News

Microsoft Is Bucks Up, but Competitors Crowd In

• By Barbara Darrow
• 09/01/2007

Take Jeff Matthews for example. Matthews, general partner with Ram Partners PLC, a Greenwich, Conn.-based hedge fund, insists that he and many other business PC users no longer need Microsoft Office applications. Well, at least not as much as they did before.

"For 80 percent of what we do internally, we use Google Spreadsheets. We got rid of Excel. Most hard-core Wall Street types use maybe 20 percent of what's in Excel," he says. In short: His take is that Excel, Word, et al are overkill for the vast majority of users, and those users are starting to realize that.

He still runs Windows PCs, but also owns a Mac. He just bought at least one iPhone, and he gets irate at what he calls "Microsoft's Apple- and Google-bashing ways."

This illustrates the conundrum front-and-center at last month's Microsoft Financial Analysts meeting. There, Microsoft CEO Steve Ballmer and other top dogs defended Microsoft's desire (they would say "need") to enter new businesses while continuing to grow (others say "defend") their core Windows and Office redoubts.

Steve Ballmer, Microsoft's CEO, is quick to defend the company's investments in new markets.

Key investment areas for Microsoft remain consumer electronics, including its Zune MP3 player, the Xbox and the "Surface" tabletop computing device, which it demonstrated at last month's meeting. Here Microsoft faces off against Sony Corp. and Apple Inc.

Then there's the Software as a Service (SaaS) push, where Redmond vies with Google Inc., Salesforce.com Inc. and others -- all of whom have more street cred in this market than Microsoft. Related to that is the company's advertising-services push, where Microsoft and Google are engaging in a very expensive arms race.

Ballmer conceded that analysts worry about this multi-pronged attack. "I do get shareholders who will hammer me on this point [of multiple competencies]. They'll ask, 'Why do you have to do these new things? Do you really need to do that?'" Ballmer said in his speech. His answer was, "We really do."

In her report from the meeting, The Goldman Sachs Group Inc. analyst Sarah Friar remains bullish on the company's prospects for FY 2008, citing a strong product-launch cycle including promised releases of Windows Server 2008 (previously code-named "Longhorn"), SQL Server 2008 and Visual Studio 2008.

The huge investments Microsoft is making remain a point of contention. "[There is] ongoing emphasis to return cash to shareholders, although investor sentiment is clearly of the mind that more could be done here," Friar says.

Chief among the risks, she says, are concerns about spending in online services, competition from SaaS and open source software players, decreased Xbox 360 demand and weaker Vista and Office sales. Here's the rub -- good old Office and Windows remain the cash cows for Microsoft and investors worry about ancillary efforts milking them dry.

Others see only opportunity. For example, George Brown, CEO of Cherry Hill, N.J.-based Database Solutions Inc., a Microsoft Gold Certified Partner, sees business opportunity in Surface. Microsoft says its new touch-screen interface will be out this "calendar year."

Brown, who has an airline background, sees business opportunities here beyond the usual gaming applications Microsoft often touts. "When a flight's canceled, you don't wait in a line for an hour to see an agent. You walk up to a surface device and put your flight ticket on top of it and it shows you a map of all of the alternatives -- routing by city," Brown says.

A former executive with a large systems integrator who still follows Microsoft sees huge interest from larger enterprises in the "Katmai" wave -- the new Windows Server, SQL Server and Visual Studio triumvirate. He adds the Dynamics ERP and CRM products to that mix as well.