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Microsoft The Almighty Buck

Where Microsoft's Profits Come From 295

Posted by CmdrTaco
from the just-in-case-you-were-wondering dept.
derrida writes "Microsoft is the largest, most profitable software company in the world. In case you had any doubts about where Microsoft's profit comes from, there's nothing better than a graph to make all those numbers clear. As you may have guessed, the desktop division is quite profitable, while the online division is a money pit."
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Where Microsoft's Profits Come From

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  • Interesting graph! (Score:4, Insightful)

    by erroneus (253617) on Sunday February 14, 2010 @11:14AM (#31134494) Homepage

    What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff. This is clear indication of the power of vendor lock-in and tying unrelated products together.

    What I would find interesting is to know what events occurred during the valleys and rapid climb moments indicated in the graph. Specifically, what happened in Dec '06 and Sep '09?

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      What I would find interesting is to know what events occurred during the valleys and rapid climb moments indicated in the graph. Specifically, what happened in Dec '06 and Sep '09?

      Vista.

    • by koreaman (835838)

      Microsoft released its quarterly financial reports?

    • by timeOday (582209) on Sunday February 14, 2010 @11:23AM (#31134558)

      What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff.

      Are you sure that isn't just how the graph looks because it is stacking the data series on each other?

      What surprises me is the massive boost in OS profits in Dec 09. Could that really be Windows 7, and if so, how? It costs about the same as XP/Vista, and it's not as if people are buying Windows 7 off store shelves to upgrade older computers (are they?)

      • They're only stacked because of the profits they make. Office just happens to make the most profit and they will more or less match up because companies won't be just buying Windows and then just buying Office. They'll get a package deal from MS that will include everything.
    • by Amanieu (1699220) on Sunday February 14, 2010 @11:25AM (#31134574)
      I believe that the two drops and spikes correspond to a new version of Windows being release. Prior to release, people will stop buying the old version, which would be seen as a drop in profits. After the release, a lot of people will upgrade, which accounts for the spike in profits. The second spike (2009) is bigger than the first (2006) because Windows Vista wasn't as successful as Windows 7.
    • This could be the result of accounting tricks to make revenue from the base products look stable. Then shareholders can be soothed by the consistent numbers.
    • by rjch (544288) on Sunday February 14, 2010 @11:43AM (#31134690) Homepage

      What I would find interesting is to know what events occurred during the valleys and rapid climb moments indicated in the graph. Specifically, what happened in Dec '06 and Sep '09?

      December 2006 was the release of Vista. (Well, November 30th, but close enough) September 2009 was the release of Windows 7.

    • by fullfactorial (1338749) on Sunday February 14, 2010 @11:48AM (#31134726)

      What I find most interesting is the way all changes are perfectly synchronized with the exception of entertainment related stuff. This is clear indication of the power of vendor lock-in and tying unrelated products together.

      No. It's a clear indication that TFA used a Stacked Line Chart [microsoft.com]. If you were to move Office and Server to the bottom of the stack, you would see that they both account for relatively small sales bumps (~1 billion), with the real movement coming from the release of Windows Vista (Mar '07 bump) and Windows 7 (Dec '09 bump).

      Normally you avoid data distortions like this by putting the least-variable data at the bottom of a stacked chart. I think "Chart of the Day" needs a better-trained Excel monkey.

      • by zippthorne (748122) on Sunday February 14, 2010 @12:04PM (#31134840) Journal

        Normally you avoid data distortions like this by using a better kind of chart.

        The problem is that they're trying to visualize two different things in one chart (relative and total values), and the compromise you make doing that in a stacked chart pretty much sacrifices everything except the sum of the values.

        Also, area-shaded line graphs make absolutely no sense if you've only got a few data points.

      • Re: (Score:2, Insightful)

        by erroneus (253617)

        Point taken.

        If you hadn't linked me to a Microsoft page that made my Firefox go crazy after I enabled javascript, I would have responded sooner. (I'm not saying that Microsoft's page is hostile to my installation of Firefox exactly, but I have not rebooted my computer in a few weeks despite having installed updates that could easily be trampling all over one another at the moment... however, all other web page browsing seems normal until I enable javascript on that page. Seems odd. I love the "no script"

    • Re: (Score:3, Funny)

      by Whatanut (203397)

      You + stacked graph reading = fail. Stacked graphs are always in sync. You have to read each layer independently to see what's going on. Just because layer 1 increased, layer 2 will go up. That doesn't mean layer 2 increased.

      • Re: (Score:3, Insightful)

        by TheRaven64 (641858)
        I think it's actually a pretty big fail on the part of whoever drew the chart. At first glance, it appears that the Office revenue has gone down a lot in the past few months, but in fact it's just that Windows revenue has made the line much steeper. There are much better ways of presenting this kind of data.
  • Ok, let's see (Score:5, Insightful)

    by JamesP (688957) on Sunday February 14, 2010 @11:21AM (#31134546)

    We look at the graph: MS is losing like 500Million per year on the Online Division

    Then we look at the other graph and sees that Windows and Office has a 2Billion a year profit, EACH

    And then we have to read crap like this: "We wonder when Microsoft will finally decide to do what it should have done years ago: Save its money and flush its entire online division down the drain."

    No hon, SteveB is stupid, but not as stupid as you. It's called 'strategy', look it up. If it's working or not it's a whole different matter.

    • by TheSunborn (68004)

      No, its loosing 500 Million per quoter, so it's 2 Billion per year.

      But the thing I don't understand is: Why does Microsoft think that search is such an important thing, and how do they plan to even gain return on their investment.

      I mean even if Microsoft manage to make a success full search engine and get 25% of the market, where does this help with the rest of their products to create a strategy?

      Windows, Offices and their other tools does in a way give value to each other, because they allow Microsoft to o

      • Re: (Score:2, Insightful)

        Why does Microsoft think that search is such an important thing

        This goes into philosophy of how a business profits from the Internet. There are basically two ways: creating content for people to buy, or telling people how to get to content and selling the re-direction as a service be it to advertisers or any other buyer. Theoretically, someone could charge directly for Search itself.

        Google built the most successful business model of telling people how to find stuff. And that is why Microsoft thinks that Search is so important. Microsoft makes money on selling people th

    • Re: (Score:3, Interesting)

      by Jeff DeMaagd (2015)

      I think it's a question of how long they expect to spend money on a strategy that hasn't succeeded in a long time. Office is an old product, Windows is an old product. They haven't done a lot since then that makes money in the same way.

      Right now, it looks like Microsoft's strategy is to throw whole pots of spaghetti to the wall in the hopes that a couple strands stick, with a questionable profitability when they do stick, because the rest of the world may well have moved on to something else by the time t

      • by Myopic (18616)

        I agree mostly, but I proffer that Sharepoint might be the next juggernaut, like Windows or Office. Only time will tell.

  • by Alaren (682568) on Sunday February 14, 2010 @11:23AM (#31134560)

    Just looking at that graph makes me wonder what Microsoft thinks it is doing. Over the total lifetime of the division, what is the net profit of the "Entertainment and Devices" department? How much has Online cost, total? And what has it positioned them to do in the long run?

    For years, the buzz has been building on "the cloud." For two generations of gaming consoles, it has been Sony and Microsoft's strategy both to infiltrate your living room so as to better profit from entertainment services.

    But Office hasn't changed meaningfully in 6-12 years--sure there are new features that some folks like, but when I switched from WordPerfect 5.1 to Office 97 (?) that was the last time I noticed a significant change in feature set and usability. And the Windows OS has had a lot of changes under the hood, but XP to Windows 7 is much the same progression as Office 97 to Office 2007--security and cosmetics but no real innovation.

    And yet, a decade without innovation seems to have cost Microsoft nothing in terms of their core markets, and their experimental markets seem to be flat. Almost as if they are trying to push the market in a direction the market knows better than to follow.

    In other words, online and "cloud" services as well as the gradual move to digital delivery on consoles are both areas where Microsoft is seeking to erode ownership in favor of a rental model, while Desktop Services is still a physical product you buy (in spite of the net-based tentacles they've been extending of late). I was under the impression that people were falling for it hook, line, and sinker.

    This graph is pleasantly surprising.

    • Re: (Score:3, Interesting)

      by grumling (94709)

      Are you kidding? Office 2007 was such a radical change in UI that it took me about 3X longer to put together a simple document over the prior version. And just to keep everyone who's ever used the product on an even level with the intern who's been there 6 months, there's no "classic mode" button!

      I understand product managers get tired of just fixing bugs, but there's a reason we don't change keyboards and paper sizes every 20 years. Imagine buying a pen or pencil that now required you to hold it parallel t

      • When Alaren said it hadn't "changed meaningfully", I don't think he meant that it hadn't changed at all. It's been standard operating procedure with Microsoft to reskin Windows and Office with each release, shuffle around all of the buttons and controls, etc. It's always the case that some people like the changes and some people don't. Some people really like the Office 2007 UI.

        I think the idea was that they haven't significantly added much to Office's functionality or drastically changed the way we wor

      • by TheLink (130905)

        Here's your classic mode:

        http://www.kingsoftresearch.com/KSOScreenIms.aspx [kingsoftresearch.com] :)

        Open Office has a long way to go before it's really a big threat.

      • by Myopic (18616)

        I'll go on the record as preferring the ribbon to the menu.

    • I noticed one difference between Access XP and Access 2003. They apparently added data dictionary triggers, so if you changed a field name or table name in a database, it automatically updated views and forms and reports based on that table. I thought that was pretty cool.
      • by wwphx (225607)
        Just remembered another one. They finally got rid of that idiotic restriction of 65,000 rows in an Excel spreadsheet, I think it went away with the Vista version of Office.
    • by devent (1627873) on Sunday February 14, 2010 @12:20PM (#31134952) Homepage

      And yet, a decade without innovation seems to have cost Microsoft nothing in terms of their core markets, and their experimental markets seem to be flat. Almost as if they are trying to push the market in a direction the market knows better than to follow.

      What a surprise. If you want to sell an Office or Operation System the first thing your customers will ask you, how good does it support Microsoft Office file format or how good will my Windows only applications running.

      It's good to have an almost monopoly, you just need to polish your old applications, make the binary formats slightly incompatible, so if some important person buys the new one, everyone else must upgrade, too.

      I mean, what choice do customers have? It's either Windows 7 Starter or Windows 7 Home Basic or an Mac in the Apple Store.

      Every school in the western world is teaching only Windows and Office. Microsoft is not a company, it's an institution. Every Computer vendor in this world have to support Windows and all the big ones are promoting Windows with everything they have. Just try to get a new Computer, everyone will have a "Xxx recommends Windows 7" and if Microsoft will have a new Windows 8, every big vendor will put a "Xxx recommends Windows 8", regardless of any quality.

      For MS and the vendors it's a win/win situation. Microsoft have ads and it sells Windows, as well as other products that are build on top of Windows. The vendors get the Windows copy for free (or almost for free).

      Just try and implement and sell a new system or office suite. The entry line to this market is like enter in the tourist space market or to colonize a new planet. But a system or an office suite are very simple applications. You need some know-how, but it's not rocket science.

      • Re: (Score:3, Funny)

        by Myopic (18616)

        the first thing your customers will ask you, how good does it support Microsoft Office file format or how good will my Windows only applications running

        "How good?" Where the heck are your customers, in West Virginia?

    • Over the total lifetime of the division, what is the net profit of the "Entertainment and Devices" department? How much has Online cost, total? And what has it positioned them to do in the long run?

      Well sometimes there is a sort of "halo effect". The XBox may be helping keep both developers and gamers on Windows, which would justify even substantial losses. Online service might not be making money in itself, but it might be worth it to them just to keep people away from Google.

      On the other hand, I've also had a lot of times where I wonder what the hell Microsoft is doing. They often seem content to dump money into R&D while refusing to turn any of it into decent products. Meanwhile they seem

    • As always, you forget Business is War.

      Just think how much would the alternative cost Microsoft in the long run.

      You don't just do stuff to gain profit, you do everything to keep the competition from catching up. If you can keep (incompetent) domination of a sector at a 5% loss, you're better off if you allow a competent competitor to gain this domination (and earn lots), and then let them use their profits to dominate you in domains where you profit.

  • Google (Score:2, Insightful)

    by Anonymous Coward

    And Google's cash cow is search advertising and loses money hand over fist on YouTube ($753m last year).

  • by zerofoo (262795) on Sunday February 14, 2010 @11:31AM (#31134620)

    Microsoft is the same company they were 20 years ago. Windows, Office, and Server software are how they make money.

    Everything else under Balmer's tenure has been a (financial) failure.

    Now, Balmer wants to spend the war chest to win the "search" war. I've just got one question for Steve:

    Hey Steve, how much money did you make on the browser war?

    This idiot wants to kill Google by spending tons of money on search, yet he has not explained how this will make Microsoft a single dime.

    For Microsoft to grow and prosper in other areas, Steve Balmer needs to go.

    -ted

    • Re: (Score:3, Insightful)

      by Opportunist (166417)

      Look at the big picture and realize that it isn't so much a direct revenue goal they have for things like browsers or search engines, as it is to ensure their cash cow stays a monopoly.

      Netscape, as it was pointed out a few posts ago, planned to make its own OS. Google now actually did just that. Browsers and even more search engines are key to influencing people's opinions. You can easily, if you control a search engine, boost your opinions and cripple your competitors. Is is, in fact, for many people their

      • by tepples (727027)

        If they make it similar enough to Windows that people don't notice the difference, they won't complain.

        People will notice the difference: any OS other than Windows won't run "that one must-have app" for which Wine has not yet been modified.

        • by 1s44c (552956)

          If they make it similar enough to Windows that people don't notice the difference, they won't complain.

          People will notice the difference: any OS other than Windows won't run "that one must-have app" for which Wine has not yet been modified.

          ...and those people will go to the supplier and tell them to make a version they can use. The supplier will do that as soon as the cost of being windows only outweighs the costs of building software for a different OS.

          Windows has already lost on just about all server applications. There are many alternatives most are better.

    • One year they have vast amounts of money, think they own the world. 10 years later, their cash is being spent on a dozen failures which they can't own up to and then, suddenly someone makes their core monopoly irrelevant.

      It takes years, possibly decades for them to stop moving but it happens.

       

    • by Myopic (18616)

      Every dollar they make today, from any product, is because they won the browser war. The predictions from 1996 turned out correct: the browser *is* the operating system; the browser *is* the platform on which software is developed. We can see that somewhat today, and in an increasing manner.

      As for search, I'm less convinced. Search might be the web's killer app, but it's not a platform, so it won't be as important.

  • by Vicegrip (82853) on Sunday February 14, 2010 @11:35AM (#31134632) Journal
    After all these years... it's still Windows and Office. After all these years and new products. It's time to fire some executives. Microsoft apparently can't make money at anything new it does. Unlike Apple.
  • by C0vardeAn0nim0 (232451) on Sunday February 14, 2010 @11:35AM (#31134636) Journal

    IANAL and IANAAC (american citizen), so i'm asking this to whoever is any...

    can't shareholder sue microsoft's chief officers/board of directors for lost profits ?

    I mean, 2 bil a year is money they could be paying as dividends, right ?

    can someone clarify this to me ? thanks;

    • What would you accuse them of?

    • by furball (2853)

      Microsoft doesn't pay dividends.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Dividends? How quaint! The profits are there to line the CEOs pockets and to allow 'journalists' to fluff up the share price. The only way you (or any outsider) to make money is to buy low and sell high. Investing is so last century. Gotta Gamble Baby!

    • by nine-times (778537) <nine.times@gmail.com> on Sunday February 14, 2010 @12:20PM (#31134946) Homepage

      IANAL either, but I don't believe a stockholder can simply sue a company for not being profitable enough. I know you hear all about how a CEO's only responsibility is to make short-term profit for shareholders, but I'm under the impression that it's quite a bit overblown. I believe it's more like, if you can show some kind of unethical behavior where they're purposefully sacrificing profits for personal gain, then you have some kind of case.

      The way you hear it around here, you'd think a CEO can be thrown in prison for failing to screw an old lady out of her last dime because he has an enormous legal responsibility to maximize this quarter's profits. I have a hard time believing that.

    • by Fnkmaster (89084) on Sunday February 14, 2010 @12:32PM (#31135034)

      The short answer is no, you can't do that - they aren't losing the profits, they just may be investing them in other projects that have created business lines that aren't so profitable. That isn't illegal, it's a strategy, and it may eventually pay out or it may not.

      Now, there are tools like filing proxies, or getting your own board members put in place, that are possible for groups of shareholders working together which can put significant pressure on companies to change their capital structure, dividend policies, share buyback plans and so on. And those have worked to some extent with Microsoft, which was pressured into paying out a huge one-time cash dividend 4 or 5 years ago.

    • The only kind of shareholder lawsuits that have a chance of winning are in cases of fraud/deception or gross incompetence. If a company tells shareholders that they are going to do something, and then make a decent effort towards trying to reach that goal, there is not much shareholders can do, other than try to replace the board of directors (which sometimes happens).
    • by Myopic (18616)

      Yes, but the legal threshold is very high. This instance wouldn't even come close to that threshold.

  • by Palestrina (715471) * on Sunday February 14, 2010 @11:38AM (#31134642) Homepage

    They make their profit on their monopoly products and lose money on almost everything else. That is why the methods they use to maintain these monopolies continue to be the subject of antitrust investigations.

    This also demonstrates that they are very good at maintaining their monopoly, but not so good at successful new product development. With a stagnant pipeline, they are especially at risk as FOSS alternatives like Linux, Firefox and OpenOffice become less "alternative" and more "maintstream".

  • in that they have a single-source of revenue. Discounting the pocket-change that they make elsewhere, take away google's ad revenue and they would cease to exist. Would the same be said of Windows and MS? Maybe Office or 360?
    • The difference is that Google is only a little over a decade old and is trying hard to diversify. Microsoft has been making most of its money from operating systems and office suites since the '80s. The first version of Word was released in 1983 (for a UNIX system, in a strange twist of fate), and it has been a major part of their revenue since the Mac port in 1985. Their first OS was Xenix in 1980, and since then they've spent a lot of money on DOS, OS/2 and Windows NT, but operating systems still accou

    • Google does kill off products. So when will MS kill off Bing, Zune or the 360?
  • by HangingChad (677530) on Sunday February 14, 2010 @11:43AM (#31134686) Homepage

    Office and Windows have been their big profit centers for a long time. The big surprise there is that Office looks like it accounts for slightly more of their overall profit. And it was a surprise to see the margin on the server group. Back in the day I worked in a MSFT shop, it seemed like every day we were shelling out money for some license, another CAL or connector because the one we got didn't cover internet connections during a full moon, the support subscriptions that would regularly see large price increases, a piece of support software that was expiring. It was an every day thing that someone would come in and need money for something. Getting on without Windows servers is a blissful breeze in comparison.

    You can argue the merits, but I find OpenOffice and GoogleDocs work for me. At home and the office. When we replaced Office with OpenOffice at the shop there weren't any complaints about the change. We did field a lot of calls about how to do stuff (mail merge), but there wasn't anyone crying for Microsoft leeks and onions. Although we didn't have anyone doing a lot of footnotes, either. If memory serves that's one feature of Word that pays for itself in a research setting.

    • by Jaime2 (824950)
      Office has always been the big money maker. It wasn't until Windows '95 that the desktop OS division started showing a profit at all. Server profits didn't take off until Microsoft starting winning the war against Novell in the late '90s.
  • This graph impressed me.

    It shows that Microsoft hasn't been significantly successful in diversifying the sources of its profits. MS Windows/Server tools aren't going anywhere soon. However, there are a number of alternative office suites out there, some low cost, that are user friendly. If a company with marketing intelligence and financial resources got behind one of them Microsoft could be in serious trouble.

  • How is OO.O not taking a bite out of their profits?

    • by selven (1556643)

      You can't see Microsoft's profits here and Microsoft's profits in a parallel universe without Linux/Firefox/Google/OO.O side by side. For all we know, in that other universe they could be making twice as much as they are here.

    • I suspect MS' revenue from households buying Office is a tiny fraction of what their revenues from businesses are so until we start seeing OO.o (or Google docs) taking off in businesses then you probably won't see much happen to Office profits.
    • It would be interesting to see the breakdown between corporate site licenses and individual licenses. Is MS Office better than OpenOffice? Probably[1]. Is it $200 better? Probably not. But if you've got a site license for MS Office, is it easier to switch everyone to the latest version or to migrate them all to OO.o? Probably easier to stay with MS Office.

      Most of the Windows money, I'd imagine, comes from OEM sales, with corporate site licenses second and boxed editions a very distant third.

      [1] La

  • interest income? (Score:3, Interesting)

    by jschen (1249578) on Sunday February 14, 2010 @11:57AM (#31134788)
    Microsoft has about $40 billion in cash. Surely interest income should be there somewhere, probably higher than Entertainment and Devices is on the graph.
  • Google Buzz, an add-on to Gmail that some have compared most closely to Sharepoint, one of Microsoft's enterprise tools.

    Whiskey Tango Foxtrot, over?

    Sharepoint is like a corporate wiki. It's got more in common with Google Wave... in fact Wave is like a cross between Sharepoint and OneNote.

  • Recently I came across Guy Kawasaki's lectures. In one of them he mentioned, back in the 80s when he was a Mac-Evangelist, Macintosh department employees were given world class treatment like professional massage treatments during working days, First Class air tickets if the flight is 2+ hours etc.

    But in reality, Macintosh wasn't earning a dime and continuing the spending spree of all what Apple II department was earning. In return, not a single Apple II employee was permitted to enter the Macintosh buildin

    • by 1s44c (552956)

      In my humble opinion, I predict the demise of Office and Windows OS in next 10 years (maybe there will be cloud versions). I believe Microsoft will move into more enterprise/back-end technology space rather than remaining in desktop/consumer space (just like IBM). But nothing can be predicted to a higher accuracy, as the internet backbone is yet to achieve higher bandwidths and reliability, which is somewhat mandatory before a full migration in to a cloud based software eco-system.

      It sounds possible. Old companies that are used to Microsoft server stuff may stick to what they know but companies would be crazy to choose the Microsoft high cost and low reliability option for anything new.

      I predict that Microsoft will be unable to adapt and will die a long death until they get brought out in much the same way sun did.

  • If their online "profits" are any indicator, we'll see where the rest of their profits go as we all slip further and further into cloud computing. The rise in popularity of Mac OS and other alternate platforms make the "switch" pretty easy these days.

  • The graph provides no insight into how costs are allocated and determined across MS. Without an understanding of costing it's hard to say anything about product profitability; except that MS made a lot of money overall.
  • by gatkinso (15975)

    I like their mice.

    That's about it however.

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