Since when does growing $4 Billion a year = Dead?

Paul Graham, founder of Y-Combinator, declares Microsoft is dead. Paul must be living in a cave somewhere, or drunk on the Web 2.0 Kool-Aid. Paul obviously wrote his headline to grab attention and attract links to his blog. TechMeme shows that he succeeded.

For the record, Microsoft is growing revenues at over $4 Billion a year and is on track for $50 Billion this year. Since when does growing $4 Billion a year equal DEAD? If that is dead I know a lot of companies that would like to be so dead.

Paul Graham points to four reasons Microsoft is "dead";

• Google is the most dangerous and feared company now
• AJAX and Javascript is the new programming model of choice
• Broadband Internet connections make the desktop irrelevant
• Apple "Their victory is so complete I am now surprised when I see a Windows PC"

Holding up Apple and Google as the Microsoft killers is curious. Microsoft is a software company. Apple is a hardware company and Google does consumer web search. I have a lot of respect for Apple and Google, but Microsoft killers? I don't think so.

Later in his blog post Paul graciously proposes how Microsoft could come back from the dead.

1. Buy all the good "Web 2.0" startups. They could get substantially all of them for less than they'd have to pay for Facebook.
2. Put them all in a building in Silicon Valley, surrounded by lead shielding to protect them from any contact with Redmond.

Buy all the Web 2.0 startups? It would make for good headlines but wouldn't contribute much to the bottom line. My guess is that all the Web 2.0 startups combined don't generate as much revenue and profit as the smallest business unit at Microsoft.

Hyperbole is the weapon of the Web 2.0 pontificates. Facts are ignored in favor of myopic observations. Thankfully these visionaries don't run real companies with stockholders, millions of customers, and thousands of employees.

Apple has about 6% of the computer market. Google has about 45% of the search market. Microsoft competes in desktop operating systems, server operating systems, databases, and development tools. Oh yes, I almost forgot, Microsoft has a multi-billion dollar Xbox gaming business, a multi-billion dollar MSN content and search business, a multi-billion dollar CRM and ERP business, and nearly a billion dollar business in Windows Mobile for wireless devices. So Paul, tell me again. Where is Apple and Google killing Microsoft?

Microsoft's Live Search has about 10% of the search market. Certainly not where we want to be, but still a potentially very profitable business. If Apple can make money and be considered a leader with just 6% of the market I guess Microsoft can do well with 10% of the search market.

I guess in Web 2.0 speak "dead" equals boring...and "boring" equals profitable. OK Paul, you can call me dead anytime.

UPDATE: The Paul Graham apologists are already coming to his defense saying "he said dead, but what he really meant was that Microsoft is not feared anymore". Sorry to burst your bubble but it was never Microsoft's intent to scare anyone. Microsoft has a huge partner network of over 80,000 companies who enjoy working with Microsoft. Microsoft does a lot to encourage partners and help them make money. Further, Google doesn't scare anyone either, and I don't believe they want to. There are hundreds of search startup companies all looking to take a bite out of Google. I know the guys at Powerset, and several other startups, and I can tell you they are not afraid of Google.

UPDATE 2: Just to put $4 Billion of growth in perspective, Yahoo's entire revenue last year was $6.4B, and Adobe had revenues of $2.57B. Think about Microsoft growing almost an entire Yahoo in one year, or almost two Adobe's. The numbers are staggering. Forget the numbers, how about creating the Xbox gaming division from nothing and growing it to a multi-billion dollar business against entrenched leaders? How about getting into the cell phone business with Windows Mobile and winning a good percentage of the Smartphone market? Growth is happening in many areas, but it doesn't get the press and buzz that the free services get. No problem...it comes with the territory.

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Comments

[Keven]

Don,

I believe Microsoft's demise is more closely related to Apple and Google than you have thought.

Google - easy one, GMail and Google Doc basically replaced the MS office suite I purchased in '98

Apple - based on Paul Kedrosky's observations, Vista sales is highly correlated to PC sales and once those numbers are normalized, "it looks like Vista sales are tracking on par with XP, and no better than that" (http://paul.kedrosky.com/archives/2007/03/26/playing_parse_t.html).

So from the indications of recent AAPL stock price - what if Apple continues to gain shares in the PC market? Upon purchasing a new iMac, my dad (retired) have found out that switching to Os X is easy as long as solitaire is installed.

[-hh]

Funny link-bait from several fronts.

The bottom line is that MS is "Dead" in the same way that General Motors (GM) has been "Dead"for years - - yes, they're still making tons of money and cranking out product, but for the most part, they're not making compelling products that buyers really want, but are instead effectively relying on those die-hard "Buy American" Nationalists ... who now see how many manufacturing plants Toyota has in the USA and are shifting *brand loyalties to buy the better* consumer product.

How many more years until GM finally croaks? Don't know. Cut the head off a dinosaur and the body probably won't know about it for a long time.

Whats certain that BMW (& others) aren't burning the midnight oil being _worried_ about wht GM might do tomorrow.

And the same is what has already happened at MS. The machine is running on Cruise Control and still making miles down the road ... its a wreck waiting to happen, but many people will deny it until the car finally runs off the road at that corner down 'yonder.

-hh

[Tim Duncan]

Anyone who has sat through a "Web 2.0" VC pitch knows exactly what Don is talking about. It is pretty much like listening to an 18 year-old who has never had a a job talk about what he will do when he is elected President of the United States.

Microsoft was scorned by the corporate/business world for years. Companies bought mainframes - not "toy" computers. It took years and hundreds of millions of dollars of inverstment for Microsoft to get where it is today - and that was with the most revolutionary product in the history of business computing.

I am much more interested in start-ups and small companies that are calling on potential customers rather than spending time talking about how Microsoft doesn't get it.

[Carly Sayd]

NeoSmart Technologies has an article that brings a lot of the technical details on the implementation of desktop RIA vs. a Web App in a pretty clear manner.

Going by their article, I'd have to agree, desktop RIAs are very very far from dead - they still have their place, and always will.

http://neosmart.net/blog/2007/people-dont-hate-making-desktop-apps/

[Karl Fox]

Interesting take on Paul Graham's essay, but it makes me wonder--did Mr. Dodge even read it? Actually, it is clear from his citations that he did read it, but he didn't grasp the basic point: Microsoft is no longer King of the Hill regardless of their bottom line. A useful exercise would be to read "The Innovator's Dilemma" by Clayton Christiansen, a recent classic among business strategy books that covers this phenomenon in detail.

Karl Fox
President
Lithik Systems, Inc.

[ken]

"Further, Google doesn't scare anyone either, and I don't believe they want to. There are hundreds of search startup companies all looking to take a bite out of Google. I know the guys at Powerset, and several other startups, and I can tell you they are not afraid of Google."

Maybe you're asking the wrong startups. Whether intentional or not, Google scares me.

I know I'm not alone, either. Perhaps most famously, Kiko struggled for a while before simply being "squashed" by Google Calendar. Nobody wants to be the next Kiko.

In Guy Kawasaki's 4-quadrant picture, Google is solidly in the "big and smart" square, which is exactly the one you don't want to go up against.

If you're doing software and not scared of Google, I can only guess that you're doing something so boring the only way to compete is by being a big name with a big sales staff to try to get people to buy a new Enterprisey system that's the same as their old 1960's system but with newer buzzwords.

[Unrealious]

No one is suggesting that Microsoft is not a humongous monster. We just see that the wound it has is fatal, and the monster does not realize it yet. Just wait ten years and then you will understand.

[Jason Wood]

Don,

Well said. As to the accusations that you're willfully misinterpreting what Graham actually said, I'm of the mind that when you post such a inflammatory title like "Microsoft is Dead", you are inviting a visceral reaction to not only what he said explicitly, but what was implied.

As you know, I have no patience for B.S. on either side of the ledger. Like you, I like Paul's stuff much of the time, but this time I took him [and more importantly all the sheep herding after him on Techmeme] to task:

http://woodrow.typepad.com/the_ponderings_of_woodrow/2007/04/bored_to_tears_.html

[Div0]

Don, if you worked for a startup in '95-'00 you'd know exactly what Paul was talking about. In our case we had to change our entire sales and product strategy to find a safe spot that Microsoft didn't know how to compete in (we moved from consumer to enterprise software). Today if I'm building a web based business, the first concern is Google. No one gives a second thought to Microsoft. Microsoft is effectively irrelevant in web business at the moment. For many thesedays the browser is all they care about for 98.8% of their daily activity, the OS is mostly irrelevant. So perhaps the title of his article should be 'The MS Monster that we all feared would eat us like they ate Stac Electronics is Dead'

[Fabian Fabertez]

Google doesn't _intend_ to scare anyone, just like Microsoft never intended to scare anyone either. If anything Microsoft and Google invite start-ups to try their hand at a new product or service, only to swoop in and take the points afterwards. Just like a predator does not want to alarm it's prey when it's looking for a meal.

Instead what Microsoft did count on was the developers seeing Windows as thee OS to develop and get training for. MS has always battled Linux in the server hardware space, with their "Get the Facts" marketing. They've brought out Visual Studio to bring the VB, C/C++, Java developers to adapt to MS-based environments, and with the .NET Visual Studio, MS hoped to get web developers to rely on them for developing for the web.

What Paul Graham is saying then, is that all of those bridges have weakened in the last few years and developers no longer feel tied to MS, and startups no longer fear MS swooping up their business as much as before. But Google has taken that role. Kiko, anyone?

[phil swenson]

I understand where Paul is coming from. He's deep in start-up and top-developer land. Among uber-geeks Microsoft *IS* dead. I've witnessed this in the world of Ruby on Rails... The rails coders are generally *very* smart (early adpoters) and almost all of them code on Macs and deploy to Linux. They don't even think about MSFT.

If I were an executive working at Microsoft, I would be worried. The most talented people in the industry go out of their way to avoid using their products and technology.

I think they made a serious mistake in 2000 when they made the decision not to let .net run on non-windows platforms. I think .net is a great platform (better than Java) and MSSQL is way nicer to work with than Oracle or DB2. But they only run on Windows. And the tools are pricey.

They should free the platform: open source .net, implement the CLR and support .net on Linux/Mac. Open all the tools (VS.net, SQL Server tools, etc). Charge for enterprise use or something...

MSFT doesn't participate in the innovative part of the industry. And it doesn't seem to worry them.... It should.

[Mike Church]

On Graham's use of "dead", consider academia. Universities, due to rising tuition costs and the clear-cutting of tenure-track positions in favor of postdocs and adjunct positions, are more profitable than ever. However, almost no one these days would disagree with the obvious statement that Academia Is Dead. By discarding its original values in favor of profit motive, it has become something that is, for the most part, not really worth caring about anymore. Universities are not going bankrupt, but the values upon which they were founded are utterly forgotten.

Microsoft lives outside Paul Graham's world, the high-risk, hyperproductive, uber-nerdy startup utopia, and therefore it doesn't matter to him. He's arguing that it's now a large company that has "moved out to the suburbs", so to speak. (I don't know if he's right; really, I know nothing about MSFT.)

Large companies are still present and powerful, but their declining relevance is due to their hierarchical structure, whereby technical people are usually kept subordinate to management, a separate class. This makes most of the big companies unattractive to the best people, whose productivity (in technical work) is an order of magnitude or two higher than that of the minimum qualified person. Companies that commoditize or subordinate technical people, therefore, have to hire 10-100 times as many people to get as much production and, given that actual productivity scales less than linearly with the number of people, that they can even pull when staffed this much is questionable.

[Mark C]

If you don't think Microsoft wanted to scare anyone, you're extremely naive. I used to work there. The "F" in "FUD" does not stand for financials.

[G Fernandes]

[QUOTE]Sorry to burst your bubble but it was never Microsoft's intent to scare anyone. Microsoft has a huge partner network of over 80,000 companies who enjoy working with Microsoft.[/QUOTE]

Sorry to burst your bubble, Don, but have you heard about Netscape? IBM's OS/2? The DoJ anti-trust case and it's actual results? The Halloween Papers? The Microsoft funded SCO law-suit against IBM for GNU/Linux copyright violations? The on-going ODF vs MS-Office-XML (no I'm not going to call something so blatantly closed "open")?

Microsoft has stifled innovation in software for the last decade.

You probably haven't noticed, happily working in your Windows world. But because you're happy being an Inca with your clubs, doesn't mean the Spanish aren't going to come after you with their guns.

[sasserstyl]

I think a lot of people miss the point of the "buying all the Web 2.0 start-ups" example.

It's not that Web 2.0 is anything particularly magical - it's the brains behind the startups and their way of working that a company like Microsoft should be after.

If you want to compete you need the best brains working optimally - you don't do that by being widely described as "Evil" by the very demographic you employ (geeks) - see Google for more.

Thanks

[Simon G]

Would be interesting to see if/how your views on this have changed now.