Microsoft Is Doomed. Doomed!
I have to believe Microsoft’s latest earnings has finally obliterated all the silly “Microsoft is doomed!” discussion that’s been so bien pensant across the blogosphere these many years. This is a company that generated $23 billion in revenues and is clearly poised for growth. Most surprisingly, it’s poised for growth in the consumer and hardware markets, mobile and the cloud.
What’s that? Why, yes. I do hear Steve Ballmer laughing from the comfort of his LA Clippers courtside seat.
Billions Billions Billions Billions
Last week, Microsoft announced FYQ1 revenues of $23.2 billion. That’s up 25% year over year, despite the many proclamations of doom repeated over the years. Profits were a very healthy $4.5 billion, even after a $1.1 billion restructuring charge related to the Nokia acquisition.
- Cloud services, which includes Office 365 and Azure, grew a whopping 128%, to $1.18 billion.
- Office 365 grew to 7 million subscribers. Remember: unlike Apple’s iWork, people actually pay for Office.
- Surface revenue was a surprising $908 million for the quarter — again, despite the persistent declarations it was a dead product.
- Lumia sales were a robust 9.3 million devices.
According to CEO Satya Nadella:
“We are innovating faster, engaging more deeply across the industry, and putting our customers at the center of everything we do, all of which positions Microsoft for future growth.”
CEO speak. Yada yada. That said, to view Microsoft as a one trick pony, stuck in the past, as so many analysts still do, is to utterly misunderstand Microsoft and the industry. Simply check the numbers. Microsoft has one division with about $10 billion in quarterly revenue, and another five with quarterly revenues of about $2 billion or more. For comparison, Yahoo — all of it — just reported quarterly earnings of $1.15 billion.
The facts are clear:
- Microsoft is still printing money.
- The death of the PC (and Windows) (and Office) (and Surface) (and Xbox) has been greatly exaggerated.
- Yes, Microsoft can do hardware: Xbox, Lumia, Surface all had strong y-o-y growth. As Jan Dawson noted, “Lumia sales and Surface revenue were both the highest they’ve ever been.” Xbox was the highest outside of a holiday quarter.
Microsoft is welcome to serve up a bowl of tasty claim chowder. You know why.
Again and again, we were told Microsoft was dead or would be by now. You’ve heard this more times than you can count: The PC is dead — not merely dying. Bing? Dead. Skype? Irrelevant. Windows? Free or dead are its only options. Office? iWork and Google Apps will force it to be offered for free — and then kill it off.
Repeatedly, the analysts trotted out “jobs to be done” and “the innovators dilemma” and “the smartphone is the computer” to explain why Microsoft was so obviously doomed.
How could they all have been so utterly wrong?
No, it wasn’t a herd mentality that brought them all to the same, erroneous conclusion. It’s worse than that: They were not paying attention. What the analysts and blogosphere were doing — what led them to be so utterly wrong — is they were comparing single, often minor aspects of giant Microsoft against the primary driver of another tech giant’s entire operations.
Google search is far bigger than Bing, therefore Bing dead. Therefore Microsoft dead.
Windows Phone sells far less than iPhone, therefore Windows Phone dead. Therefore Microsoft dead.
It gets worse. By comparing one aspect of yesterday’s Microsoft to all of today’s Apple, for example, these seers of doom missed out on what Microsoft was actually doing in the cloud, and with social in the enterprise, with hardware, software, and on meeting the mission critical requirements of governments and Fortune 1000 companies.
Oh, and worst of all, Apple supporters in particular, so vigorous in their defense of Apple hardware prices and margins — because people will pay for quality — repeatedly failed to acknowledge these same “people” will pay for the quality and benefits they receive from Windows and Office and Azure, among other Microsoft products and platforms.
Long Slow Decline Except Not
You’ve seen the posts, many, many times: Microsoft must focus on the consumer. Microsoft must abandon hardware. Microsoft must give away Windows. Windows is doomed. Xbox is doomed. PCs are doomed. Over the past few years, Microsoft Is Doomed is the gift that kept on giving.
I will unfairly single out John Gruber because he is typically so understated and sparing with his criticism. That said, his “Microsoft’s Long Slow Decline” post from July 2009, which he proudly linked to less than three months ago, is one he no doubt would love to have back.
A few other favorites:
- “These Two Photos Show What a Disaster Microsoft Is Today”
- “The irrelevance of Microsoft” (with charts)
- “How Microsoft Lost Its Way, as Understood Through The Wire” (a personal favorite)
- “The PC Industry Is Digging Its Own Grave”
When Vanity Fair opens its long post on Microsoft with “over the last decade, as the biggest force in tech history hurtled toward irrelevance (albeit lucratively),” you know the meme — despite being 100% false — is simply being parroted by writers who are willfully not paying attention. The utterly nonsensical pairing of “irrelevance” and “lucratively” stood in place of thoughtful analysis.
If billions of dollars are wrong, I don’t wanna be right.
Pundits have for years now insisted Microsoft was dead or dying, brandishing the “dying” PC ecosystem as the doomed company’s massive blind spot. In fact, these analysts revealed a rather shocking blind spot in their own understanding of this highly iterative, multi-faceted industry.
Despite the many billions in profits repeatedly generated by Microsoft, drive by bloggers continued to insist:
- Microsoft = packaged PC software
- Packaged PC software is dying
- Therefore, Microsoft is dying
Viewing 2014 Microsoft as being just like 2004 Microsoft is as wrong as viewing today’s Apple as no different then pre-iPhone Apple. Again, Microsoft has six lines of business all generating billions — and all likely to continue growing, and continue delivering actual profits.
Stop the Microsoft is doomed nonsense. It was always wrong. It is wrong still.
That sound you hear now? That’s Satya Nadella, laughing from his CEO chair in Redmond.