Why is Microsoft failing?

The title is supposed to be tongue-in-cheek. Gates is the richest guy in the world. His partners are among the richest. Microsoft (MSFT) created thousands of employee-millionaires. MSFT produces a net profit, of about $150,000 per employee per year. Over the last five years revenue and income have grown about 10%, which is twice the growth of US GDP. If only we could all fail like this!

The kernel of truth is that MSFT is growing slower than it once did. Instead of today’s 10%, the late 90’s saw it grow 20-25%. Net profit per employee was once more than double today’s figure. [The stock has been flat for a while, but that’s “Mr. Market”.]

MSFT’s has three profitable businesses that have long been central to MSFT:
Operating systems for PCsOffice s/w [Word/Excel/etc.]Servers and Tools [Visual Studio etc.]The first two dominate their market, with little market share left to be grabbed from others. In the hands of an ordinary company, these might have declined, being eaten by Linux and Open-Office, respectively. Yet, MSFT grows them around 5% a year. Servers and Tools got hit for a while by the Java wave, but are growing vigorously again.

However, the criticism is not levelled at these mature business-lines. The real criticism is: why aren’t they doing something new? Why did AOL take a huge chunk of market-share, with MSN playing catch-up and losing money? Why did Yahoo bring out the first good Web-directory? Why did Google bring out the first good Web-search?

In other words: why isn’t Gates the guy with all the ideas? how come someone else gets good ideas now and then?

To be continued…

[Given the title of the blog, I figured I needed a software-related post. So there.]


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