Why Microsoft is Jealous of Apple

Microsoft has been struggling to find a new line of revenue that will 'move the needle' for more than a decade.  Their stock price has gone down 8% relative to 10 years ago.  As a comparison:

  • AAPL (Apple): +3,701
  • AMZN (Amazon) : +903%
  • GM (General Motors): +8%
  • PG (Proctor and Gamble): +87%
Source (1/21/2010)

Not only have technology companies wildly outperformed Microsoft so have large US stalwarts like GM and Proctor and Gamble.  GM even pulled that off despite bankruptcy protection!  Microsoft is struggling for Growth.

Microsoft's revenue by division in the latest reported quarter (Q2 2011 - Ending 9/30/2010):
  • Windows and Windows Live: $4.76B
  • Server & Tools: $3.96B
  • Business: $5.126B
  • Online services: $0.527B
  • Entertainment & Devices: $1.8B

The vast majority of Microsoft's income comes from the same place it has for years: Windows, Windows Server, and Office/Exchange.

There is little growth potential for these businesses (at least in the Western world) as they are nearly a monopoly in the Windows and Office/Exchange business lines.  And these lines of business are under new attacks on several fronts.

Windows: Mac OSX, Netbooks, iPads, Android Tablets (soon), and Chrome OS (soon) are or soon will be increasing their market share.  While it is not one to one, the growth in this area will diminish the Windows market share.

Office/Exchange: The advent of hosted solutions, primarily from Google in the form of Google Apps (Email + Office) enables smaller (and now medium size to large) companies to utilize Google as an alternative to the Office/Exchange monopoly.

Microsoft has focused on new fronts, such as Search (Bing), Mobile (Windows Phone 7), and Gaming (XBox) to provide growth (or backfill slowing growth).  But when you look at the current picture, less than 15% of its revenue comes from outside of the three major cash cows.

The picture looks even worse when you contrast it with Apple.  In Apples most recent quarter (one after the above MS quarter), Apple reported $2.79B in revenue from the iPad.  The iPad, less than a year old, has already surpassed the revenue of all of Microsoft's new endeavors.
(Apple revenue source)

So Microsoft, in a decade of attempting to find new revenue, has come up with less revenue than Apple has in the 3rd quarter of a new product that was nearly universally shrugged off by the tech reporters.

Microsoft needs to launch an iPad sized product every other year to regain anything near its previous growth.  Apple has done that for nearly the entire decade.  Microsoft has maybe done it once, with the XBox 360, after many years of investment.

This is why I think MSFT will still be a $30 stock in a decade, while Apple will have another decade of 4 digit percent growth.

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