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03.01.11

GNU/Linux and Free Software Shave Microsoft’s Margins

Posted in Finance, Microsoft, Office Suites, Windows at 4:17 am by Dr. Roy Schestowitz

Summary: Windows and Office margins are eroding, which puts Microsoft’s cash cows in jeopardy

A reader of ours (in IRC) has just posted a couple of links from financial news sites. While these sites tend to take Microsoft’s claims at face value even when the numbers don’t add up, the latter story says that “Windows has 75% PC market share” and also speaks about the erosion of margins, which competition with GNU/Linux inevitably leads to:

Microsoft OS’ operating margins have declined from around 79% in 2007 to around 66% in 2010, and we expect it to continue to decline to around 59% by the end of Trefis forecast period. The margins have declined as average OS license pricing has suffered given the company’s expansion into emerging markets and due to lower priced netbooks for which Microsoft sells a cheaper OS license. We expect these trends to continue in the future in addition to the growth in mobile devices like smartphones and tablets which could also weigh on margins in the future.

[...]

Microsoft Office operating margins have declined from around 67% in 2007 to around 61% in 2010, and these could continue to decline to around 54% by the end of Trefis forecast period. Last year, Microsoft released Office web apps, a cloud-based software, to compete with Google Apps, and we discussed some of the challenges in for this product in a note entitled Microsoft’s Stock Could Lose $2 if Office Margins Decline to Google App Levels.

Just as we mentioned earlier today, there is this tendency to ignore the real competition which is Free software. Google Apps is not Microsoft’s #1 problem and the estimate of office suites market share in the article above is incorrect based on surveys that exist. But it’s the trend we care about and it confirms what we occasionally write about.

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