Microsoft profit jumps 51 percent with record Q1 revenue

http://blog.seattlepi.com/microsoft/archives/226445.asp

by arst • 16 years ago

72 70 16 years ago

blog.seattlepi.com

Everyone who talks about the death of Microsoft and their lack of innovation has never met any Microsoft engineers.

The culture may be suffering a malaise right now, but they have a lot of money, and a lot of talented people. And they seem to be making many violent changes as we move away from the Windows/Office hegemony years, which is clearly the right strategy.

They may never have the robot-cars culture of Google, but they will always have a great-software culture.

face2• 16 years ago

I have met some of their engineers. There is a lot of bureaucracy and politics. There is innovation (microsoft research is great), but, considering their resources, it is not really all that impressive. I've met some sharp developers, but, also a lot of very mediocre software engineers that are cogs in a giant machine.

lowglow2• 16 years ago

But what is any culture worth if it is so poorly lead? In my mind Microsoft is only still competitive because it has had such great sustained momentum from its past growth. It really isn't pushing the envelope anywhere. It also managed to kill the most exciting product that we've seen from them in a very long time : The Courier.

I sold my stock a while back and this current rally seems like a swan song.

kenjackson2• 16 years ago

"It really isn't pushing the envelope anywhere."

I think quite the opposite. They're pushing the envelope nearly everywhere. But you don't make money by pushing the envelope. It's by finding what customers want to spend money on. The iPod wasn't pushing the envelope. But it was sexy.

Courier was sexy, but not realistic. I say Kinect is their most exciting product.

yesimahuman• 16 years ago

Are you an Xbox user? I know they take a big loss from that sector, but they have huge potential in that area. As one of the few devices that can run amazing games and feature growing amounts of non-gaming content, I think that will be very successful for them down the line.

Why buy other set top boxes if I can get all of their functionality plus amazing games at the same time?

seldo7• 16 years ago

Yahoo has a ton of cash and an army of really great, smart people who want the company to do well, but after 4 years there I was forced to conclude that the ship could not be turned around. I imagine that Microsoft is the same.

palish2• 16 years ago

I'd love to hear more about your experiences.

rradu• 16 years ago

Unfair comparison with Yahoo. Microsoft does a ton of things well and they've done a bang-up job with many of their recent products.

I'd say they've already started to successfully turn the ship around.

andrewljohnson2• 16 years ago

You can be Yahoo, or you can be IBM.

Big companies can be changed.

jdp23• 16 years ago

The culture's been suffering malaise for years. Even back in 2005 all the executives acknowledged the problem (I had a great 1-1 with Ballmer about it) but it's very difficult to actually change anything. So a lot of talented and passionate people there are frustrated, burnt out, or looking elsewhere. Windows and Office have the power at the top (since after all they contribute the bulk of the revenue and profits) which creates huge inertia and makes the company as a whole very backward looking.

Of course, it's not to late to recover: they've got huge assets, and Windows and Office have a few more years to run. But so far the progress hasn't been anywhere near what's needed ...

cubicle67• 16 years ago

Here's my example of their great software from only an hour ago:

Installed MS Office for someone on their Mac, then said yes to checking for updates. The updater ran, downloaded 2 updates and then told me it to please quite the following programmes before it could continue. List of programmes was everything running at that time, including the updater itself.

loewenskind5• 16 years ago

>Everyone who talks about the death of Xerox PARC has never met any Xerox PARC engineers.

It takes more than money and good people to avoid "death".

mjfern3• 16 years ago

Despite today's news about Microsoft's record Q1 revenue, I'm concerned about the company's long-term prospects in computing.

Looking at Microsoft’s recent annual report, filed on June 30, 2010, Microsoft generated 83% of its revenues and 98% of its profits from the following three divisions: Windows & Windows Live, Microsoft Business Division, and Server and Tools. While these divisions include a collection of products and services (e.g., Azure), it appears that most of the revenues and almost all the profits of these divisions is driven by Windows (desktop and server) and Microsoft Office.

Its remaining two divisions – Online Services and Entertainment & Devices – encompass all of the company’s consumer products outside of Windows and Office, such as the Xbox 360, Bing, Windows Mobile, and Zune. In 2010, these two divisions accounted for the remaining 17% of Microsoft’s revenues, and had a collective operating loss of $1.676b. In fact, between 2008 and 2010, these two consumer-focused divisions generated an aggregate of $3.353b in operating losses.

Looking across its five divisions, we can conclude that Microsoft generates a majority of its revenues and nearly all of its profits from Windows and Office. And while Microsoft has found some success with other enterprise products (e.g., SharePoint, Microsoft SQL Server, and services), its consumer strategy, outside of Windows and Office, is struggling.

From my vantage point, the two key questions for Microsoft are:

1. In what timeframe will Microsoft face downward pressure on its Windows and Office revenues and profitability, given the transition from desktop computing to thin devices and cloud services?

2. Can Microsoft develop and execute a corporate strategy in the consumer or enterprise markets, outside its stronghold of desktop computing? And will this strategy substantially compensate for any disruption in its core market of desktop computing?

My sense is that the transition from desktops to cloud services and thin devices is accelerating due to rapid innovation and growing competition among Amazon, Apple, Facebook, Google, Netflix, Salesforce.com and others. Further, Microsoft has thus far underperformed in cloud services and thin devices, from search (Bing) to smart phones (Windows Mobile). In view of Microsoft’s dependency on Windows and Office, and its inability to gain significant share in newer growth markets, I am concerned about its long-term prospects in computing.

wilschroter• 16 years ago

I think you may be considerably overlooking the amount of integration Microsoft has into both the personal mindset of consumers as well as the enterprise. While they may in fact go the way of IBM and become less relevant over time, I wouldn't overlook the fact that they have remained on top in many categories over many sea changes. I don't know that the other companies you mention have demonstrated their staying power (Apple circa 1992 was not exactly "on top")

face2• 16 years ago

They remain on top due to anti-competitive and monopolistic business practices (for which they were convicted of), as well as other business tactics such numerous Linux/FOSS FUD, patent trolling, etc. Certainly not due to the quality of their products (which I have the misfortune of having to use a lot of). One hopes that in the end, open and superior products will prevail.

seldo7• 16 years ago

I don't think Microsoft has to worry about its survival: Windows and Office will remain cash cows for the forseeable future. But they, like IBM before them, will lose all relevance to new directions in technology -- in fact, it's arguable that this has already been the case for years.

The biggest argument for this that I can see is their online services division -- i.e. Bing -- which lost more than half a billion dollars in one quarter (they lost a similarly gigantic amount in Q1 2009), and hasn't had a profitable quarter since 2005 [see http://www.businessinsider.com/chart-of-the-day-microsofts-o... ].

Even Microsoft publicly acknowledges that succeeding in online services is key for future growth, but they show no sign of being able to even begin approaching profitability in that space -- instead, they are losing more and more every year.

mjfern3• 16 years ago

Good points. A question is how long Windows and Office will remain cash cows for Microsoft?

1. One future state is that most people transition from desktop computers to smartphones, tablets, etc. We then dock these devices for doing intensive work.

2. Another possibility is that we have smartphones and tablets, but transition from desktops and laptops to thinner laptops (e.g., netbooks, new Macbook Air, etc).

The issue for Microsoft and others is then - what operating system and office software becomes the standard in this future computing environment: Windows and Office, Android/Chrome and Google Docs, Apple's iOS and iWork, or some other solution (e.g., OpenOffice)?

InclinedPlane2• 16 years ago

"For the foreseeable future"? I foresee a future where windows as we know it is obsolete, even in the office, and MS's future as a whole is in doubt.

iOS and Android don't look like Windows killers today, and they aren't. But they are harbingers of things to come. In 1975 the MITS Altair didn't look like a mainframe / mini-computer killer, and it wasn't. In a mere 10 years since the Altair (a toy computer) hit the shelves the entire industry had been overturned, and mainframes/mini-computers were dying out while micro-computers came to the fore. Micro-computers grew up a lot in that time frame, but the essential elements of their superiority were there from the beginning (simpler, cheaper, more mass-production friendly, performance tied to components not overall construction, faster/cheaper innovation loop, etc.)

The same is true for mobile OSes and for web-apps. They have a lot of growing up still to do to compete with Windows everywhere, but the core is still there, and they have far less to grow than the Altair did. In another 10 years how much more sophisticated will be the iPad, iOS, android tablets and phones, and their native apps etc? In another 10 years how much more sophisticated will be webapps? In 10 years a VPS (or equivalent "cloud" instance) with hundreds of gigs of RAM and a terabyte of SSD storage and the CPU power to match will probably cost the equivalent of $20 a month in today's dollars. Add to that powerful new technologies like web sockets and all the other html5 technologies, along with new things we haven't even imagined yet. In 10 years gmail will be nearly 3x as old as it is today, imagine the innovations that will happen in that time.

And I'm supposed to imagine that somehow there's no chance that Windows will lose its footing amidst all this innovation? Perhaps it won't, but I can't predict the future, and from what I see it looks like there are huge very real risks to Microsoft's cash cow.

zmmmmm• 16 years ago

For all MS's failings, one thing they excel at (sorry, no pun intended) is persistence. If they think something is important, they'll keep trying ... and trying ... and trying ... and eventually they usually turn out something pretty good. They did it, for example, in the browser wars (IE4,5,6 were substantially better browsers than their Netscape equivalents).

Everyone I know who has the latest xbox thinks it's a pretty awesome device and it seems to have turned the corner in terms of profitability. It's already in millions and millions of living rooms, has topped the other consoles in sales for the first time and now with integration into WP7 and things like Netflix it is turning into a pretty compelling offering. I think there's every chance we could see the consumer segment of MS's business blossom over the next few years.

bkhl2• 16 years ago

You forgot Vista, although Microsoft relatively quickly turned it around with Windows 7, which is selling at the fastest rate in the history of operating systems.

js2• 16 years ago

I just posted this as an article to Hacker News: "Microsoft's Addiction to Windows and Office." I'd appreciate an upvote. Thanks!

I don't think soliciting votes is necessary around here.

Shamiq4• 16 years ago

My team is working on this product:http://crm.dynamics.com/online/

We're massively ramping up as we get closer to our 2011 Q1 RTW ship dates, and the product is way more polished and functionally relevant than our competitors. Heck, I even think our marketing team has bought some massive advertising on money.cnn.com

We're very excited.

duck2• 16 years ago

Microsoft's CRM product is great and looks to only be getting better. I've always loved how support is handled in the US and very top-notch. Keep up the great work!

sahaj2• 16 years ago

Just a usability thought on the site...

Try this: mouse-over "TRY IT TODAY" and then try to click on "GET STARTED".

The natural instinct is to linearly move the mouse to "GET STARTED", but in doing so you trigger the "REAL-TIME INSIGHT" mouse-over action.

epo• 16 years ago

What relevance does this have to the discussion? How is this not spam?

jseliger• 16 years ago

I've been reading stuff like this on slashdot and the rest of the Internet since I started using the Internet around 1998. With a few changes, this could also have been posted in 2002, 2005, or 2008. In 2013, will MS still be posting massive profits, and will people still be questioning whether Microsoft can keep it going? I'm guessing the answer is "yes."

jimbokun• 16 years ago

And during that time, Apple has surpassed Microsoft in both revenues and market cap, which would have seemed ludicrous in 2002.

So, relatively speaking, those people on Slashdot may have had somewhat of a point. As others have pointed out, IBM still makes billions, but are no longer the leading force in computing. Microsoft appears more and more destined to a similar role.

bkhl2• 16 years ago

www.microsoft.com/cloud/

Microsoft might be a little behind, but they are definitely serious about "cloud". Plus, Windows Phone 7 does not look too bad. It might not be as complete as its competitors in features, but it is definitely a strong ground work.

Let's just sit and watch how those folks in Redmond will monetize better from the cloud.

brc• 16 years ago

You're right about this. One thing Azure is not is a direct clone of either AWS or Google App Engine. Azure is different from both, and I believe once they have sorted it through, they will be using their considerable contact list to leverage existing customers onto the Azure platform. One of the key aspects of this is allowing Azure to be run as a private cloud - which I'm sure is the result of a lot of customer feedback and contact.

wslh• 16 years ago

Well, I am concerned by any company long-term prospects:

- Apple: May be in less than five years a cheap generic chinese mobile clone will have all the iPhone capabilities.

- Google: Search irrelevant, a lot of competition in the advertising arena.

- Facebook: P2P or other kind of social networking.

- Twitter: P2P too.

pclark• 16 years ago

Google is the only company you listed that has failed at expanding it's revenue streams - too early to say for Facebook and Twitter, and Apple is killing it at new markets.

loewenskind5• 16 years ago

Your post brings up the real issue: if you sit still you're going to die.

Apple now makes something like 60% of its revenue from products that didn't exist 5 years ago. I'm sure they realize this and will continue. When they stop they wont be center stage anymore and they probably know this.

Google has been trying almost everything there is to try. It's been almost exclusively failure but their pockets are deep enough that they'll probably get a hit eventually. I guess in that sense they are the closest to Microsoft's current position but they haven't built up nearly the same amount of bad blood yet.

Facebook I have much less faith in. Everyone I know who uses it only does so because they can't find a good alternative. That's a bad situation to be in if you're going for the long term

I don't know enough about Twitter to make a comment.

igravious4• 16 years ago

I will state my bias up front, but hear me out. I think that free and open source software is a better way for companies to develop software and serves the consumer better. With that out of the way my big question to Microsoft (the linchpin software company) is when are you going to make a serious open source play?

It was obvious to some over 10 years ago that this was a movement that Microsoft had to embrace to stay relevant and yet they have completely failed to get it. It is obvious to anybody who enjoys coding that the great developers prefer free and open source software. There isn't a single category of product that isn't built using this methodology now. The worlds fastest supercomputers wouldn't dream of using Microsoft's operating software. Why is that? If Microsoft makes such great software, why can't they power the world's fastest and sexiest computers?

Microsoft is obsolete to many until they address this core issue. You can say all you want about them not making this or that online play but their core business as you point out is operating systems and office tools. Free and open source operating systems and office tools will one day break into that cash cow and when it does Microsoft had better be ready. I can't put it any more plainly than that.

You may now return to your scheduled programming :)

igravious4• 16 years ago

Aaargh! :)

Why am I being down-voted? Others on this page have stated that Microsoft shall not be as profitable going forward for reason X or Y or Z. I have stated why I think this is the case. I can't of course _prove_ it which is why I said that I have a bias up front. But if you look to the mobile phone landscape you have a situation where Android and Symbian are free software. It took a long time to happen and it took two technology giant neither of whose core business was operating systems and office tools per se. Don't you think that this is significant? Let's repeat this, nobody had any success competing with Microsoft at its core competencies until open source competition came along and even then the market that Microsoft "owns" is still firmly within their grasp. Somebody else on this very page expressed their opinion that the technology disruptor would be thin clients/cloud computing and didn't get down-voted for it. But I do. Please do not down-vote me if you disagree with my opinion, express yourself and tell me why you think I merit down-voting. Thanks.

mattmaroon• 16 years ago

Somehow I knew if I clicked comments I'd immediately the same thing I've been hearing for 10 years, and will probably hear for the next 10. "Sure but it's all Windows and Office and how much longer is that really going to last?"

How many more years does Microsoft need to get increasing revenue from those two before that will stop? Or will they just keep saying it, year after year, until it's true. You could have said "people are going to start cancelling their landline phone service" every year since 1950 and you would have gotten to be correct eventually right? Just hang in there.

Aetius• 16 years ago

I wish I could +1000 this comment.

RyanMcGreal• 16 years ago

Despite today's news about Google's expectation-beating Q3 revenue, I'm concerned about the company's long-term prospects in computing.

Looking at Google's recent annual report, filed on October 28, 2010, Google generated 96% of its revenues and 99% of its profits from the following one division: advertising. While this divisions includes a collection of products and services (e.g., mobile), it appears that most of the revenues and almost all the profits of these divisions is driven by AdWords.

jnagro• 16 years ago

i believe their consumer profits are not what they used to be, this money is from companies buying W7 after not buying Vista - delayed upgrades.

http://bit.ly/aA1u4l

Devilboy• 16 years ago

http://money.cnn.com/2010/10/27/technology/microsoft_pdc/ind...

gamble• 16 years ago

This is also the first quarter where Apple's revenue was larger than Microsoft's:

http://www.appleinsider.com/articles/10/10/28/apple_beats_mi...

Microsoft is still more profitable, for the moment.

Microsoft profit jumps 51 percent with record Q1 revenue

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