Microsoft And It’s Two Products

Robert Cringely has an article up at the NY Times about Chrome vs Bing.  It’s a fine piece, but there’s a bit in the middle that makes me shake my head:

Microsoft makes most of its money from two products, Microsoft Windows and Microsoft Office. Nearly everything else it makes loses money, sometimes deliberately.

This is not an uncommon refrain, though most times people call MSFT a one trick pony.  This continues to confuse me.  I sat down with Scoble a couple of weeks ago at the Structure09 conference and we talked about MSFT.  He’s a former employee, and he too made this quip when the topic of Bing came up.

I read through the most recent 10-Q for Microsoft to see if I could pull out proof of what I am about to state, but the content wasn’t there.  There’s more detail in the 10-K filing from last year, so here goes.  If we start from the premise that Microsoft did $60B in revenues in 2008, and Office and Windows are the only products we have, where does that leave us?

The client business was $16.8B, but includes Windows Vista, XP, Media Center, and Tablet.  Note, it doesn’t include Windows Server, a completely different product.  Each of the client variants of Windows could certainly come under one product banner.

For Server you would have to look at the Server & Tools business (STB), which for 2008 turned in $13.7B in revenue.  STB consists of Windows Server and SQL Server.  It also includes our tools business, which is Visual Studio.  Let’s not forget Exchange or System Center.

Our online services business, though a money loser (at the operation income level), and perhaps the one that draws most of Cringely’s ire, put out $3.2B in 2008.  This includes all of our search and all online properties.  That’s multiple billion dollar revenue businesses right there.  Are costs out of control?  Sure, but it’s not like building a billion dollar business is something at which you sneeze or can do in a garage.

Next up is the Business Division.  This one churned out $18.9B.  Office is a part of that business, but so is Project, Dynamics, and Sharepoint.  I don’t have specific numbers, but those are not small products by any stretch of the imagination.

Last we have Entertainment & Devices.  E&D has the Xbox, all of our games, Zune, and our hardware.  Zune may not be a money maker on the revenue side, but we sell a lot of mice and keyboards, and those Xboxes are doing OK.  Our game attach rate is very high, and with some top selling first party titles.

We also have businesses built around premium support and consulting services, and those aren’t small businesses either.  Just consider what the scope must be given our product base.

So, for a company that apparently only has 2 products, the list I enumerated of “large” products – businesses that could be stand alone multi-billion dollar market cap companies – is pretty impressive.  There are only 332 companies listed on American exchanges that have market capitalizations north of $10B, and we could fill that list with at least 10.

  • “Sure, but it’s not like building a billion dollar business is something at which you sneeze or can do in a garage.”

    Sorry: Apple, Google, HP did.

  • Brandon Watson

    Touche James. However, that’s three companies. Apple has done well with the iPod/iPhone business for sure. The point I was trying to make is that there are quite a few products which people don’t think about when stating flatly that we have only two products.

  • Didn’t mean to cherry pic that line–you’ll find few people as interested in the launch of Azure as me.

    I’d actually ad another point for MS–the what 10M++ developers building business applications and work-flows with MS software, tools and frameworks. Think of all of those wins…..

  • Each of the 3 money buckets you listed has either a version of Windows or Office in it, so fails to dispute “makes most of its money from two products”.

  • I should add, it still doesn’t make sense to play this game, as both Windows and Office are far more than just individual products.

  • Brandon Watson

    Lloyd, I couldn’t disagree with you more. SQL is not part of Windows. Neither is Exchange. Or Visual Studio. Or MSN and related search properties. Or XBox. Project could arguably be called part of Office, but it doesn’t ship in the office SKU. Same thing with SharePoint. It’s a stand alone product.