The Real Secret To Microsoft’s Success

The Real Secret To Microsoft’s Success

For people with certain persuasions, it’s fun to make fun of them Microsoft (MSFT). It is outdated and occasionally bloated software. It was a version of the operating system that was so feared that most users refused to upgrade to its predecessor and instead waited for its replacement. A browser that once had 95% of the global market share,atno longer a result of any country.atAnd cell phones that barely register in a universe dominated by iPhone and Android.

Key Street Shops

  • Microsoft is a household name with popular product lines such as Windows, Office, and Xbox.
  • Founded more than 30 years ago, Microsoft has expanded far beyond software and devices to cloud computing and services.atat
  • Microsoft is the most popular stock in index funds and ETFs in 2019.atat

Microsoft Matures Its Business

Many (okay, some) of us are old enough to remember when Microsoft was the definition of the novel, its young founders and unorthodox culture flying against a formal, understated business world that had limited use or knowledge. on him. computers. Today, Microsoft is a gray pillar of the Dow, and that’s a good thing. The alternative was that upgrading the junk software today would have no consequence.

Still, sometimes the consensus view about Microsoft seems to prompt questions like “How on earth do they make so much money?” After all, Microsoft is not the most innovative company in the world, nor is it the most heavenly company. However, critics seem to forget something: a) Microsoft is the largest software maker in the world, b) people have a great utility for software, and c) Microsoft is no longer just a software maker .

Microsoft under CEO Satya Nadella

Under the leadership of CEO Satya Nadella, who took over in 2014,atMicrosoft has moved aggressively into services and cloud computing. The Azure cloud computing system now has a strong percentage of the global market share, second only to Amazon Web Services, and accounts for nearly one-third of the company’s total revenue.atat

Microsoft’s revenue reached $125 billion in revenue last year, and it pulled in $42 billion in operating income.atWith a profit margin of 29%, which is much more than either of them Apple (Nasdaq:AAPL) or Alphabet (Nasdaq:GOOG), two companies widely assumed to have overtaken Microsoft.atatatat

stalwart and ubiquitous

That common belief stems from a false assumption: that a new product line with regular updates is the surest way to success in the technology sector. False. Take Surface, Redmond’s answer to Apple’s iPad. It’s not the kind of product that makes or breaks a company with Microsoft’s power and size. Rather, it’s a way to stay relevant in the consumer electronics market – of course, the idea is that Surface will generate enough profit to justify the costs behind it, but a few million are happy that Surface owners have only a minimal effect on Microsoft’s net profit numbers. . The same goes for the great Xbox, whose sexiness as a gaming console far outweighs its contribution to Microsoft’s overall financial picture.

Microsoft vs the S&P500 since 2010.

The truth is a little more pedestrian. Perhaps it is because Microsoft is so ubiquitous, a constant reminder in the daily lives of those who use its products. Every time you turn on your computer, the Microsoft logo stares at you, even if you’re a Mac or Linux user who still uses the Microsoft Office suite. Shouldn’t a company with such a wide and deep footprint to do its own business endlessly satisfy and fascinate us, with youthful exuberance and a penchant for self-promotion? You know, like Google does?

The truth is, more than four decades after its incorporation, Microsoft is as poised and disciplined IBM (NYSE:IBM), ITT (NYSE:ITT), Litton Industries and the other companies that ended up reaching the top of the Fortune 500 back in 1975. The software giant is primarily about making money, which is tautological at first reading, but in fact not . Microsoft is no longer at the raw experimental stage for young and growing companies. Instead, a working method It is to create streams of profitability, then maintain and expand them.

Software as a service

Microsoft’s name “Productivity and Business Process Division” may sound unhelpfully generic, but it refers to the part of operations responsible for creating the highly profitable Office. The series began as an add-on, a way to showcase Microsoft’s revolutionary operating system. But since the Office began in 1990, the applications it contains are almost mandatory for anyone who wants to do business. Over a billion people now use Office, to the point where Word and Excel are almost synonymous with word processing and spreadsheets, respectively. Increase that user base by $150 per license for the Home & Student stripped down version of Office, a product whose marginal cost is close to zero, and it’s easy to see why Microsoft does everything in its power to maintain Office’s profitability (and why competitors from OpenOffice to Google Docs want nothing more or take market share from Office.)

The Business Division’s only serious competitor for dominance at Microsoft is the company’s Windows Division, whose latest contribution to the market is Windows 10. Windows’ share of the global operating system market is more than 35%.

The Bottom Line

All-in-one entertainment systems (Xbox One) and free worldwide video conferencing (Skype) may be exciting, the kinds of things that make life in the 21st century more enjoyable, but their impact on Microsoft’s revenue is . minimal. Instead, the company’s secret to enormous wealth in everyday business is to allow users to create and manipulate documents; and providing the software that performs a computer’s most important function – allowing data to make it from your computer’s hardware components to the display. It’s not alluring, but it pays the bills…to a degree few companies in history can match.

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