The real secret to Microsoft’s success

The real secret to Microsoft’s success

For people of a certain persuasion, it’s fun to make fun of Microsoft (MSFT). It is outdated and occasionally bloated software. An OS version so despised that most users refused to upgrade from its predecessor and instead waited for its replacement. A browser that once held 95% of the global market share,,it no longer leads in any country.,And mobile phones that barely register in a universe dominated by the iPhone and Android.

Basic Takeaways

  • Microsoft is a household name with commonly known 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.,,
  • Microsoft is the most popular stock in index funds and ETFs in 2019.,,

Microsoft is maturing its business

Many (okay, some) of us are old enough to remember when Microsoft was the very definition of novel, its young founders and their unorthodox culture flying in the face of a formal, understated business world that had little use or knowledge of Computers. Today, Microsoft is a gray-shirt pillar of the Dow, and that’s a welcome fact. The alternative would be to have no consequence starting the brash software today.

However, sometimes it seems that the consensus sentiment about Microsoft prompts questions like “How the hell do they make so much money?” After all, Microsoft is not the most innovative company in the world, nor is it the most relaxed. However, critics seem to be forgetting something: a) Microsoft is the largest software maker in the world, b) people have a lot of use 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 the reigns in 2014,,Microsoft has moved aggressively into services and cloud computing. The Azure cloud computing system now has a solid percentage of market share worldwide, second only to Amazon Web Services, and accounts for nearly a third of the company’s total revenue.,,

Microsoft’s revenue topped $125 billion in revenue last year and totaled $42 billion in operating income.,With a profit margin of 29%, which is significantly higher than everyone else’s apple (Nasdaq:AAPL) or Alphabet (Nasdaq:GOOG), two companies widely assumed to have surpassed Microsoft.,,,,

Constant and Omnipresent

This popular view stems from a flawed assumption: that a new product line with frequent updates is the surest path to success in technology. It’s not true. Take the Surface, Redmond’s answer to Apple’s iPad. It’s not the kind of product that makes or breaks a company of Microsoft’s power and size. Instead, it’s a way to stay relevant in the consumer electronics market – of course, the idea is for the Surface to generate enough profit to justify the expense behind it, but a few million satisfied Surface owners have little effect on Microsoft’s bottom line. The same goes for the formidable Xbox, whose sexiness as a gaming console far exceeds its contribution to Microsoft’s overall financial picture.


Microsoft vs. S&P500 since 2010.

The truth is somewhat more prosaic. Perhaps 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 Microsoft’s Office suite. Shouldn’t a company with such a broad and deep footprint make it their business to endlessly delight and fascinate us, with a youthful exuberance and penchant for self-promotion? You know, like Google does?

The fact is, more than four decades after its founding, Microsoft is as stable and disciplined as IBM (NYSE:IBM), ITT (NYSE:ITT), Litton Industries, and the other companies that rounded out the top of the Fortune 500 in 1975. The software giant is primarily in the business of making money, which sounds tautological at first reading, but it really isn’t. Microsoft is no longer in the stage of raw experimentation common to new and growing companies. Probably it is How It Works it’s about creating streams of profitability and then sustaining and expanding them.

Software as a service

The name Microsoft’s “Productivity and Business Process Division” may sound unhelpfully generic, but it refers to the division of functions responsible for creating the astonishingly profitable Office. The suite began as an add-on, a way to showcase Microsoft’s revolutionary operating system. But since Office debuted in 1990, applications that include it have become almost mandatory for anyone who wants to do business. Over a billion people now use Office, to the point where Word and Excel are practically synonymous with word processing and spreadsheets, respectively. Multiply that user base by $150 per license for the stripped-down Home & Student version of Office; a product whose marginal cost is close to zero, and it’s easy to see why Microsoft is doing everything it can to keep Office profitable (and why competitors from OpenOffice to Google Docs don’t want nothing more than to take away the market share of Office.)

The only serious competitor to the Business Division 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 exceeds 35%.

The bottom line

All-in-one entertainment systems (Xbox One) and free worldwide audio and video conferencing (Skype) may be exciting, the things that make life in the 21st century more enjoyable, but their impact on Microsoft’s income is minimum. Instead, the company’s secret to astonishing wealth lies in the day-to-day business of enabling users to create and manipulate documents. and providing the software that performs a computer’s most important function – allowing data to be transferred from your computer’s hardware components to its display. It’s not glamorous, but it pays the bills … to an extent that few companies in history can match.

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