Microsoft’s Outrageous Office Profits
September 9th, 2007
Daniel Eran Dilger
Microsoft’s Office suite represents the third pillar of the company’s core trio of monopolies, next to its Windows desktop software and its Windows Server products. Here’s why the company’s monopoly position in productivity applications is holding back innovation and why the mainstream tech media has absolutely nothing to say anything about it.
Office Wars 1 – Claris and the Origins of Apple’s iWork
Office Wars 2 – Microsoft’s Outrageous Office Profits
Office Wars 3 – How Microsoft Got Its Office Monopoly
Office Wars 4 – Microsoft’s Assault on Lotus and IBM
The Big Money in Office Applications.
For Microsoft’s fiscal year 2007, which ended in June, the company reported revenues of nearly $11.18 billion for its Windows Server products, just over $14.97 billion in Windows desktop sales, but over $16.39 billion in revenues from its Microsoft Business Division, 90% of which come from sales of Office.
In terms of annual profits, Microsoft earned $3.9 billion from server software, $11.6 billion from Windows, but almost $10.84 billion from Office. These figures are all detailed in Microsoft’s earnings reports.
These three enormously profitable businesses allowed the company to painlessly absorb nearly $8 billion in losses–in just one year–related to its spectacular failures in WinCE, Windows Media, Windows Mobile, the Xbox 360 and Zune, its online businesses, and that “Other” black hole of what the company calls “corporate level activity.”
The “Other” losses Microsoft documents every year includes many individual fines and lawsuit settlements in the range of hundreds of millions of dollars related to its criminal activities around the world. In the last half decade, Microsoft has swept over $25 billion of these “Other” losses under the rug, in addition to the many billions sprayed at failed efforts to establish monopolies in the online, mobile, and consumer electronics arenas.
The Great Hypocrisy of Windows Enthusiasts on Profit Margins
While Microsoft’s Windows Enthusiast wags desperately try to make the iPhone sound over priced with its purported “50% profit margins,” they neglect to mention that Microsoft actually makes–after expenses–a 66% profit margin on sales of Office and a jaw-dropping 81% profit margin on Windows.
These frauds lie up and down about profits and margins because Microsoft’s obscene profits help support their pro-Microsoft wagging businesses. In reality, over the same year period Apple earned $3.13 billion on revenues of $22.61 billion, an overall profit margin of less than 14%. No need to fear that “Apple is the Next Microsoft!!” as PCWorld’s Mike Elgan recently tried to suggest, repeating many of the same absurdities Paul Thurrott is wont to do.
Why are Microsoft shills so enraptured with screeching about Apple’s “outrageous profits” when the company they blindly follow is making absolutely insane profits selling old technology and then jacking up prices even higher and adding more DRM validation and WGA spyware on top? Recall that this past year, Microsoft’s profits primarily came from selling:
- The half decade old Windows XP.
- The ancient Office for Windows from 2003.
- The creaky old Office for Mac from 2004.
Why are Microsoft apologists working so hard to hold back the progress of technology?
Why do they spew such venom about the iPhone, Linux, and the Mac? Because Microsoft’s obscene profits from the sales of its outdated, overpriced, and consumer hostile products help to directly support the wags’ chatterbox industry.
Spreading fear, uncertainty and doubt by spewing ignorance and false information are efforts to keep the world stuck in the tech rut of the 90s, where no critical thinking was required. Lazy pundits like no possibility of being wrong, so working to keep the technology world enslaved to Microsoft helps them appear to be insightful when they prophesy that Microsoft will eventually come out with a copycat version of whatever anyone else is doing. Sure enough, it happens.
The same Mike Elgan wrote in Computerworld last fall that Microsoft’s Zune “scares Apple to the core,” and announced that Microsoft would “leverage the collective power of Windows XP, Windows Vista, Soapbox (Microsoft’s new ”YouTube killer“) and the Xbox 360” to push Zune adoption. What a celebration of half decade old decrepitude and three new but clearly dismal failures!
Elgan’s Zune article was full of errors and misrepresentations he later had to edit out, but most importantly it had no real impact because consumers don’t read IDG’s Microsoft-centric IT rags for advice. Prior to writing for IDG, Elgan was editor for Windows Magazine. Who paid Elgan’s bills?
By attempting to shoot down any and all competitors to Microsoft, frauds like Elgan hope to prolong their careers in effortless pontification, commonly about subjects they know nothing about. August’s Zoon nominees offer other specific examples:
- ZDNet’s George Ou could certainly accomplish more as a ballet dancer than a Microsoft shill, but he says there’s more money in churning out Microsoft propaganda than in art. The world is a lesser place because of this. If Bill Gates was a real humanitarian, he’d sponsor Ou’s dancing, not leave him to struggle with writing about subjects he knows nothing about.
- InfoWorld’s Oliver Rist is a small Windows developer, but he prattles on about big iron Enterprise IT as if simply spouting the praises of Microsoft is an appropriate credential for discussing technology subjects he is otherwise unqualified to write about. IDG is happy to pay Rist to discuss why Windows is appropriate for large IT operations anyway. That’s certainly not because IDG cares about informing its readers; it only really cares about getting advertisement revenue from Microsoft.
Microsoft’s Anti-Competitive Non-Innovation.
With zero competition in the desktop PC operating system and productivity application markets, it’s no wonder why Microsoft hasn’t bothered to crank out any innovation in new versions of its products over the last half decade. It simply doesn’t have to!
Microsoft makes tens of billions of dollars every year selling intellectual property licensees without any competitive pressure from a functional market economy.
It’s no mystery why the record labels and studios desperately wanted Microsoft to set them up with the same sort of “free money” pipeline policed by the extreme, unilateral, anti-consumer DRM of Windows Media.
It says volumes that Microsoft’s only competitor on the PC desktop is a non-profit volunteer effort. The company is so rich it can proudly operate above the law, as it documents in its earnings reports.
The Risk of Losing Office.
If Microsoft were to lose its monopoly position with Office to real competition, a third of the company’s revenues would be at serious risk, but almost half of its profits would be in danger.
Without the easy money from Office, Microsoft would have to compete on a level playing field, something that the company has no proven ability to do. In fact, in markets where Microsoft has to compete, it always fails miserably. Outside of its three monopolies, Microsoft hemorrhages cash faster than nearly a half dozen Amtrak operations combined, or eight times faster than Apple did at its most beleaguered point in 1995 when it reported a loss of nearly a billion dollars.
For additional perspective, the “spectacular failure” of Chrysler that caused Mercedes to dump the division like a hot potato this year amounted to losses of $1.5 billion annually, a slight fraction of Microsoft’s $8 billion cash bonfire this year.
Without the Office cash cow, Microsoft would be unable to dump unfathomable amounts of money into profitless exercises intended to hold back innovation and prevent competition in new markets to increasingly broaden its sphere of influence. It’s therefore no surprise that Microsoft is working hard–and playing dirty–in efforts to maintain its monopoly position in Office software, which is worth nearly as much to the company as its Windows business.
How was it that Microsoft was able to establish a monopoly in productivity applications? That will be explored in the following article: Office Wars 3 – How Microsoft Got Its Office Monopoly.
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