Sunday, July 27, 2008

The alleged perception problem of Microsoft

There is an interesting PC World article by Nancy Gohring entitled "Microsoft: Stodgy or Innovative? It's All About Perception" which repeats the common belief that Microsoft has a "perception" problem. Overall it is a decent article and does highlight that Microsoft is doing a lot of good work, but it repeats the somewhat-untrue but common belief that:

... Microsoft needs to address the perception problem, which runs deep and could have repercussions on sales of future products if the company doesn't manage to fix it.

The article also claims that:

The perception problem stretches into the online services market, where Microsoft has struggled to attract users.

While it is true that Microsoft is working very hard to drive deeper into the online services market, have they really done that badly? If we consult the Alexa ranking for the Top 100 Web sites we find that Yahoo is #1, Google has #2 (Google.com) and #3 (YouTube.com), but then Microsoft has #4 (Live.com) and #5 (MSN.com) and #14 (Microsoft.com). That is actually not that bad at all, being the #3 player in the online space and having two of the Top 5 sites. Sure Microsoft wants to be better (witness their recent interest it acquiring Yahoo), but to label the #3 player as suffering from a perception problem is rather misleading and outright ingenuous.

The problem Microsoft has is twofold: 1) An army of naysayers and opponents of the company in Silicon Valley, and 2) An army of biased critics in the media and on Wall Street. These are hard-core bias issues, not "perception" per se. No amount of effort by the company is going to reduce the incessant naysaying of company opponents in Silicon Valley. Ditto for bias in the media and on Wall Street.

What is the source of all of this bias? Simple: Microsoft has been too successful and does not owe any of its success to the chattering classes in Silicon Valley, the media, or on Wall Street. Microsoft has focused on producing economical and "good enough" products for "the masses", bypassing the need to be "blessed" by "The Elite" in Silicon Valley, the media, and on Wall Street. Microsoft has been successful at commoditizing its image. Almost everybody, even those who shop at Wal-Mart out of economic necessity, can now afford to have a PC in their home and office. Sure, the PC hardware vendors and software developers and other members of the "PC ecosystem" have helped in that effort, but it is Microsoft that led the way on the operating system and office productivity software fronts. A lot of people in Silicon Valley and the media and Wall Street are intensely jealous of that success, and show it. That is the root cause of the so-called "perception" problem, the elephant standing in the middle of the room that the media and company critics refuse to acknowledge. That is an issue that Microsoft has to cope with on a daily basis, but it is certainly not the kind of "image" or "perception" problem that Microsoft can do anything about other than to quietly tolerate it and keep on pumping out economical and "good enough" products for "the masses."

Sure, Apple and Google and many other companies are very successful, and even more successful than Microsoft in some niches, but Microsoft is still wildly successful overall by any measure.

How successful? For the fiscal year that ended June 30, 2008, Microsoft recorded revenue of $60.4 billion and net income of $17.7 billion. Google? Net income of $4.2 billion. Apple? Net income of $3.5 billion. Nobody is even close to Microsoft.

And just how bad is the "perception" problem on "drag" from Vista and Microsoft's online investments? A year ago, revenue was $51.1 billion and net income was $14.1 billion. That is a revenue increase of 18% and a net income gain of 26% on the back of so-called "disasters" on the Vista and online services fronts. So much for "disasters." Given its size, Microsoft's growth is absolutely phenomenal.

For the record, the trailing P/E ratio for Microsoft is 14.0, well below the rate that net income grew over the past year even with the perceived "disasters" of Vista and Microsoft's online services efforts (with their #4 and #5 Web sites.)

The "facts" about Microsoft, as a company, as an organization, its products, its services, its financial results, and even many of its future plans are readily available in the Web and well-known to many people in Silicon Valley, the media, and Wall Street. These people know exactly what is going on with Microsoft and it is not an "image" or "perception" problem. It is called bias, and a lot of it is outright malicious in nature. Microsoft is doing the right thing and simply ignoring it and pushing on and focusing on developing and delivering products and services for its customers and not catering to the chattering "elite" of Silicon Valley, the media, and Wall Street.

I would just like to see people be a bit more honest and talk about their own bias problem rather than the so-called "perception" problem.

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Disclosure: I do own Microsoft stock and continue to purchase it, most recently two weeks ago.

-- Jack Krupansky

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