Microsoft loses cash on each Surface slab – but core biz strong as ever Microsoft again reported solid earnings for the second quarter of its fiscal 2014 on Thursday, beating analyst estimates with figures that in some cases exceeded its own expectations. Sales were up for Redmond's Devices & Consumer and Commercial divisions alike, for total revenues of $24.5bn (£14.73bn) for the three months …
"Redmond's efforts to break into new areas such as hardware and the cloud, it still a company that's very much grounded in the traditional business software model. That could help it or hurt it as we enter calendar year 2014 and beyond – we'll just have to see."
Being grounded in the "traditional business software model" could indeed help Microsoft, were Microsoft willing to provide software that people want to buy at a price they can afford. Sadly, Microsoft is clinically obsessed with the concept of software rental and abjectly incapable of listening to it's customers. Thus, being grounded in the "traditional business software model"will hurt Microsoft as individuals and companies continue to invest in software and services that have nothing to do with the Beast of Redmond.
Not that Microsoft is doomed; it will take quite some time to die, thank you very much...but it has likely peaked. Maybe not in revenues - I expect those to be mostly flat for some time as it scrambles to diversify, thus doing an IBM-like job of hopping from one revenue stream to the next - but certainly in influence, mindshare and name-brand caché.
TL;DR: Microsoft have become has-beens, and they've aught but their own hubris to blame.
So you missed the bit where M$'s cloud revs grew better than expected? Even ignoring Azure (which seems to have quite capably denied the continual reports of its imminent demise), M$ can afford to have traditional desktop app sales drop off if they are matched (or exceeded) by cloud subscriptions to services like Office 365. And the good news for M$ on the cloud model is it is virtually pirate-proof, and is a continual revenue stream that will usually provide more income over the years than a one-off software license sale. Which is why they're probably not too fussed about making a loss on Surface as everyone seems to go for an Office 365 subscription with the tablet. I even know plenty of iPad owners that are using Office 365, and I'm told I can use it with Android devices too, which probably makes Google and Apple rage as M$ piggybacks them and increases M$'s revenues!
I keep reading people on here saying that an Office 365 subscription is terrible value. I don't get it. I needed Excel on my own machine for a few weeks, for a brief spell of working from home. I paid a few quid a month for Office 365 for about three months. Then I cancelled, with no hassle whatsoever. If I need it again, I can renew, with no hassle whatsoever. And that price covered all the computers in my house, not just one. And, while outside the subscription, the software still sits on my machine and allows me to open and read (but not edit) Office files for free. What an absolute bargain.
Would take one look at all that red ink on X-Box, Bling, Nokia and Surface product bottom lines and either sell the lot off or close it down.
Like 'The Internet', Microsoft have clearly lost the plot on several fronts. Gaming is cut-throat with very little margin on the hardware (as Sony and Nintendo have demonstrated), Bing is a dead duck when compared to Google and the Nokia brand is really badly tarnished when compared to the likes of Samsung and Apple.
Time to cut the losses then?
We will have to wait and see.
These inherrent problems could be why it is taking so long for them to find Balmer's replacement.
Perhaps they have offered several people the job but have turned it down when the find out about the shackles they will have to wear in order to do the job?
Then there is the incredibly thorny question of where the next MS cash cow will come from. I don't see any survivable calves being born yet.
You'd not be a very good CEO if you simply cut any product or division that didn't immediately make a profit. Surface is doing well, considering the uphill battle it has competing with the iPad - it is gaining traction in business for one. Xbox now makes a profit. Sure, that doesn't yet cover the early losses FY03-FY07, but investors don't actually care about 'old losses' particularly. They care about future profits.
Nokia, again, they only just bought it - getting rid of it already would be stupid and bad management (kinda like HP buying the WebOS stuff and then shutting it down without developing the business).
However, Bing? I'm not sure here. They need something to tie their consumer services together and Bing could be it. As it stands, they market their web products under too many names. Google advertises their products quite simply (in most cases) Google Drive, Google Apps, Google Picassa etc...
"Google advertises their products quite simply (in most cases) Google Drive, Google Apps, Google Picassa etc..."
Yeah like Google Play Music All Access, which rolls off the tongue like a hairball
One day G will figure out that they're big and hated, and will start fragmenting their brand like other market dominators do in the hope that casual consumers have trouble figuring out who the true product owner is
@AC - the point is, they use their company name to advertise their products. Microsoft don't advertise Bing as Microsoft Bing. They don't advertise Microsoft Xbox One, or Microsoft Windows Phone. There is no single unifying branding across their product range - so people don't build up a single 'profile' of how good Microsoft is. They also don't make integration between their products particularly simple or smooth.
You say Google is big and hated? Their profits would indicate otherwise!
The traditional 'volume licenses for lock-in ware' model earns vast amounts of cash. Prices can be raised again and again to counter loss of market share, so this will not change any time soon. While this is Microsoft's main profit centre, every other Microsoft division cannot do anything that would hurt it.
Microsoft cannot make a small cheap computer because each one sold replaces the sale of a computer with and expensive software license.
Windows on routers, satnavs and washing machines is a complete non-starter because of the required licensing fees. If anyone ever made a success of such a product, licensing fees would increase until Microsoft owned the business.
Two computers in the top 500 are Windows machines (one is Microsoft's and the other is old). If Microsoft reduced the license fee per CPU to something competitive and allowed scientists to modify the OS as required then the volume license fees fall through the floor and the barn door falls off lock-in.
The phone carriers decide what phone operating systems can be sold for their networks, and they have declined to race towards bankruptcy like every other large business that becomes dependent on Microsoft. If Microsoft really wanted a Windows Phone, they would have to provide the software with a GPL or BSD license. Make sure all the furniture is nailed down before suggesting that at the next board meeting.
The only business Microsoft has that is compatible with main revenue stream is patent trolling Android. OEMs have swallowed that in return for Windows 8 licenses at a non-discriminatory price. They cannot remain viable if they continue to fund Microsoft. There was a recent supreme court ruling that past payment of royalties is not evidence of patent infringement. At some point the OEMs are going to realise that the terms and conditions for receiving Microsoft Marketing expenses do them more harm than good.
For those of you currently locked in, will you switch to Linux when Microsoft licenses cost £3,000 per year per seat or £30,000?
So basically what we are saying is that MS did nothing this year they would of made a huge profit.
In fact it's worse than that. If they had closed there web and mobile divisions, sacked all there developers and kept a small team on to fix bugs etc, they would of made an even bigger profit and kept investors happy.
Nice business if you can get it
Or in other words, Microsoft hiked its software license prices up and made more profit than expected. Great!
Pushing Office to the cloud means the underlying operating system, MS' other bread and butter, becomes more and more irrelevant. And, especially because their browser lost 50% market share over the last three years, they have to implement net standards properly to re-gain market share ... implementing these means they have to ditch their proprietary stuff and if they do, Office 360 will become more and more accessible to other platforms. It will take time, though.
It beggars belief how so many CTO's get away with paying so much cash for software each year. All it takes to get massive discounts is to wave the RedHat Enterprise flag, apparently, no Microsoft client has the intellect to think of that, which explains why they still use MS software, and uncle Fester is still laughing on his way to the bank.
Simple:
Most companies use (customizable) 3rd party software that either exists only for the MS platform or requires MS software for various tasks. Sure, they software company will port to mySQL and OO - IF you pay them! And since what you want is not the mainstream solution but individual stuff - you pay A LOT of money. So the CTO stays with SQLServer and MS Office since that is the best short/mid term investment.
Add in stuff like certifications for certain software etc. and you get the picture.
> Although Surface revenue more than doubled since the first quarter, it still accounted for just $893m of the total. Rather, the lion's share of the Hardware division's $1.9bn revenue ...
Er, what? 893m is 47% of 1.9bn. Surely better wording would have been something like:
Surface revenue more than doubled since the first quarter, and now accounts for nearly half of the Hardware division's revenues.
"I would if your goal was accuracy and not negativity.
You must be new here."
Brilliant; EL Reg is the anti-Microsoft, fandroid lovers tech news source of choice. Do not expect even the smallest bit of positive (or even balanced Microsoft news and comments here). I am convinced El Reg must be all staffed with old ex Novell, Netscape employees with that rusty olde axe to grind away with...
Firstly, the article clearly said it was "the lion's share of the Hardware division's $1.9bn revenue HIKE..." You left off the crucial word "hike", thus misrepresenting what the author was saying, namely that the 54% gain in XBox revenue in the past year outweighs the total current revenue from Surface.
According to Microsoft's own press release, your interpretation that Surface revenue "now accounts for nearly half of the Hardware division's revenues" is simply not true. Microsoft says that "Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter." (http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY14/Q2/default.aspx)
Since the Devices & Consumer Hardware division's latest quarterly revenues are $4.73 billion as the article correctly reported from Microsoft press release, Surface's total of $893 million only accounts for 19% of the division's TOTAL revenue, as opposed to 47% of its year on year INCREASE in revenue.
So there was no bad maths involved, at least not on the author's part. On the contrary his figures fully substantiate his statement that "you can't credit [Surface sales] for most of those gains."
What Monopoly? There is none and there has never been one. Macs are older than Windows, IBM had OS/2 for quite some time, Atari/Amiga/Acron offered good systems and there is always UNIX that actually was marketed as a client OS by SCO, SUN, Interactive... for some time. Same for Office Suits (StarOffice, AmiPro etc.) and other tools.
Ultimately all theses alternatives failed the ultimate testing tool - the end user! The companies dropped the ball, some (Atari and Commodore are good examples) multiple times by not having a good marketing and actually refusing to SELL products they had ready and customers demanded because "That is not our business segment" (Unix-equiped variants of their systems, ATX Transputer system etc)
Microsoft obviously does not comprehend that the old 20th century business tactic of losing money on a product for the long term just to hurt the competition won't prevent Apple, Samsung, the other Android vendors and Google's ChromeOS from continuing to "gain" greater market share to Redmond's detriment, and these very wealthy competitors certainly cannot be priced out of the market, like the Microsoft sorry practice of yore.
MS does not have to "price competition out" - Just ask IBM
MS has the revenue stream to test the water for a few years and then continue selling what works and drop what does not. So expect Surface/ARM to die by 2015 and both XBox One and the S/P2 to gain at least a black zero on the hardware sales. With X/1 the business is licences/games and S/P2 is a shwocase/establishing a price base tablet pc device so black zeros are good enough
As for WP - they just have to keep selling them AND delivering updates/security patches like they currently do and Samsung will do their work for them by quitting support for even premium models after about 12 month. There already is a grumbling about that and many people do not see CM as a solution, even less when companies like MS and Apple offer longer support terms
I seem to remember MS jacking up the prices for almost everything they sell. Surely this is a major contributing factor to any increases. Once businesses are locked in to MS, they are basically held hostage and forced to pay the higher prices. Because most businesses are focused on short term goals, they can only see that it appears cheaper to pay more for MS products than invest in other more economical software that would benefit them in the long-term.
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