In my posts yesterday on the Microsoft Financial Analyst Meeting 2007, I focused on the concrete announcements and eschewed the high level pronouncements because frankly I was hard pressed to be sufficiently acerbic without appearing unduly negative. I don’t know that I have really resolved the quandary, but here are some thoughts on Microsoft’s new business initiatives as promulgated at FAM 2007 by Steve Ballmer, Ray Ozzie, Robbie Bach and Kevin Johnson.
While I am one of those that believes that Mr. Ballmer is much cleverer than he usually appears, his presentation yesterday was rife with the cringe-inducing comments for which he is famous. No one expected a mea culpa, but a little stroking of the investors who are getting nervous watching the loot pour down the rat hole in Entertainment and Devices and committed to an amorphous strategy of Web advertising and “software plus services” would seem to be in order. To wit, there’s MSFTextrememakover’s take:
MSFT management is calling for no earnings acceleration because they’re going to keep spending ridiculous sums on suspect “big bets” and failed business models like Xbox, while continuing to under execute wrt delivering core products that actually thrill users and generate word-of-mouth buying excitement. As regards the stock, expect it to continue to under perform. After all, who wants a mature 8-10% grower that’s still spending like it’s a high-growth company – and rewarding its upper echelon accordingly – because its management is ineffective and in denial?
Well, I suppose management can always buy off the complainers with increased dividends and more share buybacks.
There’s no doubt that Mr. Ozzie is a smart guy so he surely notices that the four layer plan that he showed for Microsoft’s software plus services “strategy” doesn’t really bring too much new to the table. The software is the familiar cash cows already in Microsoft’s barn and the services bear an uncanny resemblance to Hailstorm with some of the names changed. Perhaps the biggest difference is that now your Live ID (used to be Passport) also gets you targeted Web ads.
Of course, the remake may be better than the original, but as Nicholas Carr observes:
Microsoft and Ozzie have been talking a good game about cloud computing for the past two years. But we’re still waiting for the Redmond team to take the field.
Microsoft seems fundamentally incapable of resolving the dilemma posed by their cash cow PC applications and the new world of Web applications and maybe there really is no solution. However, it sure seems to be expensive to rediscover that every few years.
He could hardly say it wasn’t going to get better in Entertainment and Devices could he?
The president of Microsoft’s Platforms & Services Division which encompasses the ultimate Microsoft cash cow in the Windows client operating system devoted his entire talk to Microsoft’s “big bets” on the online advertising business and Windows Live. ’nuff said.
Update: Some analyst reaction:
Reaction among analysts Friday to Microsoft executives’ emphasis on the importance of still-unprofitable businesses was mixed.
Pacific Crest analyst Brendan Barnicle, who rates Microsoft shares sector perform, said in a note that he was taken aback. “While it was clear that Microsoft was entering these [online and entertainment] markets, it was surprising that Microsoft chose to make them such a focus of its analyst day and its growth. We are concerned that these new markets have considerably weaker margins than Microsoft’s existing businesses,” Barnicle said.