Mini-Microsoft, many Microsofts, and brands
Microsoft critic Mini-Microsoft wants Microsoft restructured into a “lean, mean, efficient, customer-pleasing profit making machine,” reminiscent of its glory days. Wall Street guru Barry Ritholtz joins those who think the answer is to break the Redmond giant into “many Microsofts,” where each new business has to swim on its own.
Ritholtz offers this bleak perspective:
I have never been a big fan of the Mister Softee. From a tech standpoint, their products are kludgy and unimpressive. Their strong suit is not Innovation — it is relentless, incremental improvement, eventually leading to a decent if underwhelming product. What they end up producing are the lowest common denominator bloatware that can be easily managed by a corporate IT staff.
It is a great cash flow machine.
From an investment perspective, there are 2 key issues to observe: first, they are a mature company whose fast growth days are well behind them. They are too big to be responsive, too expensive to be a value stock, too slow growing to be a growth stock. In short, they are in the process of morphing from the software PC leadership company to nice, quiet, money machine. I would expect a good entry purchase (i.e., from lower levels) could throw off gains of 10-15% a year, including their dividend.
The second thing to observe — and all too many investors overlook this — is that the money is in the monopoly products. Except for Windows and Office, pretty much everything else is 3rd rate money-loser, with SQL as the exception. They have a few products that have slowly began to move up the scale, and their hardware products aren’t bad, but note where the lion’s share of their revenue, and nearly all of their profits come from: the Monopoly.
Read the whole post, including the comments. In my view he’s overly harsh, and doesn’t factor in the immense level of talent in Redmond and other MS offices.
The brand challenge
Between Mini-Microsoft and “many Microsofts,” no one wants Microsoft to “stay the course.” Google paranoia is rampant. The rise of Ray Ozzie portends a huge internal refocusing on web-based applications.
This is also a defining brand challenge for Microsoft. As I see it, Microsoft has to reach to its roots and find ways to decouple its brand from the inertia of its entrenched markets. In other words, it needs to create customers who are agents of change. This is a tall order, because most of its core business is focused on locking customers into the Windows platform, where change is limited by Microsoft.
Microsoft’s biggest threat from Google is not over search technology, or Web 2.0 apps, or even ad revenues. It is over which brand owns the keys to change things for the better. That includes helping customers raise themselves to new levels in the process.
Creating new customers to fit an old mold is definitely not the answer.
May 13th, 2006 at 2:35 am
How right you are, Brian. If only a brand analysis were applied here, Microsoft will be able to best see how it can seize the initiative. It knows it has faults with its branding, but so far I have yet to see it address these issues—so goodness knows if it will see to them, or force a break-up because that is what “convention” might suggest.
May 15th, 2006 at 7:05 am
It has the makings of a genune brand tragedy. A company with so much talent, and with incredible wealth and resources, and yet they are increasingly “out of tune” with their customers and their markets. The ironic (tragic) element is that the solution–a brand analysis as you indicate–is immediately available.