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Comment by bad_user | Hacker News Reader

Their business model is coming to an end. What keeps them going is the large customer base and Windows-specific applications people are accustomed to.

Historically advancement in technology does tend to have this effect on businesses.

The operating systems and dev platforms are a commodity and of course people are wondering why should they pay for this stuff when you can get them for free. Not to mention alternatives are often technologically superior and have stronger communities, and because of their closed-nature they really can't do anything about it.

I would like to say that competition benefits consumers, but because Microsoft can still exert a huge influence on the industry without technical merits, consumers won't benefit until they reinvent themselves. I know they will, but it may take some time.

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"Their business model is coming to an end."

Do you have any data supporting your claim or is this just a gut feeling?

Here's what we know about MS's business model (I just quickly skim read their annual reports to gather these figures).

Revenue in 2008 was $60.8 Billion, up 18% from the previous year

Revenue in 2007 was $51.12 Billion, up 17% from the previous year

Revenue in 2006 was $44.28 Billion, up 11% from the previous year

Revenue in 2005 was $39.79 Billion, up by about $3 billion from the previous year

Revenue in 2004 was $36.8 Billion, up by 14% from the previous year

Revenue in 2003 was $32.19 Billion, up by $3.82 billion from the previous year

Revenue in 2002 was $28.37 billion, up by $3.07 billion on the previous year

So since the date these internal memo's were written, their business has only managed to steadily grow each and every year by more than 10% per year, with their total revenue having doubled since these memo's were written.

Or that Microsoft's growth alone in 2008 was around half of internet golden-child Google's total revenue for the same period?

Yes, their business model is coming to an end, they really should be scared.... </sarcasm>

(Disclosure: I don't work for microsoft, or a competitor, nor am I an investor. I'm just sick of the unnecessary FUD)

If nothing else... Microsoft owns the desktop until they are unable to e.g. scare netbook builders to stop selling preinstalled Linux.

"If nothing else... Microsoft owns the desktop until they are unable to e.g. scare netbook builders to stop selling preinstalled Linux."

I know we discussed this the other day (http://news.ycombinator.com/item?id=666787) but I think it's more a case of brand imprinting than anything.

When you have clueless people who buy new computers (which make up the vast majority of the consumer market), one of the things they look for is what version of windows does it come with.

To me, for another OS to actively take significant market share in this dominated space, they would have to overcome this preconception that consumers have.

To liken it to another industry, it would be like a new softdrink manufacturer having to compete against Coca Cola (with Apple being Pepsi) with their own cola brand. People instinctively go for one or the other when they go buy a cola, even if there are better products that are cheaper on the shelf.

That's really what it boils down too.

So while Linux may be free and a superior product (I personally switched to Ubuntu about 8 months ago) - it requires much more momentum than what the Linux community has right now. Which is a damn shame.

Microsoft has a history of pressuring computer manufacturers to not install anything else. This is well documented in court.

Its not that they don't make money. Its that in terms of innovation - and more specifically in hampering innovation - Microsoft no longer matters.

At least we like to think so, because we can remember when they were in the way of developing most anything cool.

Microsoft has no innovation?

http://www.microsoft.com/surface/

http://www.xbox.com/en-US/live/projectnatal/

http://research.microsoft.com/apps/dp/pr/projects.aspx (there are a few gems in there that have yet been "announced")

Microsoft does some amazing things at MS Research. They have trouble getting them into products, and they have no taste - so they can't polish them well.

All their products constrain, rather than enable me.

I think Microsoft has great taste... if they steal their design elements from other companies, that is :)

Like Picasso said. Good artists borrow, great artists steal.

The Windows 7 Beta seemed pretty good when I used it.

Projectnatal is a demo, not a project. It is overhype. Surface is innovative? How so? What can we do with Surface that is new and well, brings some kind of advancement?

"What can we do with Surface that is new and well, brings some kind of advancement?"

You mean the things like where you could put your credit card down on the table at a restaurant and divide up a bill between people easily, and pay, without involvement from a waiter.

Or the part where you can place phones down on the surface and interact directly with them via the touch screen interface?

What about object recognition that the surface does?

It's not your average touchscreen. It has potential. It's just a damn shame the technology is so damn expensive to gain much traction.

As for Project Natal, I can think of some very good ideas off the top of my head that it can be useful for - not just gaming. It could end up being one of the things that turns the 360 from a gaming console into a central home computing platform and communications tool for you and your family (like was alluded too in one of the advertising videos)

Microsoft attempting to commoditize 3D cameras like they are could make interfaces like you see in minority report a reality much sooner than was previously thought.

You mean the things like where you could put your credit card down on the table at a restaurant and divide up a bill between people easily, and pay, without involvement from a waiter.

How does it do this, and when, and where? Are you sure it's not just some fiction from a demo video?

Or the part where you can place phones down on the surface and interact directly with them via the touch screen interface?

Because it would be easier than interacting with the phones' own touch screens?

What about object recognition that the surface does?

What about it? :)

What is it actually capable of now? If there's no useful concrete application for that feature now, does it even matter?

I've seen a "demo" video from Microsoft with graphical illustrations and animations of things that would be exciting if they were real.

But before those things are actually happening, the video amounts to nothing more than just a video.

I keep getting surprised by the Microsoft-Love that's present even here on HN. It should be painfully obvious to everyone, especially here, that they really don't deserve any admiration as a company.

No, it doesn't matter if their R & D department is tinkering with something interesting. It's what the company does in general that matters.

"How does it do this, and when, and where? Are you sure it's not just some fiction from a demo video?"

I saw it in the demo videos, but I thought I should also give real world examples. Quoted from Wikipedia.

"Partner companies use the Surface in their hotels, restaurants, and retail stores. The Surface is used to choose meals at restaurants, plan vacations and spots to visit from the hotel room. Starwood Hotels plan to allow users to drop a credit card on the table to pay for music, books, and other amenities offered at the resort. In AT&T stores, use of the Surface include interactive presentations of plans, coverage, and phone features, in addition to dropping two different phones on the table and having the customer be able to view and compare prices, features, and plans"

From what I saw in the demo video when it first came out, you were able to place the phone down on the screen and do things like access the phone's memory and upload/download media/images by using a simple drag/drop interface with your fingers.

"What is it actually capable of now? If there's no useful concrete application for that feature now, does it even matter?"

"I've seen a "demo" video from Microsoft with graphical illustrations and animations of things that would be exciting if they were real."

Well, it's already in use - in retail stores, doing actual interesting things like I mentioned above.

"I keep getting surprised by the Microsoft-Love that's present even here on HN. It should be painfully obvious to everyone, especially here, that they really don't deserve any admiration as a company."

Actually my position isn't Microsoft love - it's far from it. I'm just trying to provide a counter point to all of the apple-linux fanboyism (for the sake of fanboyism) and MS-hate that's prevalent... especially when MS are are making actual attempts at real innovation coughoperaunitecough, yet people seem to just want to ignore those facts and instead provide biased opinions.

It's all well and good to dislike something, but at least have a good, up to date reason for disliking something. Holding grudges for past slights is never cool.

Disclosure: I'm an Ubuntu Jaunty user.

Well, I'll consider Surface (etc) relevant when I see it in use myself. Also, Wikipedia can be edited by anyone, for any purpose.. :)

I'm just trying to provide a counter point to all of the apple-linux fanboyism (for the sake of fanboyism) and MS-hate that's prevalent...

Well, there's a reason why MS-hate is prevalent, but it's not prevalent enough. This seems to be a fairly good chronicle of the reasons why: http://boycottnovell.com/category/deception/

( Yes, I just saw that site today, from a link on HN )

especially when MS are are making actual attempts at real innovation coughoperaunitecough, yet people seem to just want to ignore those facts and instead provide biased opinions.

Opera's hyping of Unite really has been a new low for the company.

But I don't see how acknowledging all the evil MS has done is in any way "ignoring the facts" or "providing biased opinions". I use the word "evil", because despite possibly sounding silly, it's an appropriate word here.

It's all well and good to dislike something, but at least have a good, up to date reason for disliking something. Holding grudges for past slights is never cool.

That's just it. Microsoft's outrageously slimy and evil practises shouldn't become "history" in a week or two.

Those countless past "slights" are perfectly good reasons for disliking, or detesting Microsoft. People just keep forgetting them.

On closer inspection..

"Partner companies use the Surface in their hotels, restaurants, and retail stores.

I wonder what these partner companies are, and how exactly do they use Surfaces.

"Like this: " ? The Surface is used to choose meals at restaurants

Is it?

You don't need a big-ass tub of a computer for that though. It could be done with a smartphone too. Did I just innovate?

plan vacations and spots to visit from the hotel room.

Would this functionality - eg. planning vacations - somehow be a part of the Surface, or would it just mean using it like a computer (or a smartphone, again)? The idea of a specific Vacation Planner application included in every Surface sounds silly, so it must be the latter.

Starwood Hotels plan to allow users to drop a credit card on the table to pay for music, books, and other amenities offered at the resort.

The operative word here is plan. I plan to sleep with Megan Fox.

How would the Surface use your credit card? Take a picture of it with its magical cameras, decipher the card's number from the picture, and then charge it?

In AT&T stores, use of the Surface include interactive presentations of plans, coverage, and phone features

I bet the AT&T website includes interactive presentations of plans, coverage, and phone features too.

Or again, would every Surface include a specific application for this AT&T -specific functionality? If not, then this is not a feature of the Surface, but just a use case for a computer.

in addition to dropping two different phones on the table and having the customer be able to view and compare prices, features, and plans

Once again, cameras and specific software for the task?

Again, even if pulled off, this wouldn't be more impressive than just using any computer and a website.

Where does the money come from? Mostly Windows and Office. This revenue streams are beginning to dry out. They will still makes billions with them over the next years, but all in all the revenue from these sources will diminish. Other income streams will come from server stuff which will be sold via services of different kinds. This will change the MS business model to something akin what Oracle and IBM are doing.

"Where does the money come from? Mostly Windows and Office. This revenue streams are beginning to dry out."

The great thing about people responding to posts that have data with generalised assumptions is they usually don't add data. Do you have any data to support your claim?

I know that this year, MS has had a drop in sales as a result of the global economic slowdown, but so has pretty much everyone else out there, so before you say "But XYZ company hasn't...", realise this, they're probably one of the outlier cases.

In an economy that has claimed several banks, 2 automotive institutions and countless other businesses, Microsoft is still able to maintain a profitable position even after having to fork out close to $300 million in severance packages, in a down market.

You also forget that Microsoft has the Xbox platform, their Windows Mobile empire and they are attempting to diversify their businesses further into many more markets.

They're not in a bad position. Their growth alone certainly seems to contradict everything you're saying.

Statement: "Where does the money come from? Mostly Windows and Office. This revenue streams are beginning to dry out."

These are well known facts. The yearly income fluctuations do not matter, Microsofts problems are of structural matters. The markets for Windows and Office are more and more saturated and not growing any more. http://www.redorbit.com/news/technology/375410/microsofts_ca...

One of major points of the Innovator's Dilemma is that successful companies improve profitability, margins, and revenue prior to being disrupted, because they lose their smallest, least profitable customers while focusing on and extracting even higher margins from their highest value customers. Things look great right up until the rug comes out from under them.

Rather than gradually eroding, Microsoft will continue to make more and more money at higher margins until Linux becomes a viable desktop competitor that PC makers feel comfortable switching to en masse. Then the Windows franchise will lose a huge amount of value very quickly.

@froo, you do have a point, but revenue is not profit.

I'm saying their business model will come to an end because of recent trends and advancement in technology:

* I don't know of many companies that still sell prepackaged software. I don't know of any startups either, and while there might be examples of such startups, the majority are moving to something else. YMMV

* Their forays in new markets aren't generating profit (besides the XBox, which I think is doing quite well)

* PCs will be soon surpassed by smart-phones. The latest Windows Mobile looks promising, and while they were quick to enter this market, it's head to head with Linux, and Symbian has something like ~ 60% of the market share

* people are accustomed to not pay for products that are becoming a commodity (especially on the Web). Windows is bundled with every PC, so that's good, but where I live I see more and more companies using OpenOffice (those that don't are still using Microsoft Office because either they don't know better, or their infrastructure is based on Exchange). It's not that OpenOffice is better, but it's good enough for basic needs and it's free.

* I have inside knowledge about Adobe and I can tell you for sure that they are having a hard time justifying the price for CS4 to customers that already paid for CS3. It's not like CS4 isn't a good product, but this economic recession does make people wonder if the value provided is good enough.

These trends aren't very encouraging for me. I still have to make a living. But that's what people and businesses always did ... adapt to new conditions.

And btw ... FUD is not an incorrect statement, neither something you disagree with. FUD is an incorrect statement done with a clear intent to discredit a competitor. Please, stop polluting the term.

Disclaimer: I don't have an inclination to prove my statements with numbers, which makes me susceptible to cargo-culting and being gullible. I do have the tendency to check my assumptions from time to time, and I am not anti-Microsoft, I'm just pro-technology and I don't dismiss their products or their achievements out of religions beliefs (I happen to be a happy user of .NET in several personal smallish projects)

"@froo, you do have a point, but revenue is not profit."

Fine, let's investigate that.

MS's profit for: 2008 = $37.9 billion 2007 = $32.6 billion 2006 = $27.81 billion

.. and so on, I can't be bothered entering in the rest of the figures, but the trend is that MS's profit aswell as revenue are increasing year over year (It will be a different tune this year, but that's because of the economic slowdown, not a business failing on MS's part). So you're wrong. They appear to give about half of this profit to their shareholders each year.

"I don't know of many companies that still sell prepackaged software."

You mean like Oracle, Autodesk, Adobe, Apple, SAP... should I go on?

PCs will be soon surpassed by smart-phones.

I don't think desktop computing will be replaced any time soon - whether that be a PC, notebook or a netbook is a different matter, but there will be room for desktop computing for a long time to come. Smartphones might have a lot going for them, but they lack the tactile feedback of a keyboard, mouse and screen combo. Almost nobody in their right mind will be using smartphones in lieu of a desktop computer for their day to day work. It's just not going to happen, sorry.

"And btw ... FUD is not an incorrect statement, neither something you disagree with. FUD is an incorrect statement done with a clear intent to discredit a competitor"

Actually, FUD is not necessarily used to discredit competitors as it has a much broader use in language today. Individuals (or organisations) who spread untrue, inaccurate or poorly researched information knowingly with the intent of discrediting an organisation or person can be said to be spreading FUD. It's even more apparent when somebody does it with a clear bias (which you obviously have a general negative bias with MS, despite you using .net), sort of like propaganda, because if you had spent 2 or 3 minutes to look at MS's annual reports, you would see your argument is wrong.

"I do have the tendency to check my assumptions from time to time"

Just not this time, not even in the slightest bit.

I think that there's something you aren't realizing : the open source communities don't scale. After a certain limit, they tend to go downhill.

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