are going to blow away whatever AJAX apps Google has. Do you still ignore SilverLight's impact?
Why did AJAX succeed where ActiveX and even Java-Plugins failed? Right. So whats your point on Silverlight again? Other than that it is DOA?
This stock has been dead for so long that they're writing strategies for it!
How to Realize Gains on Dead Money Stock
http://online.barrons.com/article/SB121658215240168441.html?mod=googlenews_barrons
I think the online business won't take off until SilverLight goes in full swing. There's no money to make in the world HTML/JAVASCRIPT. SilverLight is going to disrupt that and produce a chance.
There's plenty of money to be made on HTML applications, just check the profits from www.google.com.
Monetization through advertising
The killer business model for the Web is monetizing content through advertising. Google can buy (eg: YouTube) or partner (eg: MySpace, AOL, Yahoo), their way to run AdSense on the world's largest sites regardless of what presentation technology they run. MySpace for example is a huge user of Flash and even if they switched to Silverlight tomorrow, the ads they show would be Google's AdSense ads. The question of how to show the ads (Flash, HTML, Silverlight) is immaterial, what's important is that no matter what technology is used under the covers, it will be AdSense powering/monetizing the world's largest Web sites.
Silverlight
Silverlight is a presentation technology, it's not a business model and there is no built-in way of monetizing Silverlight.
A good comparison to Silverlight would be Adobe Flash. Flash 9 has achieved 99% ubiquity, but Flash makes Adobe practically nothing in terms of profits. Adobe's profits come from high-end tools for developers and designers. How much money have we made from the .NET Framework 1, 1.1, 2, 3, and 3.5? Zero. While I am not doubting that winning developers is important to Microsoft, let's be honest and admit that dev tools is not the profit center (nor should it be) for Microsoft corporation.
In short, a free, cross-platform runtime is not a business model, it's a platform for developers to build applications.
Web Applications
The expectation of most users on the Web is that applications (whether they were built in Silverlight, Flash, or HTML) are free and ad supported. Again we lose as we are terrible at monetizing through our 12 or so custom ad platforms inside the company. We also don't understand the consumer space, and switching to free, Web-based applications could cannibalize our existing businesses.
Google isn't standing still
What makes you think that Google won't continue to redefine their applications the way we're seeing with their use of Google Gears for their Office suite?
Silverlight has no "moat"
I'll even make a huge leap of faith, even in the fairy tale land where having a free, cross-platform runtime like Silverlight somehow produces Windows-like profits, there is nothing stopping Google from just re-skinning their applications to use Silverlight. Best of all, Google can run all of those newly-skinned Silverlight applications from the comfort of their custom Linux boxes and not pay us a dime, and they'd probably build them better/faster.
How many Microsoft-built Silverlight applications are there again? How many on Live? Do you want to compare the use of Silverlight to Live on Microsoft owned domains?
For all those griping about the $1.1 billion write off last year, you need to understand this represents the expected cost to repair faulty Xboxes over the life of the Xbox 360 generation which if history is any indication is anywhere from five to eight years. So even if Microsoft did not take the hit last year, the $1.1 billion would have averaged ~$220 million per year of actual repair expenses over a conservative five year life cycle so E&D would have still been profitable by ~$200 million this fiscal year if the write off never occured.
The people in E&D seem to have finally be getting on the right train tracks.
so E&D would have still been profitable by ~$200 million this fiscal year if the write off never occured.
And if wishes were horses, we'd all be cowboys.
>The people in E&D seem to have finally be getting on the right train tracks.
That is the biggest pile of horse shit I have ever heard.
a) ED&D's `profit' you tout was due to the last breath of Bunjie and Halo's release. Since Bunjie abandoned ship, and we have not seen anything like it since, I suspect this may have been a one time deal. We will see.
b) Nintendo and Sony have matured their products and thus have overtaken much of the growth experienced by the XBox group. But worse, there has been no significant introduction of a large number of new hardware and software products (including games) to respond or follow on with the Halo success.
I assume Xbox will be coming out with a competitive forray soon, but who knows. Looking at Apple's introduction of at least one or two new market busting products a year, I would confidently state that ED&D is asleep at the switch.
c) Zune was an unmitigated disaster of biblical proportions any way you cut it, despite Kevin Turner's ability to get it placed front and center at Walmart.
d) While Xbox community on Live has some strength and customer loyalty, the lame introduction of streaming Netflix was a joke among those who understand that anybody can stream Netflix on an Xbox without a subscription combined with Vista Media Center (at least that's what the hackers claim:
http://www.hackaday.com/2008/06/24/streaming-netflix-to-the-xbox-360/
e) Also, the whole user interface product line (the Xbox controller and various mice) is another indication that Microsoft is years behind the times even when all the hoopla about touch and surface is coming of age. Maybe Microsoft has a line of new touch interface game and home entertainment controllers on tap, but I doubt that anyone up there even knows how to spell haptics let alone understands what it is, and the claim that the mouse or hand controller is dead forgot to tell the inventor that a display screen is about a thousand percent less accessible to the player, user than a control device, and that projectors and detectors placed all over the room may not necessarily be the best way to control a computer.
While I applaud ED&D's stubborn staying power, it's pretty clear that none of the partners have a clue about how to develop and market hardware, and is anybody up there even talking to your R&D group? But looking at the snail's pace new product introduction rate of 1) a couple of Zunes and 2) a very old outdated power pc Xbox, you have to wonder is that all you've got?
The apparent reality, at least for now, that there are no innovations, no market breaking great new products for the home, no new hardware is indicative of proof of what I say in the midst of all that invention and innovation at Redmond is very weird. What a shame.
"So even if Microsoft did not take the hit last year, the $1.1 billion would have averaged ~$220 million per year of actual repair expenses over a conservative five year life cycle so E&D would have still been profitable by ~$200 million this fiscal year if the write off never occured."
Except that a big part of the charge was for existing sold, manufactured, and retooling. And of course taking the charge up front is the customary method of handling such payments and the one MS employed.
"The people in E&D seem to have finally be getting on the right train tracks."
They still lost money this quarter, more than seven years into this exercise. And I think it's clear to most that this division is not capable of generating even industry average software-like returns. Ever.
> Wall Street seems to have grown tired, and rightfully so, of our "we'll figure it out" and SteveB's famous we'll-keep-coming-at-it-again-and again-and again approach. For goodness sake, haven't we learned anything from all these attemps?!?!?
Yeah. Microsoft learned that, if it started Windows in version 1.0, by the time it got through 2.0, 3.0, and 3.1, it was sellable with a straight face, and by the time it got to Windows 95 and 98, it could conquer the world. We're talking about a 15-year span here.
But if you believe that investment X is going to take the same trajectory, you may well wind up throwing money into a hole for 15 years, all the while saying, "We'll get there. We'll keep at it until we do." And if you do, you're a genius. But if you don't, you're an idiot.
How do you tell, before the 15 years are up? I mean, I guess you could kind of tell by Windows 3.1, but... how do you tell. How do you know when it's been long enough that you can tell that this thing is going to forever be a turkey?
MSS
you need to understand this represents the expected cost to repair faulty Xboxes over the life of the Xbox 360 generation which if history is any indication is anywhere from five to eight years.
No, it represents the expected cost to fix ONE problem (RROD) on the initial Xbox360s. Read the new 3 year warranty. It covers one problem, that for gods sake I hope they've fixed in subsequent models.
It wasn't meant as a coverall for any FUTURE defects they find in subsequent runs, those will be covered by another cost charge.
And the reason its a big issue is that MS denied there even WAS a problem until they were forced to. To the tune of 1.1 billion.
"Why did AJAX succeed where ActiveX and even Java-Plugins failed? Right. So whats your point on Silverlight again? Other than that it is DOA?"
There's no broadband, cheap yet powerful hardware, .Net framework and so on when ActiveX was thrown out. BillG's ignoring of security didn't help either.
AJAX is half-baked crap bound to be replaced one way or another. You have to hack just to get a multithreaded app running in there. Hello?! It's 21st century with CPUs marching toward multicore. You think Ajax has great potential?! SilverLight is innovation. Ajax ain't.
SilverLight is getting the entire .Net world excited. When you can run C# with a powerful .Net framework backing it up INSIDE A BROWSER MIND YOU, who still gives damn about javascript, ajax, css and all past decade garbage, unless of course if you have some vested interest in AJAX or just plain hate everything coming out of Redmond. NBC is gonna broadcast Olympics in SilverLight. You think Ajax can handle that? Try again.
"There's plenty of money to be made on HTML applications, just check the profits from www.google.com. "
Sure, I don't need anyone to remind me water is wet either.
When I said there's no money to make in HTML world, I was referring to MSFT not Google. Instead of chasing Google only in the field you are way behind, starting sth new is the right approach. In the world of rich media, the race is wide open. Even Google still hasn't made ads money on Youtube yet.
Also don't forget all these Cloud / SAAS business. You want success over there, you better provide a much more capable platform than this AJAX junk. That's where SilverLight is gonna help MSFT to compete with Amazon, Google and so on. Someone wanna build SAAS or cloud-based apps? Fine, you provide him development tools, but he eventually has to come to your hosting cloud. That's where you charge him or at least force him to use your ads system.
Then again I didn't say SilverLight is a sure win. I only said it produces a chance.
Wow, I just heard that Kevin Johnson resigned. So much for trying to rid the product group of the cancer left by Allchin! This is not a good day for future quarterly results....
RE: the 15 year product cycle
You have to remember the history on this--Microsoft was originally the "little guy": cheapest in the market, "value" position, make it up in volume strategy. It displaced all the big league guys, and won the desktop. How exactly are any of the new initiatives "value"? What existing entrenched big players are going to be displaced?
Look at the "competitive" threats: Apple? Google? Yahoo? Sony? Nintendo? If anything, Nintendo beat Microsoft at its own game in the Wii vs the Xbox 360. It just doesn't seem like the company is "hungry" anymore, and I don't see it tackling any big challenges. Sometimes I daydream about a world where the anti-trust case broke up the company, splitting groups and forcing a more "disconnected" development model...
@keeperplanet
Your anti-MSFT rambling agenda became pretty clear with your praise of Sony.
Your view is that in the XB360 vs PS3 contest the XB360 is somehow a lame duck that is falling behind?
Good luck convincing people you're not either a clueless idiot, or hopelessly biased (or both), if this is the tune you're going to sing.
The XB360 still leads the PS3 installed base. The XB360 has had plenty of problems, but you're just full of shit if you even attempt to pretend that the debacle that is the PS3 is somehow all roses. I have PLENTY of friends that WORK at Sony that would love to find the Koolaid that you're drinking as an outside the company fanboy... LOL
The Wii has found an entirely untapped market in the "whats a videogame again?" crowd and that was something of a coup, but frankly, the core gaming crowd has zero interest in it.
The PS3 and XB360 are traditional console plays in that they are a money sink that take a long time to become profitable, represent big risk, and provide value primarily in terms of platform recognition.
Playstation made Sony cool again and actually saved them from doom (I was working there at the time, so believe me this is true)
XB360, which many seem incapable of comprehending, is impt to MSFT because it can connect with an emerging generation of kids (and is - I see it all the time in the volunteer work I do)
The hardware failures sucked, but then again the original Playstation had BRUTAL hardware failures early on as did the PS2 and, all of these years on, no one gives a shit or remembers.
@keeperplanet again
Actually, I want to take a few more shots at you since, reading your post again, you really do deserve it.
You're one of these guys that sees the world through your myopic, opinionated and narrowly informed lens and thinks that makes you a genius (because you've REALLY convinced yourself)
Ill ask you some questions...
1) how does the workaround with Netflix minimize its value to people that just have an XB360 and dont read hacker articles or own media centers or understand networking (ie - the MILLIONS of regular people who Nintendo PROVED - as people like you LOVE to point out - spend money on consoles)?
The answer is it doesnt. A biased fanboy idiot can put a negative spin on anything. Somehow, to you, MORE SERVICES = bad... /boggle... Yet Im sure you think PS Home and Wii Weather are AMAZING REVOLUTIONS!
2) WHAT THE HELL are you babbling about with interfaces and controllers? MSFT has the most interesting multi-touch platform with Surface (expect Apple to steal that soon) and has a long history in touch interfaces already. The traditional controller devices continue to be ranked high and do well even as advances are made continually in handwriting, speech and motion recognition.
For you to slam MSFT on INPUT DEVICES (in comparison to WHOM genius???) is again, ridiculous.
MSFT is "years behind the times" because of the hoopla with "touch" and "surface" - two MSFT INITIATIVES. Or did you think that Apple has a monopoly on multi-touch? They werent even first in that space, they just market better (WAY better)
3) the triple core XB360 (essentially three PPEs) is "old and outdated" but somehow the PS3 Cell (1 PPE and 6 SPEs) is, in your brain, "cutting edge" I guess? And the Wii is, what exactly? Its the same hardware as the Game Cube for all intents and purposes.
Again, its like you're in some alternate moron dimension. WHAT is the XB360 "old and outdated" in comparison to?! In ANY game that exists on both PS3 and XB360, the XB360 is either delivering the better experience or there is a tie, yet to you, its time for XB-3. /boggle yet again
The problem with E&D is:
1) they need to get their QA straight
2) Nintendo pulled an Apple (Sony shares this problem)
3) Apple continues to pull Apples
Too often now MSFT is going the conservative/fearful route rather than being ballsy and LEADING. Too much playing catch up.
Apple just goes out and DOES. Hence the game changing iPod and iPhone coming AFTER the markets had been established (MP3 players were out and doing nothing, smartphones have been around forever, but none was HOT in the consumer space)
Its easy to knock the Zune, but at least they're trying. As screwed up as it was that the partner ecosystem and plays for sure were abandoned, in reality, they werent doing shit.
I guess there are morons that want ONE product to DOMINATE (as long as its not a MSFT product), but I like competition.
I think its good that Google and Apple keep MSFT off balance, but I also think that Google and Apple have BECOME MSFT and need to be pushed a bit themselves. Unlike pathetic, brainwashed, fanboys who feel that MSFT is the evil dragon and Apple and Google are the brave knights, many of us here in reality understand that these are all just corporations and whats best for the consumer is for them to be kept on their toes by competition.
>> NBC is gonna broadcast Olympics in SilverLight.
>> You think Ajax can handle that?
AJAX can't. Flash can. And in spite of a bag of cash we handed to NBC, their customers would be better served if they broadcast in Flash, since Flash is already installed everywhere.
>> MSFT has the most interesting multi-touch platform
Let go of the bong, man. Apple's platform is far and away the most interesting as far as multi-touch is concerned. I hate to break it to you, but no one will really buy the Surface. Just like no one bought the tablet or Origami.
"a) ED&D's `profit' you tout was due to the last breath of Bunjie and Halo's release. Since Bunjie abandoned ship, and we have not seen anything like it since, I suspect this may have been a one time deal. We will see"
Yes, Halo 3 made tons of money, but there are other titles out there such as Gears, Fable, Banjo, Halo Wars. And anyone who knows anyhing about the gaming industry knows that Bungie is still working with Microsoft. Not for, but still with.
But I do agree on one thing, Zune is an umitigated disaster of epic porportions.
For you to slam MSFT on INPUT DEVICES (in comparison to WHOM genius???) is again, ridiculous.
Well, Apple did the heavy lifting to popularize the mouse. As far as I know Microsoft had nothing to do with touchpads on laptops. I think it's widely accepted that GO Corp made a great tablet computer that caught Bill Gates's attention and which he's been trying to copy ever since. (Remember Windows 3.1 for Pen?) The Apple Newton and 3M PalmPilot introduced the world to stylus-operated PDAs, the same way the iPhone is giving us all touch interfaces now. Nintendo really pushed vibration in their video game controllers (Rumble Pak) back in the days of the N64, and now they're giving us motion sensing abilities with the Wiimote, and don't the PS3 controllers also have some kind of motion sensing?
I'm not even being sarcastic when I ask what you think Microsoft has contributed to input devices.
I love a good street fight (which I intentionally started). Note to all name calling kids responding to my comments: If I was really in favor of all those other products (Nintendo and Sony) I would not be suggesting to Microsoft how to fix the problem.
Please re-read my comments and realize that what I said was mostly critical of a poor hardware offering in the middle of a huge level of innovation from Microsoft in touch and surface, and I did complement your effort but criticized your failure to monetize the inventions. So let me provide a few more details.
With all the innovations of touch and surface my comments specifically point out the divergence between the innovations that Microsoft has spearheaded and actual mass produced products being sold to customers by Microsoft using the technology by E&D. Note that I did the industrial design of a touch controlled computer no less than thirty years ago this year--sold as an instrument controller, had a 32 bit interface ten years before you saw it on PC’s, so Microsoft is quite a bit behind the curve there. Touch is just old technology finally making its way into the consumer base.
Let this totally uninformed Microsoft observer clarify it for you a bit. E&D contract manufactures one console based on the failed idea that the market is a console market. I suppose you think your competition is Sony and Nintendo, so you build products to compete in a closed microcosm focused on the retail tech channel as a single offering in what is called the console market. My point is that Microsoft partners do not understand the market, the product or the customer because you have limited your offering to a single piece of hardware with add-on A, B and C.
But when one analyzes the market, even without adding in innovation and new invention there is space for a series of hardware releases to fill a spectrum of consumer needs. With the longstanding paradigm shift from stereo and tv components to computer based entertainment systems, it seems to me that the market is shouting of hundreds of new hardware products that could be built to satisfy their expectations. Perhaps Microsoft is limiting itself because of software sales relationships with companies like HP, (which by the way is trying to fill that component void with their own offerings).
My comments about interface devices glove into the failure to integrate new touch and surface invention into dozens of consumer products available now. And the interface market is not just touch and surface. It is mice, haptic controllers and a plethora of other technologies for which you would have to contact me to understand all of which I refer. It is amazing to watch such a wealthy and well-staffed company with almost unlimited resources produce . . . nothing new for the consumer in what, five years now? Haven’t we seen this before, with the long road to Vista ending in a product rejected by large segments of the market?
So in a nutshell, Microsoft E&D has copied an assumed market niche by making the Xbox and is monetizing that to build market share against its perception of the market, building on its software and online strengths. I am saying you have missed two key opportunities to integrate new invention at Microsoft and to diversify your hardware offering. This would fill a) newly created market needs and b) would replace the declining markets of audio and video components that was Sony’s path to living room dominance. Sony is one of your competitors, but Microsoft with all it’s computer technical knowledge does not understand even what the market is.
In other words, Microsoft should have a line of products for the consumer home market, not just the gaming market. When I say line, I am talking about a series of products that provide what customers want, from hand held to living room components. If you are confused about what I am talking about, have one of your partners contact me for details. Do you even have an idea of what those products are? Or do you just intend on selling a new revised Xbox forever? No wonder you are losing money.
>> what you think Microsoft has
>> contributed to input devices
MS Natural Keyboard - the gold standard unmatched by anyone, IMO.
They've been screwing it up lately, though, with "F lock" keys and other nonsense.
I hope someone from Hardware is reading this - guys, what you need in this keyboard is a USB2 hub. Release a "pro" version of it, without the F lock, sliders, bells and whistles. Release top of the line keyboards in white, too - dandruff, hair etc makes one look like crap in a month.
>"MS Natural Keyboard - the gold standard unmatched by anyone, IMO."
*sigh* If that is the gold standard it was obsolete ten years ago and besides, it was a copy of a design created by someone else. My memory fades, but I think there was even a suit against Microsoft over it.
What's wrong with the natural keyboard? It is bigger than most pc enclosures these days, and drives like a Mac Truck.
Small, ergonomic is beautiful these days. Oh yeah, and the cost of the keyboard is about thirty dollars too much considering that you can get really nice generics for about $12.
Microsoft's best hardware product is probably their line of mice, which is diverse, of high quality and great aesthetic and ergonomic value added.
i believe keeperplanet wants microsoft to start making tv's and dvd players. =P
@keeperplanet:
Small and ergonomic are anthonyms when in comes to keyboards, I'm afraid. And if people keep buying them in spite of their high price, that means Hardware did something right somewhere, don't you think?
In general, I agree with Linus Torvalds - innovation is overrated. Anyone can come up with ideas, not everyone can implement them. That said, it is great when you both come up with an idea and implement it in a way that makes people happy.
I use a Mac, but their "small elegant and ergonomic" keyboard sucks ass compared to MS Natural and MS Mouse. Granted, it looks good, but as far as I'm concerned at $50 they charge for their keyboard, it's $45 too much, and then only because it has a hub built in. I wouldn't use their mouse even if they paid me.
Pray tell, aside from boutique manufacturers, who makes a better keyboard today?
Hahahahahah! Johnson feels the heat on the floor and knows the building is burning. Ha. Haha. Hahahahahahahaha!
>Pray tell, aside from boutique manufacturers, who makes a better keyboard today?
It is in the eye of the user, but if one does not exist, I could easily create one for you.
I agree, however, with everything you said, but the MS keyboard is still a monster of a large product, and if it sells, more power to you--I would tend to view the reason as there is a significant variation in population sizes, as well as in wrist angle and comfort requirements of users, so Microsoft is getting the upper percentiles of population size ranges.
As an industrial designer I have conceived and implemented large human factors studies, (involving ear molds and 3D head scans of statistically relevant population groups), retaining firms like Henry Dreyfuss and Associates to run the program. In human factors and ergonomic relevance there are the human factors engineers and the designers. The HF engineers may use a more statistical and empirical approach that really needs to be moderated by the designer to insure that in the end the result is both functional and marketable. But without the buzz of something being a great product to the end user, it is all for naught anyway, and the best you end up with is marginal market share. What you want is dominant market share and you get that by giving customers what they want.
The solution is probably a more extensively detailed line of keyboards that have primary definers that fit into several different categories of consumer need: Small and portable vs comfortable and utilitarian for large handed people(the current MS board) and so on. Adding in wireless and mouse/keyboard integrated solutions you are probably looking at a three models with two variations each.
>"i believe keeperplanet wants microsoft to start making tv's and dvd players."
Who was it who said, it is not the walls but the space within?
Design is an intellectual process. It is not about hardware, but it is about the people who need your products and encouraging the individuals who build them. It is not about the award winning design, but it is about the design serving so many needs of the customer that the end result will be fantastic profits without even blinking.
The way you do that is you build great designers and let them do what they do well. You foster the idea that invention is important, and should never be an afterthought or something copied.
Finally, work on the concept of building great inventors and innovators while improving your infrastructure on the technology to manufacture with great efficiency the results provided by a great designer.
Microsoft's best hardware product is probably their line of mice, which is diverse, of high quality and great aesthetic and ergonomic value added.
Eh. I used to buy Microsoft mice even though they were relatively expensive because I had the impression they were higher quality. But for me they only seemed to last 2 years or so, so now I have a pile of dead Microsoft mice from various work and home machines. I bought a Logitech mouse about 5 years ago and it still works great so now I will only buy and recommend Logitech.
>"I bought a Logitech mouse about 5 years ago and it still works great so now I will only buy and recommend Logitech."
I don't work for Microsoft. And I have used both Microsoft and Logitech products. Logitech wireless keyboard and later a Logitech corded mouse each lasted less than six months. I stopped using Logitech products because of that. On the other hand I also purchased a Microsoft wireless usb notebook mouse. That lasted a year because the design on the usb interface was easily snapped off. Besides, that mouse had a weird symbol on it from the Chinese manufacturer, so it looked more like a generic wireless mouse repackaged after a Microsoft product scout picked it up on one of the Taiwan wholesale product floors. I have also purchased headsets from major brands and they all failed in six months.
Its a QA problem, and QA varies wildly as the people, manufacturing sources changes and corporate commitment varies.
@keeperplanet - well, after a lengthy diatribe you failed to identify a "better" keyboard maker. Case closed.
>"@keeperplanet - well, after a lengthy diatribe you failed to identify a "better" keyboard maker. Case closed."
OK. You win. Microsoft makes the best keyboard. With a thousand choices out there it must be true.
I kinda like these though:
Splitted Keyboard.
http://www.compkeyboard.com/archives/weird-computer-keyboard-which-is-splitted-into-two-parts
(the one above is great because the seller did not know how to use the word split in the English language and it can be used by Aliens with 9 foot long arms)
or this one,
http://www.youtube.com/watch?v=9HRH7ELiEkc
the wildly popular $10 Omnitech flexible keyboard which is cool because you can strap it around your backside and practice typing in the mirror.
Thank you for taking the opportunity to prove your point by indicating the case is closed.
>"@keeperplanet - well, after a lengthy diatribe you failed to identify a "better" keyboard maker. Case closed."
Sorry for the long delay. I had a chance to check out all the retail keyboards a little better and have come to the conclusion that the Logitech LX310 is pretty nice. Still a little large. I se no need for the center row of redundant keys, but a numeric pad is helpful for workstation work. But certainly the overall quality of the Logitech keyboards is the best of class. I personally have no use for their ergonomic wave versions (or the MS natural keyboard either).
The Logitech diNovo premium set is priced at an outrageous level, with no real advantage other than it is a more compact design.
Well, I wouldn't get one for two reasons:
1. It's not a split design
2. Its Delete/Home/End/PgUp/PgDown cluster is laid out wrong (Microsoft learned the lesson with arrow keys laid out in a cross pattern in one of the Natural models - hated that one).
And besides, if your goal is "small above everything else", then it's still way too freakin' huge.
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