Enterprises you are Microsoft's cash cow and Microsoft will be gearing up to sell you more of its stuff at its highest profit, CEO Steve Ballmer said today during the company's annual strategic outlook to Wall Street analysts this morning. It particularly wants you to buy the more expensive Enterprise editions of Windows Server and its often ignored Systems Center management product.
You have always been the richest target. But today you have more non-Microsoft options available -- many of them open source or otherwise highly affordable -- and your budgets are tight. Still, Microsoft's long-term strategy holds no revolutionary change-of-course to address these market realities, it seems. This despite the fact that such competition is already chipping away at the company's most profitable products while some of the its most unprofitable like mobile clients, search, cloud computing, are changing the rules of personal computing.
For enterprises such news is mixed. On the plus side, when you do buy in, and at a premium price, you want Microsoft to move cautiously and not leave you hanging with products that are suddenly cut. On the other hand, you are subsidizing Microsoft's unprofitable areas, like search. And looking beyond 2009, staying the course is a dangerous way for Microsoft to stay relevant.
To be fair, CEO Steve Ballmer and Chief Financial Officer Chris Liddel legitimately sang the economy blues to help justify the warnings of lowered revenues. But beyond that, this was an opportunity to tell the money men and women what Microsoft's long-term strategy will be to compete and succeed through and beyond the economic downturn.
Ballmer described the typical seven areas 1) Windows (very profitable). 2) Windows Mobile (somewhat unprofitable) which Ballmer sees perhaps eventually merging with Windows as the smartphone and PC client eventually become one and the same. 3) Desktop productivity (the company's most profitable business). 4) Servers (very profitable). 5) Enterprise software like databases, middleware (very profitable). 6) Search and advertising (very unprofitable). 7) Entertainment/TV (somewhat profitable -- although some say that Microsoft will never re coop its original R&D expenditure in it - however it accounts for that business today).
Shareholders have been grumbling over the billions Microsoft is investing in R&D without seeing how it is resulting in a financial return and Ballmer insists that the planned 3% investment in R&D -- particularly in the advertising sector, is prudent. "I don't want to wind up being known as the Jerry Yang of this market in a different way ... the guy that invested forever and got no[where]. That whole episode left me understanding how shareholders can get frustrated with management who aren't serious about performance. I'm serious about investment but I'm also serious about performance on this business."
But promises are one thing. Shareholders have heard it before and remain unimpressed, such as Mike McDonald, author of a guest post for Microsoft Subnet entitled: "Microsoft: how to screw up a Monopoly."
The proof of the prudence of staying the course will be revealed in time -- and probably not much time at that. Asking the enterprise to continue to invest big bucks in Microsoft technology is wise, from Microsoft's point of view. From an enterprise's, that's a big we'll see.
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