More on mini-Microsoft



I keep reading the comments posted on Mini-Microsoft pages about how lean and mean MSFT used to be, and how annoyed are the developers by the extra layers of "bureaucracy"--program managers (PMs) and testers included.

These are probably the voices of those (younger) developers who got into MSFT at its top form. Yet, why aren't they being told that MSFT used to ship buggy software ("blues screen of death") and made for tons of jokes about bad software development? When you grow big and customers say you need to fix up or else, adding more testers and "bureaucrats" to make sure the customers don't switch is VITAL!

I shipped myself some big software and know full well about the culture clash at the intersection of developers, business, customers, partners, testing, consulting, etc. Guys, beyond a point in size, it's just life! For those advocating a smaller MSFT (hence mini-Microsoft?), I should add that a little fat hasn't killed anybody, and one gets to appreciate that when a new opportunity shows up or the market fluctuates. In a sense, one of the problems Microsoft has is its inability to hire what/how much it needs! And this is not a function of Google as much as a function of how education fails US. Moreover, as of late, we've seen many of downs, yet people complain about having to co-pay $40 for branded medicine. If you spent time with the folks from Wall-Street, who are ready to chew you up at a moment notice, you'd have a better understanding of where Ballmer is coming from on that.

As I said elsewhere, I suggest MSFT reorganize along big enterprise stuff and consumer stuff. Big enterprise software is meant to be boring and process-laden(sorry folks!), consumer software being in the opposite category. Self selection of the employees could put its mark on the overall happiness then. As another recommendation, MSFT could do better if stayed away from just about everything that (can) exists in digital form. Initially, this approach might have been the result of lower projected revenues in mature areas. Now, when so much is becoming digital, it may be hubris. A better way to tap into the future would be to just buy whatever company is doing well in a promising area--problem is, those guys don't always develop on .Net or Visual Studio...

Why wouldn't the top brass at MSFT put everything into two buckets? Maybe because they keep telling everybody Windows is a monolith that cannot be taken apart into modules--yet they are doing just that, at least when it comes about developing the beast. In other words they might have gotten themselves on a "dependency path" that does not allow Microsoft to be different and save management/legal face at the same time. To counter a possible argument like: "fCh, doesn't MSN cut it both ways under your two bucket plan?" I would say that beyond a certain size, MSN consumer cannot be(come) MSN enterprise, unless you want to make everybody unhappy--from developers to customers, your cousin included. A grown up MSN consumer would be more like Yahoo!, whereas MSN enterprise like salesforce.com. Who in the right mind would MERGE (all the way to developer-level) the two of them?

As for Google, let those guys go round the bloc for a few times, prove their worth, and then jump to conclusions. Google is not the answer, any number of start-ups in the Valley might be--at least for those who dream of themselves sleeping on/under tables and developing untested software. I use and respect Google's stuff, yet I am apprehensive like hell about what it may turn into--I'll write more about this soon. For an early taste of what's to come, click here!


13 comments:

fCh said...

From the comments on Mini-Microsoft, I selected the following one, based on the perspective it provides: the investor banker's. I'll try to embed some comments here and there as the text flows on


I'm not a MSFT employee, but I am an institutional investor with a fairly large position in the stock as I have been for the past several years. Hopefully this will provide a slightly different perspective.

One of the biggest problems I see right now is the company not using enough of its cash. I recently worked through some numbers which basically told me that in 2008, the company will have generated more cash than what they had prior to the special dividend. Why not do something with this? Yeah, yeah...a $30B stock buyback over 4 years. Big deal. How about using that $30B program in years 1 and 2? Then, double the dividend and continue to buyback stock at an accelerating pace?

How is a buyback going to solve MSFT morale issue? How much did MSFT stock price increase when it started issuing dividends? If a MAJOR buy back is going to spike the stock to $30 or $35 for a quarter or two, is that going to make employees' life that much better? As a short-term investor, yeah, it's a no brainer, but whom else would stand to benefit? Wouldn't a whole bunch of people (employees, investors, etc.) rush for the exits upon such occurrence? I would knowing that nothing has changed fundamentally...

I've read all the crap lately about the company in BW, forbes, etc. Here's a suggestion: Instead of Gates unloading 20M shares a quarter, how about a few insider buys? Steve seems to have such a high degree of confidence in the product cycle, how about buying some stock Steve? And, I'm tired of hearing about the diversification strategy as an excuse to sell more stock. Gates effectively paid himself $3B with the special dividend. If the times ahead are so promising, put your billions where your mouth is and show us what a great investment is.

That other people in Management don't buy their Company's own stock may be a true sign of disease--either they don't believe on the future or they got too much stock (options). I would leave BillG out of this.

Also, who is in charge of M&A activity at MSFT? Is there too much pride in going out and buying something worthwhile? Christ, look at Oracle lately. Not that I 100% agree with all of the purchases, but at least they're active and trying to put their stake in the ground in the apps business. One example that comes to mind immediately for MSFT is in what was the home and entertainment division. They could go out and buy a quality public company for $2-2.5, add $1-1.5B in annual revenue and tons of development talent that would drive even further top notch product. There is a lot of stuff that could be scooped up in the business solutions group, that maybe, just maybe, might help them turn a profit.


As I suggested, the reason may have something to do with the fact that the coolest things don't get written on .NET or Visual Studio. Otherwise, it's a valid option up to the point of considering integration costs. MSFT seems to have a hard time to manage even its own organic growth--just look for all the complaints about hiring.

I agree with most of what has been written here today and last night about the recent changes. It's like putting lipstick on a pig. Maybe the one good thing to come out of this will be the actual delivery mechanism by way of MSN. Speaking of which, why does MSN suck so bad? Everyone talks about how sophisticated the search technology has become, that's great. MediaMetrix tells a slightly different story. I suppose if all this chatter about AOL finally comes together, 1+1 might actually equal 1.75, but that's 3 steps ahead of where they are today.

Finally on all the stuff related to Google. I'm a happy shareholder. I'm not 100% convinced that when Google hits 10K+ employees things will be able to work the way they have recently. They've undoubtedly has the wind at their back for the past few years, particularly after the IPO which just added fuel to the fire. This whole notion of Google taking over the world, I don't buy into that. They'll stumble sooner or later most likely from their own doing. Either way, MSFT does have the tools to combat Google in my opinion. The question is whether or not they can actually execute now.

This guy cannot come too harsh on MSFT. For one, he's just a button pusher and not decision maker at some bank. It is the decision maker's decision to buy or sell a huge quantity of MSFT stock. Nonetheless, I think his final points are well taken.

One last thing. I saw Ballmer gave himself a "pretty good grade". To put this into perspective, if my performance was similar to MSFT's stock price over the past 3-5 years, not only would I not have a job, I'd never be able to find work in the industry again.

For an additional perspective on the guys on Wall Street, let me remind some of you that:
Morgan Stanley has just had to ditch its CEO, amid an 83% drop in its profitability.
Merrill Lynch has gotten itself into some trouble on the private banking side.
Bear Sterns, this once lean and mean name on the Street, is facing major problems too.
Citibank is trying hard to undo Weill's legacy.
Should I go on?

Anonymous said...

Oh geez, you've got two other cool blogs going out of this!

Ideas Lab
&
Ideas in Motion

Anonymous said...

How is a buyback going to solve MSFT morale issue? How much did MSFT stock price increase when it started issuing dividends? If a MAJOR buy back is going to spike the stock to $30 or $35 for a quarter or two, is that going to make employees' life that much better? As a short-term investor, yeah, it's a no brainer, but whom else would stand to benefit? Wouldn't a whole bunch of people (employees, investors, etc.) rush for the exits upon such occurrence? I would knowing that nothing has changed fundamentally...


I would argue those who stand to benefit the most are all of the people internally who have been complaining about lackluster raises, minimal performance bonuses, and stock grants and or options that are either down 20% or underwater. It's not to say the stock can trade like Google or anything we experienced during the bubble, but watching a stock go in the right direction I'd say would help morale to an extent. Obviously that doesn't cover the other issues you internal people are talking about pertaining to stagnant innovation, bureaucracy and other things of that nature. No matter which way you slice it, if you look at MSFT's FCF on an annual basis, it's fair to assume they could reduce the enormous amount of shares outstanding which would create a better supply/demand situation simply by accelerating their buyback program. And this isn't a 1-2 quarter event. As stated it's a 4 year plan, I'm suggesting to fold the 4 years into 2 years. After that is completed, put into place another buyback similar to the first one. All of this could be done and funded on an annual basis without draining the cash balance.

The special dividend and the quarterly dividend are a completely different story. Throw out the special dividend since that has come and gone. With the quarterly dividend, it should be raised to at least double where it is now. That would put it slightly ahead of the S&P and would give more people a reason to own the stock. With a company this large, cash management is part of the fundamental picture.

That other people in Management don't buy their Company's own stock may be a true sign of disease--either they don't believe on the future or they got too much stock (options). I would leave BillG out of this.

Again, this was my point...why isn't SteveB buying stock? I was at the financial analyst day where he talked about his bogus story regarding his conversations with internal employees asking them if they were buying MSFT stock. No one raised their hands...and for me on the outside based on some things people are writing here and talking about, I can understand why. If the stock is such a great value (which I happen to agree with from my perspective) SteveB and other members should be buying stock, end of story. And, if that did turn out to be the case, the stock would react favorably and give internal employees as well as outside shareholders an idea of just how serious he is.

This guy cannot come too harsh on MSFT. For one, he's just a button pusher and not decision maker at some bank. It is the decision maker's decision to buy or sell a huge quantity of MSFT stock. Nonetheless, I think his final points are well taken.

You can call me a button pusher because believe it or not, I do push buttons to send my trades to our traders who then execute the trades. Also, I think I was fairly clear in saying I was an institutional shareholder, not an investment bank or banker or sell-side analyst. So, you're actually dead wrong in saying it's not my decision to buy or sell the stock. I evaluate many different stocks and buy and sell them as I see fit for the money under management at my organization. Perhaps you're referring to the analysts who do work on Wall Street and publicly cover the stock. There, you may have a valid point that should be addressed. If you were to look at the coverage list and the analysts' respective ratings, come back and tell me how many people don't have Strong Buys, Buys, or Overweight ratings on MSFT. To cut to the chase, I have not seen one major analyst come out and talk critically about MSFT. That's a rather large problem in my opinion. Everyone has assumed MSFT is always on cruise control, however, blogs like this along with other sources are clearly pointing out that's not the case.

Finally, pointing out issues at Citibank, JPMorgan, and others is really irrelevant. It has absolutely no relevance to what I do or who I am associated with.

fCh said...

It looks like I've just implicitly called somebody an investment banker, yet (s)he's an INSTITUTIONAL INVESTOR--MEA CULPA!

While there ought to be some differences in my assumptions, I stand by most conclusions/recommendations.

Whether or not MSFT buys it stock back, unless it addresses the fundamental issues, how's a stock buy-back going to put the Company on the right tracks? Having the stock lower than most people would like it to be should be the greatest incentive for most people to do their jobs right! In other words, as I and others have suggested here, call incompetence and politicking by their names where you see them. Each one owner of MSFT stock (options) ought to feel empowered by the their ownership! Is it too much to ask for?

Now, doubling the dividend cannot hurt anybody and would firmly place MSFT where it belongs: a long term growth stock.

Anonymous said...

Believe it or not, I think we're collectively saying the same thing from different perspectives.

I don't know of the issues internally simply because I'm not in the company. My mention of the buyback is really two-fold: 1) It gives a tremendous amount of support to the stock and 2) That should be the continued signal that MSFT mgmt truly believes they will succeed. And when I say that I'm referring to the product portfolio.

Also just to clear something up and a little surprised you don't see the difference...Investment bankers and their associated analysts have a vested interest in staying positive on the company. That's exactly why I pointed out the lack of scrutiny Wall Street shows.

I don't get paid to stay positive on something that's not working, unlike investment banks. I started reading the blogs to really try to get another perspective from within (or hopefully within) since the BS being fed to investors like myself just isn't explaining the story behind the scenes.

And from that perspective, it's extremely helpful to see amd hear what people are writing and talking about as far as the "issues". As a matter of fact, my organization had a long discussion about these very blogs this morning before the market opened.

I'm in search for answers with a few suggestions of my own. I do think an accelerated buyback would help, but you're right, that doesn't change a bloated middle management, product delays, or overlapping development effots.

At least we agreed on the dividend...

Anonymous said...

Hey, could you please quit posting so much to minimsft's blog? You're mostly adding to the noise, not the signal.

And stop trying to hype your own blog. And quit copying the comments from there and pasting them here.

fCh said...

Anonymous Institutional Banker, I do thank you for your most recent posting.

You came round to the view, I hold, about the disconnect between buy-backs and company fundamentals. I came round to the view, you hold, that dividends cannot hurt.

I think these were the most important points and we agree indeed.

Let me ask you a serious one now: How can a serious investor help change, for better, at a company like Microsoft? I know the answer to this could be either trivial or difficult as hell. On the trivial side, it's about selling (even shorting the stock). On the difficult side, could you please share with us any insights? Is BillG/SteveB more forthcoming to questions coming from you, the large institutional investors, as opposed to those from BW, Mini-Microsoft, etc?

Thanks a bunch!

fCh said...

My virtual friend, what is YOUR contribution to the signal-to-noise ratio, anonymity?

Hey, could you please quit posting so much to minimsft's blog? You're mostly adding to the noise, not the signal.

Anonymous said...

I guess the disconnect is that I'm talking about one very visible aspect of the company. Cash!

The uses of cash and/or insiders buying stock has nothing to do with whether or not vista ships on time or enough xbox 360 units are in the channel come holiday.

People like me who own just a few million shares of the company don't get to pose those difficult questions to the company...as in, what's the culture like these days? simply because the times i/we have with management, it always seems like the predominant questions are around product offerings/timing, longer-term strategies, etc.

On another note, I still don't understand why you keep referring to me as a banker. Simply put, I'm not. There's a big difference between a banker and an investment manager or portfolio manager - whichever you prefer.

And again, I'm out in search of questions that typical wall street pound-hounds can't answer. From a simple financial perspective, I have thoughts of my own as it applies to the discontent voiced here and on other blogs as to some small simple things that COULD potentially help morale. If innovation is the deep rooted problem, I have no way of solving that.

At the end of the day, I feel as if you're treating me as if I'm an enemy which couldn't be further from the truth.

fCh said...

Please follow my embedded comments:

I guess the disconnect is that I'm talking about one very visible aspect of the company. Cash!

The uses of cash and/or insiders buying stock has nothing to do with whether or not vista ships on time or enough xbox 360 units are in the channel come holiday.

Giving this matter--the MSFT cash pile--more thought, I don't see a problem with Microsoft's spending it one way or the other. Of course, a responsible investor would like it to be re-invested in growth. On the other hand, if such growth is postponed sine die, it is the duty of the company to disburse the cash pile to the share-holders. Unless they decide to go into the financing business like GM or GE... ;-)

People like me who own just a few million shares of the company don't get to pose those difficult questions to the company...as in, what's the culture like these days? simply because the times i/we have with management, it always seems like the predominant questions are around product offerings/timing, longer-term strategies, etc.

Very interesting insight, nonetheless! It helps one correlate the size of one's investment in Microsoft with how much (quality) time one gets with the management.

On another note, I still don't understand why you keep referring to me as a banker. Simply put, I'm not. There's a big difference between a banker and an investment manager or portfolio manager - whichever you prefer.

I am sorry my previous posting did not clear things up! I made some assumptions only in the beginning; meanwhile we (both) came around with enhanced perspectives!

And again, I'm out in search of questions that typical wall street pound-hounds can't answer. From a simple financial perspective, I have thoughts of my own as it applies to the discontent voiced here and on other blogs as to some small simple things that COULD potentially help morale. If innovation is the deep rooted problem, I have no way of solving that.

I could probably say a few things about innovation from a slightly different perspective.

MSFT has opened a research lab in Silicon valley a few years back. Check out what they do! Among their top priorities has been enhancing the security of MSFT products--neither a glamorous area, nor too much room for innovation. If you recall, BillG's greatest priority in 2003 was security (and .NET ;-) Wasn't that about the time Longhorn was first delayed? At any rate, you should have heard customers warning MSFT that unless it put its security in order they were ready to leave. In all this time, they were wrapping up with our own DOJ, yet the battle went on with the EU. I am assuming all these had taken entire cycles away from innovation and such.

On a different level, innovation occurs only when the creative mind is free AND has a problem at hand. Now, how free can you be when you carry on your back a ton of legacy? I used to be involved with this big software infrastructure play. The core technology was a marvel, yet we couldn't do much with it do to intrinsic limitations embedded in its core, in the whole fabric of the organization... To such limitations of the MSFT older technologies/architectures, please add all the business and legal constraints preventing SDEs from taking the straight and elegant way out!

I keep going back to my observation: MSFT needs two distinct approaches to markets and products: enterprise and end users. Those much touted complementarities/synergies should be sought after only when things go well at individual levels.


At the end of the day, I feel as if you're treating me as if I'm an enemy which couldn't be further from the truth.

I respect too much your postings not to care about what you are saying, even when I disagree with you. I hope that I addressed your above point and we are in no disagreement on this.

Let me also confess that I have grown skeptical of the quasi-universal advice (e.g. I-Bankers: unlock value by breaking up, strategy consultants: look for synergies between content and distribution). If/when the world is run only by accountants or numbers-mavericks, I will be a cog in a cash register. Meanwhile, I am content to be human. Thank you for reading this far!

fCh said...

NEW YORK, Sept 23 (Reuters) - Microsoft Corp. (MSFT.O: Quote, Profile, Research) on Friday declared an unchanged quarterly dividend of 8 cents a share and said it changed its rules for electing directors.

Under the new rules, any director who receives a majority of withheld votes in an uncontested election must submit his or her resignation to the board, Microsoft said.

The software company's governance and nominating committee would then consider the resignation and make its recommendation to the board about how to proceed.

Walt Disney Co (DIS.N: Quote, Profile, Research) , which faced major shareholder protests over corporate governance practices last year, introduced a similar requirement last month.

Microsoft said the dividend would be payable on Dec. 8 for shareholders of record on Nov. 17

Anonymous said...

Hi there, Just wanted to drop you a line to applaud your comments with regards to the current situation @ Microsoft.

I work for a software company in the Telecom space and based on the numerous large scale projects that I've been involved in, if the processes and rigour were not in place then we would have been up the creek without a paddle big time. On the few occasions where engineers were allowed to go off an interpret things "their way", the end result is simply un-fulfilled commitments and a lot of hassle.

It's very interesting to me that Google are very open about selling their specific style of working - whilst I'm sure this will continue to be incredibly successful, I think there is a strict shelf-life with this sort of environment. I would tend to contrast them with Yahoo which, in my humble opinion, demonstrates more of a large company attitude in terms of how they do business.

Anonymous said...

Massachusetts Plans To Phase Out Microsoft Office Elizabeth Millard, newsfactor.com
2 hours, 36 minutes ago



The state government of Massachusetts is moving ahead on a plan to switch to the OpenDocument standard by 2007, effectively phasing out the use of Microsoft (Nasdaq: MSFT - news) Office.

The shift is part of a larger technology scheme in the state that has been discussed among the state's legislators and technology vendors, including Microsoft, Adobe, Corel (Nasdaq: CORL - news), IBM (NYSE: IBM - news) and Sun Microsystems (Nasdaq: SUNW - news).

Massachusetts invited the vendors to weigh in on their proposals, prompting a wealth of letters about whether the state should go forward with a move to an open, nonproprietary format for office documents.

Some companies, like Corel, encouraged the state to adopt open standards, while other companies cautioned the state to consider the costs that would be involved with such a transition.

Corner Office

In its letter to Massachusetts, Microsoft noted that the adoption of a single format for office documents throughout all agencies would prevent users from tapping into "well-established technologies."

The letter's author, Microsoft general manager Alan Yates, also wrote that the approach would run afoul of procurement norms without "due consideration for the enormous costs and technical challenges that stem from the proposal."

Microsoft has tried to emphasize that it has an open format in the current version of Office 2003.

"We would have liked a greater opportunity to explain how openness is possible with Office," Yates said. "We've found a very positive reaction to our open formats and our approach, and there's a growing awareness there."

Open Sesame

Despite Microsoft's attempts to delay the Massachusetts decision by sparking more discussion on the topic, the state is expected to undergo a phased-migration plan away from productivity suites that do not support OpenDocument.

Suites that will be phased in include OpenOffice, StarOffice, KOffice and IBM Workplace. The state expects that Microsoft Office will be out of its agencies by January 1, 2007.

Massachusetts' decision follows that of other government agencies in the world, notably in Germany and Norway, but it is the first public-sector institution in the United States to take such a step.