Will Microsoft die like WorldCom?

hamjudo2000

May 11, 2008

Most people know that WorldCom died in a round of accounting scandals and trials. However there were certain conditions that created the right environment for corruption.

Before the scandals, WorldCom was predicting that the growth in internet accounts in the US would continue at the same exponential rate. There were about 100 million Americans with internet access out of a total of about 300 million. A little simple math would be enough to show that the number of US users could not double twice more. Furthermore, there was a significant fraction of Americans who would not be buying their own access until they grew up.

WorldCom continued to post growing revenues, despite the little issue, that there user base could not be growing that fast. This meant that throughout the management structure, there was tremendous pressure to generate reportable income, and little incentive to check the underlying basis for that revenue.

Microsoft is entering a similar market place. The user base is not growing as fast as it used to. Individuals and businesses are keeping PCs longer. So there are less replacement purchases from the existing user base. Laptops allow users to use the same computer in multiple locations. There is no need for businesses to buy their employees desktops for the home, for the office, and a laptop for travel, since one laptop does it all.

Apple has become a real competitor, taking a chunk out of Microsofts market. Linux users can now buy systems without paying the Microsoft tax. Linux users represent a smaller fraction of the user base, but we are rapidly growing.

Alternatives exist, so Microsoft can't increase prices without limits. In fact they've even been lowering some prices.

Like WorldCom, Microsoft revenue is reported as growing, and it is growing faster than the changes in pricing and the user base suggests.

This creates huge pressure on Microsoft managers to meet the unmeetable numbers, one way or another. Some ways are probably legal, such as recording the revenue when the OEM buys the product, not when the final consumer buys. That kind of trick moves revenue back in time, but it can only be done once.

Will Microsoft management have the strength to resist the urge to cheat and report a down turn in income to match reality? Or will they keep reporting year over year growth, and not question where the reported income is coming from?

WorldCom died, but many of the pieces live on, but they aren't all parts of the same company. If Microsoft dies in a similar way, it too will get cut to pieces.

4:08:13 PM


Re: Will Microsoft die like WorldCom? NO

ruidh

May 12, 2008

There isn't even enough of the parent that I can quote to bounce my case off of.

Worldcom and MSFT are in completely different businesses. WorldCom has to spend tons and tons of cash in order to build out capacity. The had to borrow this cash in the financial markets. With an A rating, they got attractive rates for their bonds.

MSFT has a few cash cows. They are flooded with cash. They don't borrow. They only started paying dividends because Wall Street practically forced them to start living like a mature tech company and not like a startup.

As long as Windows and Office continue to generate cash, MSFT can afford to lose money on riskier ventures. Most of MSFT's bad behavior in the market is geared towards protecting it's cash revenue streams. It uses these cash streams to try to extend its tentacles into new areas -- gaming, music players, search engines. They recall how they knocked IBM and Lotus off of their perches and realize how quickly it could happen to them.
If and when MSFT dies it will be because their OS, network, corporate infrastructure and Office offerings are supplanted in the marketplace.

This is why FOSS scares them into putting on their brown pants.

3:02:22 PM


Re: Will Microsoft die like WorldCom? MAYBE

hamjudo2000

May 13, 2008

The operative portion of the grandparent post is:

Will Microsoft management have the strength to resist the urge to cheat and report a down turn in income to match reality? Or will they keep reporting year over year growth [ http://finance.yahoo.com/q/is?s=MSFT&annual ], and not question where the reported income is coming from?

>>> Worldcom and MSFT are in completely different businesses. <<<

But they are/were filing reports with the same SEC and competing for the same investors.

The question is not, "will they run out of money if they use sound business practices?". Parmalat and WorldCom may have both recovered if they had acknowledged they had a problem, when the problem first became visible. Instead, their management opted to maintain happy balance sheets, even though they couldn't maintain happy bank balances.

So the question is: "Does Microsoft management have such huge egos that they can not admit to the end of growth? Will they cheat, or allow cheating to maintain the facade of growth, even as their corporation is shrinking?"

Please take into account Microsoft's reputation for fair business practices when considering that question.

1:15:37 AM


Re: Will Microsoft die like WorldCom? YES

Zarbo

May 13, 2008

After 34 years (or so) of observing business, "the industry", and Microsoft (after it came into this world), I can say that they *will* die like WorldCom. Sort of: It will be long, painful, and fun to watch. Cough, a**holes, cough. I can hear the wheels turning: "It worked before, let's do it again."

I hear you saying, "But Zarbo, how could you know that? On what do you base your opinion?"

Read this paper: [1] Save it in your files. Cherish it. There is a rational explanation for our observations and "gut level" feelings about incompetence.

It explains it all. Summary? People who are incompetent are unable to perform self-assessment. They are, therefore, unable to assess their own chances of success. They bull their way blindly ahead, absolutely sure that they are doing the "right" thing.

Finally, there is proof that the over-confident manager, sales rep, CEO, or other "authority figure" is (probably) incompetent. The more confident they are in their abilities, the more incompetent they are. By up to 66% they are mis-assessing their abilities. (-;]>

It is funny beyond belief that to overcome the incompetence, all you have to do is educate the person in the subject area. >!Poof!< The ability to better self-evaluate ability. Incompetence shrinks. Heh, heh.

The paper has helped me separate confidence from ability (by the way, nice != competent, either). People like Ballmer and Gates [2] are surely incompetent but supremely confident in their (missing) abilities. They don't have the sense to know that they were just in the right place at the right time, were able to capitalize on the opportunity (some credit due here, but not for methods), and that their time has passed -- they should take the money, shut up, be happy, and retire.

Really -- let's look at reality for a moment -- how many of Billy-boy's technology predictions have come to pass, no matter how hard he has tried to force them to happen? I thought so.

++Zarbo-;

[1] http://www.apa.org/journals/features/psp7761121.pdf
[2] "Bill has the perfect name. What is a computer but lots of little gates, and he gets to bill us for
them." -- Peter Bergeman, FIresign Theater member, HP World address 1996

12:45:07 PM


Re: Will Microsoft die like WorldCom? YES

bstone17

May 13, 2008

>> I can say that they *will* die like WorldCom. Sort of:<<

As a general rule, companies that die are following their "successful" strategies into oblivion. Look at SCOXQ.pk[DIP], I believe their mindset came from Yarro's success with suing Microsoft, and they assumed that they could scam any large corporation the same way ... get lots of discovery and threaten to disclose the dirty laundry, try to disrupt their business and their relationship with customers, and drag it out as long as you can, and you'll get a big settlement.

MS has been very successful just going about monopolistic and bullying tactics, and paying the "rent" for it as it comes up. After all, they earn more by cheating and the penalties aren't even close to their gains.

The problem comes up when the tactics start to falter, and the response is to just do more of the same, but try harder. The executives don't see that it's no longer working, and do what they've learned to do in the past, but more aggressively. That leads to a quick jump off a cliff, or pursuing it "to our utter destruction".

The big corporate scandals start out on a small scale, and they generally get away with them until things get out of hand. "Our quarterly results are down, let's ship some stuff to a warehouse" or "lets book some of next quarter's revenue now" has taken lots of companies down once it begins to snowball. The problem is that it appears to be working for long enough that the behavior is learned and becomes impossible to quit.

I expect MS to keep trying the same tactics and accelerate their demise once it begins to snowball.

5:30:11 PM


Re: Will Microsoft die like WorldCom? YES

tinnytuba

May 14, 2008

"I expect MS to keep trying the same tactics and accelerate their demise once it begins to snowball."

There are (to me) a couple of things that are interesting about M$ monopoly. First, their monopoly is not over a consumable, like soap or oil. Secondly, their monopoly is less secure because of what, in normal businesses, might be called 'mom and pop' operations:- the growth of FOSS.

Both of these suggest to me that a tipping point may happen, as opposed to a snowball effect, i.e. there will be a sudden decline of M$ fortunes, rather than a slow and steady one. The trigger will be some revelation, such as that Vista sales are much less than some real or predicted value. People don't have to buy software, if they already have some, or ian alternative is available, unlike consumables such as soap..

If there is a sudden turn, then we can be confident that Ballmer and crew will definitely not react quickly enough, and will also not have time to modify what has worked in the past for them.

12:31:24 PM


Re: Will Microsoft die like WorldCom? YES

hamjudo2000

May 21, 2008

>>> If there is a sudden turn, then we can be confident that Ballmer and crew will definitely not react quickly enough, and will also not have time to modify what has worked in the past for them. <<<

For those who haven't been paying attention, exponential growth looks like a sudden turn.

At one point in 1991, there was 1 Linux user. A few months later, there were a couple hundred. There were other uptake spikes, and probably a few periods of slower growth. So in the short term, the growth is not a nice smooth exponential curve.

Likewise, it can't continue growing at an exponential rate for another 17 years, since that would mean more than 100% of people use Linux.

In the midterm, it does look exponential.

I'm not sure if the mainstream media will talk about the sudden increase in usage when it goes from 10% of Americans to 20%, or perhaps not until it doubles from 20% to 40%.

Our local paper does generally note whether computer hardware supports Linux when it prints reviews of "electronic gadgets". So there are enough Linux users in the readership to get the paper to start paying attention.

... suggest to me that a tipping point may happen, as opposed to a snowball effect, i.e. there will be a sudden decline of M$ fortunes, rather than a slow and steady one.

I think the tipping point will be when people realize that almost everyone knows a few Linux users. At that point there will be very little pressure for the majority of computer purchasers to stick with Windows because it is all they can get help with.

In the server space, it is very common to hear someone say they don't want to, but they need a Windows server to support some legacy application. Laptop/Desktop users who are stuck with legacy applications will start doing the same cursing, when they buy another Windows box.

If you still watch commercials on TV (and you are in the US), you've probably seen the Mac vs. PC ad with the cheerleaders. Apple is claiming that more college students use Mac laptops, than PC laptops. Another issue not mentioned in the ad, is that laptops have been displacing desktops for college students, for several years.

It is much harder to count Linux users on campus. You can tell that someone is running Windows when they have trouble running their presentation or using their computer. If the system doesn't have problems, you usually don't see what OS is underneath. [At a talk at Penguicon (a Linux convention), one of the speakers faked a blue screen of death at the start of his presentation. It was a presentation on bad error handling, so the blue screen was an appropriate slide for the talk. It was probably the best opening joke I've saw at the convention. [The laptop was really running Ubuntu. We learned that in the Q&A session.]]

CAUTION: On topic comment on US politics follow. Do not read if politics always sends you off topic.

Barack Obama's platform includes a plank about supporting open document standards. If he wins, this could be a force to get the Windows addiction out of our federal government.

2:57:42 PM


Re: Will Microsoft die like WorldCom? YES/p>

heimdal31

May 21, 2008

<<In the server space, it is very common to hear someone say they don't want to, but they need a Windows server to support some legacy application. Laptop/Desktop users who are stuck with legacy applications will start doing the same cursing, when they buy another Windows box.>>

It's interesting. Within the last two months we've had two different outside vendors recommend Linux for the server. One was consultants support some Big Blue products. The other was supporting their own product that runs using Oracle. In the last five years we have seen Linux work its way from the edge inwards. These two products are about as core as it can get for us--and it was the vendors suggesting Linux over Windows, not us asking. That's the first time I can remember vendors suggesting Linux when there was a choice.

Unfortunately, we had to say, "No" for a truly idiotic reason. Our Symantec backup infrastructure has a Linux agent, but it does not support backing up opened files. We had actually put in our first Lotus Notes server on a Linux box when we found this out because we were unable to backup Notes databases involved in replication. Some back and forth with Symantec resulted in the answer that we could spend many multiples of our present licensing fee to get a different Enterprise backup solution that will effectively work on Linux. That difference was a significant chunk of our annual IT software/hardware budget.

So, ironically, we have had to stick with Windows servers on some core bits of software because of TCO decisions.

However, that has already set in motion some serious re-examination of all infrastructure support software with an eye toward replacing any that can't support heterogeneous environments. So, now, instead of stumbling on things that would slow or prevent Linux expansion, we are proactively looking for problems so we can fix them now.

On the client side, we've seen an increase in OS X but no Linux. And even the OS X installations pay a MS tax because they all have Windows VM installations, but I can see the need for those VMs going away soon. As it is, only our ERP and AutoCad are really forcing Windows--and a planned ERP upgrade may get rid of the Windows client requirement.

It's an exciting time.

9:48:05 PM


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