09.29.10

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Objective Signs of a Silent Microsoft Crisis, Deflation

Posted in Finance, Microsoft at 9:06 am by Dr. Roy Schestowitz

“I was out with a couple of Silicon Valley software guys in New York the other night and got their view of Microsoft’s finances. Microsoft makes 60 percent of its profits on Windows, 60 percent on Office, and minus 20 percent on everything else, they said. “

Technology & Finance

Summary: Microsoft — like Novell — has halted its buying spree; instead, Microsoft is borrowing money and its future seems less than certain (unless it splits to separate the profitable parts from the many failures)

IN ONE OF OUR LATEST posts we showed that Microsoft approved debt of up to $16 billion, at least for the time being. We explained that unless Microsoft keeps its money in some tax haven there is no reason for Microsoft to borrow money. Nevertheless, Microsoft takes further loans, thus increasing its existing debt, and it stopped buying companies (same with Novell, which looks for buyers). As CNET puts it, Microsoft bought not a single company this year and Google — by comparison — bought 23.

A recent blog post from information service provider CB Insights reveals a truly shocking piece of news: Microsoft has announced zero acquisitions in 2010, while Google has acquired 23 companies, 75 percent of which are venture financed or angel-backed.

Look closely as the graph (or bar chart) is definitely worth watching. Microsoft not only lost a lot of its value; it also stopped growing in terms of size through acquisitions, having previously been a top serial acquiror (that title is now reserved to Google on the face of it).

Most journalists do the safe thing by merely repeating other journalists who rewrite Microsoft press releases and other public statements, but Microsoft keeps taking more debt, repeatedly announcing layoffs, and killing many products. As Brad puts it in the post “Microsoft Death Watch”, the situation becomes risky to Microsoft customers because Microsoft pulls rugs from underneath many people’s (and partners’) feet as it shuts down a product or division every 2 weeks or so. Brad writes:

Instead, I’m offering this as technical advice: how will it affect you personally, or your business, if Microsoft were to fail? No more Windows updates. No more Office updates. No more support. No more monthly security patches.

You need a plan B. Sure, your existing software will continue to run for months or years without updates, barring any major security breach. But instead of being tied by the gonads to one vendor, and hoping for the best, perhaps you should figure out now how to move away from reliance on Microsoft.

Windows and Office will be supported for quite some time to come (because they are cash cows), but almost everything else at Microsoft is a purging candidate. Nothing lasts forever, so the responsible thing to do is assess risk.

Q: You say that “you can bet your business on Free Software”; how do you back up that statement?”

A: How can you bet your business on proprietary software? If a company is bought, goes bankrupt or merges or decides to delete a product line you have no choice but to go with whatever product or path they desire. How can you plan when the company keeps changing its licensing terms, and you have no real alternatives? What do you do when the company that makes your software puts its own profits and its values ahead of yours, the customer? When the software company holds back on releasing the latest bug fix so it fits its “release schedule?” When you can’t get that one little feature added that would allow you to streamline your business, save a lot of money and beat your competition to market?

“What happens if that company (no matter where it is) is embargoed?”

Jon “Maddog” Hall, President, Linux International,
ComputerWorld interview

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