If we needed a confirmation that the recession has really bitten then the news that Microsoft earnings dipped by 11% on the same quarter last year to $4.17bn for the quarter ending 31 December was certainly it.
'We Are Not Immune'
CEO, Steve Ballmer, was unusually contrite in announcing the figures and declaring that even Microsoft is not immune to the markets but he also felt 'The strength of the portfolio and the soundness of their approach' would see them through.
That soundness of approach would be the tactics that Microsoft uses to often beat customers into their way of thinking. That they make so many versions of product that are not backward compatible and got away with it has always been a mystery but the latest Office 2007 is a classic case of 'Follow - there is no other choice'. That has always been Ballmer's way and it is perhaps interesting that this is the first quarter's results since Bill Gates quit his day job, and they are not very good.
The First Cut Is The Deepest
Even more humiliating was the announcement of 5,000 jobs to be cut, 1,400 immediately. This is the first time that most analysts can remember Microsoft having to do anything like this on this sort of scale in their entire history. I am humbled to see Microsoft following my advice on cutting expense on travel though I dare say Steve and Bill are not regular readers of my blog, perhaps they got it from a friend.
The Focus Ahead
If you talk to anyone at Microsoft on the sales side, they will tell you that the pressure is definitely on, perhaps for the first time. Microsoft are not a big commission company and so they don't attract hard-nosed software salespeople but more those who are easily programmed to slip into Microsoft-speak and use phrases such as 'Selling the Office stack' and getting 'Deployment' which is reference to those customers (well nearly all of them) who have actually paid for a whole series of new versions of Microsoft licences some way in advance but have yet to actually deploy the new versions. A whole generation of Corporates will probably skip Vista, which is arguably Microsoft's biggest flop. Meanwhile, the take-up of MS Office 2007 and all the 'stack' of products inside it is a more worrying phenomenon as some time in the future it will leave a gaping hole in revenues if customers are unwilling to pay for the next set of upgrades if they are still on a version earlier than the current. That alone has Microsoft executives worried.
There are other issues as some large customers have paid for an Enterprise Licence for all products yet many departments don't use anything like the whole suite of MS products. Call Centres are good examples of this this as they use multiple, purpose-made systems which don't use standard MS products. At some point, some eagle-eyed CFO will think about asking for a credit for licences not used but to date I don't think anyone has had the guts to stand up to Microsoft.
The Cracks Appearing?
For those who have seen Microsoft virtually print money off the back of owning such a massive proportion of the computer operating system market at the desktop level, you have to ask questions as to whether the future is as rosy for Microsoft as it has always seemed in the past. Constant chipping away at security within Windows, a clumsy browser prone to failure, an inferior search engine to the market leader, Office programs that still have the same bugs in them as when they first came out, new programs that are a shadow of the performance of market leaders and a very slow drag to get into Software as a Service (SaaS) means that for the first time in a while, Microsoft is not dictating the future so authoritatively - in my humble opinion.
The next year is a big one for Microsoft with pressure at the Corporate end building, the gaming and consumer aside is also creaking. We shall see about that 'Soundness of approach'. Certainly Wall St was not convinced and their stock price dropped nearly 8% on the news.
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