Is Microsoft The Digital Version of GM?

When Microsoft announced earnings a few weeks ago, the top line was such a bad miss, that many investors quickly went and tried to reconcile what went wrong. The 4Th quarter setback just sealed the worst year in its 23-year history as a public company, and the first in which it has seen a revenue decline.

Revenues declined 29% in the windows division. They actually missed revenues by some $500 Billion! I can explain some of the weakness as Windows 7 is coming soon, but the this type of revenue decline wasn't seen when Windows 95, Windows 2000, and when XP came out. Is it just that broader trends in technology have hurt the company? Some 10% of all PC sales have come from netbooks and other low-cost laptops.

The stock is still up some 60% from its March lows, and has still rallied some of late, but the alarming thing is Microsoft’s operating system business is not new, and it has never been particularly cyclical. Windows revenue, prior to this just completed quarter, has only ever gone in one direction, and that direction is up.

Windows is at the core of everything Microsoft does that makes money. They sell Windows, then they sell software that runs on Windows. As Windows goes, so goes Microsoft, and right now Windows is heading south. The only reason the stock wasn't down 20% that day was that the broader technology tape has been very strong.

Some say the the global economy is still slow, some say tech spending is still not where it should be, some say like Dell, that PC shipments are still in the tank, this seems to be also the argument that Microsoft's execs are making as well.

SO why are Google and Apple still cranking out the lunch money? I understand its a different segment of tech, but this segment is where the growth is.

Apple operates in the same economy Microsoft does, and Mac sales are up. The sub $1000 PC market is where Apple has made the biggest in roads. And its this segment that is a sign that the market is turning against Windows. If for no other reason than that Apple has never entered the low cost computer market, it’s always been the case that the most budget conscious computer buyers were Windows users. The only reason to buy Microsoft windows machine is for price.

Apple came in and has just killed them. Web developers had to know both the Mac and Windows, and the painful truth for Apple was that many preferred Windows. Today this is just no longer the case. People are so obsessed with the Ipod/I-Phone that people who love computers overwhelmingly prefer to use a Mac today, including me. Microsoft’s core problem is that they have lost the hearts of computer enthusiasts/Nerds.

This is true on many fronts at Microsoft. In some circles, Microsoft is being compared to General Motors. Many Americans stopped buying GM a long time before it became irrelevant. The classic car enthusiasts stopped buying GM before the general public did, this is exactly what is happening to Microsoft. Same thing with Yahoo, the web geek started to use Google first then came the entire planet.

What happens with Windows 7 is crucial. Vista was a total disaster. Why else would Dell give the user the benefit of downgrading to XP when buying a Vista machine? But from what I am hearing, Windows 7 won't be a train wreck like Vista, that's the best I am hearing at the moment. Does that want to make me go out and buy a new machine with Windows 7 on it? Upgrade my old Dell Inspiron XP laptop? Can Windows 7 be like Windows 95 and XP, make loyal Mac user switch to Microsoft?

What's disturbing is that Microsoft is resigned to the fact that Mac users who switched over are gone for good, that Windows 7 is like a do over for Vista. This is not the same Microsoft from the 90's. If it was, they would spend more time and energy making Windows 7 the best OS, not trying to make up for a lousy OS like Vista. Lets be honest, Mac OS X is a killer OS.

The guys running Microsoft are not taking these things seriously, they are wasting money on stupid ads like the ones for Best Buy. For the longest time Microsoft ignored Apple's market share gains, they aren't anymore, thus you see more ads on TV. Apple's ads are all about the Apple experience, while Microsoft's are all about price. We all know this already.

Microsoft is software company whose primary platform no longer appeals to people who like computers the most. Their executives are either in denial of, or do not perceive, that there has emerged feeling that windows has become second rate.

We have not even gone into mobile software or search, where Microsoft is clearly toast.

Microsoft is a lot like GM was in the mid 90's. Many people thought it was unrealistic and unthinkable that the worlds largest car maker would ever go out of business, they were too big, too much market share, too loved, too dependable, too much of a fixture in peoples lives. What happened to GM was a tragedy that the executives never took the competitive pressures seriously. This is so similar today what is happening with Mr. Softy. Google is eating their lunch in search. Apple is killing them in music/mobile computing. The simple fact that Ballmer had the nerve to offer $45B for that crap company Yahoo, tells you that Microsoft really has no clue what they are doing, the simple fact that Jerry Yang turned him down is further evidence that Yahoo needs to die a quick death.

The results we saw this quarter is not an aberration, its just the beginning.