Analysts: Outlook Grim for Microsoft Online Business
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Microsoft's online business is "massively underperforming" against the competition, according to a leading financial analyst.
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Microsoft's decision to pare back features of the upcoming OS is not bad news, some say.
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By George Chamberlin , Daily Transcript Financial Correspondent. A forecast that the personal computer industry could experience shrinkage over the next couple of years came as no big surprise.
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Microsoft's Office suite continues to be a cash cow for the company, even as interest in its Vista operating system may be lagging, according to market research from NPD Group.
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Microsoft&#39;s $44.6 billion offer to purchase Yahoo&#160;is a dramatic statement from a company that delayed acknowledging the importance of emerging Web business models for so long, it faced becoming an also-ran in the Web 2.0 economy.But the cultural implications of the move are so tricky that the deal could end up backfiring for both vendors if Microsoft doesn&#39;t take care to learn from its past and use Yahoo to transform its business and&#160;not just help bolster its unproven efforts in online advertising and hosted services.The unprecedented deal, which would put a sizable dent in Microsoft&#39;s wallet, would be the largest purchase ever for the company. If Microsoft is willing to spend that much money, it also has to be willing to change some old ways of thinking to make the most out of the investment, analysts say.To achieve this, analysts caution Microsoft to be careful not to view Yahoo as a one-trick pony, taken onboard only for its user base and infrastructure to bolster Microsoft&#39;s online advertising interests against Google. While this is certainly the primary reason for the deal, to make the most of it, Microsoft has to not only respect the strength of Yahoo&#39;s brand but also be willing to let go of some of its own traditional proprietary interests -- not just on the product side but in its culture as well.Microsoft has never been one to let go of its vision or proprietary interests too easily; when acquiring companies, it usually subsumes the products and services and brands them as its own.While this has worked in the past because Microsoft traditionally has shied away from acquiring big-name or big-ticket items --&#160;last year&#39;s $6 billion aQuantive deal&#160;was a notable exception -- it&#39;s not as simple to do this with a company like Yahoo, analysts said.In the areas of online search and particular services and as an online destination for users, Yahoo is a stronger brand than Microsoft. Microsoft must recognize this and be willing to give up some of its interest in new content and services branded, respectively, under MSN and Windows Live to make the deal successful, said Ned May, director and lead analyst for market research firm Outsell.&quot;The big question is, will Microsoft take this and recognize it for being a stronger property and migrate its efforts there, or will it try to push its own efforts out through Yahoo?&quot; he asked. &quot;Historically, there&#39;s no precedent for it to do anything but use [an acquired company] to get Microsoft&#39;s message out.&quot;Though Microsoft and Yahoo are different types of companies and the union itself makes much more sense, Ron Schmelzer, analyst and managing partner with Zapthink, likened the deal to Time Warner-AOL, in which AOL&#39;s brand was damaged, not enhanced, after all was said and done.But investing as much as the gross domestic product of some countries in one company could inspire Microsoft to &quot;change its stripes&quot; and rethink its own interests, he said.To make the deal a true success, Microsoft also has to prove that it can let go of its entrenched Windows OS and desktop software culture, which had been the anchor keeping Microsoft from moving more quickly against Google and Yahoo in online advertising and services in the first place, Schmelzer said.&quot;The application itself is moving away from the thing that sits captive on your desktop to the thing that&#39;s distributed on the Internet,&quot; he said. &quot;Microsoft has to rid itself of its &#39;80s and &#39;90s perspective -- which was great in the &#39;80s and &#39;90s, but now 80 percent of the value of the computer is not in the computer itself.&quot;Microsoft had been moving in this direction before Friday&#39;s news, but it has been burdened by its need to keep the customers of two of its biggest consumer products -- Windows and Office -- happy, as well as its enormous portfolio of enterprise and business customers. Instead of moving full bore into the Web, Microsoft had adopted a &quot;software plus services&quot; strategy as a nod to its software legacy and inability to move fully to a more services-oriented strategy because of it.Still, some think an entire cultural shift isn&#39;t necessary for Microsoft to make the most out of the deal. David Mitchell Smith, vice president and fellow at Gartner, said Microsoft can leverage Yahoo successfully without changing its usual way of doing things, by keeping the brand and merging the best parts of Yahoo&#39;s Internet business, such as its online content, advertising and search, with its online services efforts.&quot;I would expect to see the Yahoo brand come out of this very, very strong,&quot; he said. In particular, Microsoft has been making moves to drive more video and other multimedia content online through MSN, and that is one area where the company could give up its own identity in favor of Yahoo&#39;s, Smith said.Andrew Brust, chief, new technology for consulting firm twentysix New York, said that the combination of Microsoft&#39;s existing Web technology and the Yahoo brand would be &quot;nicely complementary,&quot; though he acknowledged the risks of such a union. Even so, &quot;risk aversion is not a good Internet strategy,&quot; Brust said. Taking a risk in this area as well as bringing &quot;some truly Internet-focused mindset into the corporate culture&quot; may be just what Microsoft needs.Others likened the deal to another risky one, HP-Compaq, which many feared would be a disaster because of product overlap and cultural differences. That deal eventually proved successful.However, it&#39;s important to keep in mind how much more of a role that culture and the cool factor plays on the Internet than it does in the world of traditional computer hardware, warned Outsell&#39;s May. He said Yahoo users may be put off by the notion of Microsoft as their new daddy and see Google as the lesser of two evils, which would defeat the notion of the Microsoft-Yahoo union in the first place.
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Plus, Amazon's broken heart, Microsoft's unearned revenue, and is PeopleSoft stronger?
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Competition makes for a dreary outlook for the company.
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Microsoft Corp. CEO Steve Ballmer said Thursday that sales forecasts for its new Vista operating system may be "overly aggressive."
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Microsoft&#39;s $44.6 billion offer to purchase Yahoo&#160;is a dramatic statement from a company that delayed acknowledging the importance of emerging Web business models for so long, it faced becoming an also-ran in the Web 2.0 economy.
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Wall Street analysts are being too optimistic about sales of Windows Vista, Steven A. Ballmer, Microsoftâs chief executive, said on Thursday.
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Analysts speculate that the software giant will focus on the low end of the market, at least initially.
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While dealing logistically and technically with their overlapping online offerings will certainly prove troublesome&#160;if its bid to purchase Yahoo&#160;succeeds, Microsoft will at least have an immediate outlet for bringing more of its traditional desktop portfolio to the Web and to a broader customer base.Microsoft has been trying for more than two years to find a critical mass to adopt new online services beyond search, e-mail, and instant messaging under the Windows Live brand -- with little success. Its early MSN e-mail and IM offerings are popular enough with Web users; however, users of Google and Yahoo online services have been loath to adopt the revamped Windows Live offerings in favor of the ones they&#39;re already using.Not only could that change if the company purchases Yahoo, but Microsoft also will have a ready-made Web front end for rolling out more of its desktop applications as services, said Paul Fox, CIO of Guy Carpenter, a New York-based reinsurance company.&quot;The Yahoo platform is really what they&#39;re buying,&quot; he said. &quot;With Yahoo, they&#39;re tapping into the base culture of the Internet online community that&#39;s matured over the last 10 years. It&#39;s going to make it easier for people to take a look at and try their services, whereas before it had to be a more conscious effort.&quot;Aside from the usual raft of consumer applications&#160;such as&#160;search, e-mail, maps, and the like, Microsoft already has brought some of its many business desktop applications -- such as Office and CRM -- online in hosted, though often scaled-down, versions.Access to Yahoo&#39;s estimated 500 million visitors per month will give it a new channel to deliver what the company now calls its &quot;software plus services&quot; strategy, as well as buy the company time to bring more competitive versions of applications that were originally coded for the desktop to the Web.Indeed, in the conference call discussing the Yahoo bid Friday, Microsoft CEO Steve Ballmer made a pointed reference to efforts to shed its desktop legacy and move even aspects of its Windows OS to the Web, a trend the company started with some features in the latest version, Windows Vista.&quot;The Windows user wants to be live, the Windows experience needs to increasingly embrace the Internet,&quot; he said. &quot;There will be a Windows Live, there will be an Office Live as we continue to bring out innovations in which Office transforms and is transformed by the Internet.&quot;Ballmer also likely had the rising popularity of Web-hosted productivity software, such as Google Apps, Zoho, and&#160;Yahoo&#39;s Zimbra, in mind when considering how to Web-enable Microsoft&#39;s desktop software. So far, Microsoft&#39;s Office Live has been more of a way for small businesses to get up and running with a Web site and basic hosted business applications&#160;such as&#160;accounting and CRM; however, bringing a full productivity suite to the Web has been Microsoft&#39;s plan for some time.Microsoft also can leverage its own strength among business customers to bundle and technically link applications so that customers buy an all-in-one package rather than individual products. For instance, Microsoft has created tight links between a new unified communications product, Office Communications Server, and its Office and SharePoint collaboration software so that customers must buy them all together to create comprehensive infrastructure. Microsoft can make similar attachments between online versions of its applications -- or just bundle them together in creative ways -- and market them to a broader audience.&quot;If Microsoft does something well, it&#39;s bundling products and services,&quot; said Ned May, director and lead analyst of marketing research firm Outsell. He joked that if Microsoft purchases Yahoo, there might come a day when you start up Windows and &quot;up pops Yahoo, and it takes you three days to remove that functionality.&quot;&quot;Yahoo provides a platform in many regards -- an audience of 500 million people to which you can bundle products and new offerings,&quot; May said.Doing quick math, May figured that at &quot;500 million a month for about $44 billion,&quot; it will cost Microsoft about $86 a head for acquiring each member of its new audience of Web users. &quot;Not a bad deal,&quot; he said.
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Microsoft&#39;s latest step into the enormously profitable search sector is unlikely to win any first-stop commitments from users, but the signs are promising.
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As earnings reports rolled in from technology bellwethers, including Microsoft, Apple, Nokia, and Motorola, worries about the economy continued to overshadow good news this week.The fourth quarter of 2007 was strong for IT sales, but a downturn in the U.S. economy, which many analysts fear is slipping into recession, is undermining investor confidence in the sector. Share prices of technology companies have dropped since the start of the year, with the Nasdaq Composite Index sinking to pre-2007 levels.Microsoft provided some cheer Thursday, reporting a strong quarter for core products such as Windows Vista and Office 2007. Revenue for the quarter increased 30 percent year over year to $16.37 billion.Just as important as many market observers fear the U.S. is entering a recession that will affect technology, Microsoft also raised its forecast for its fiscal year, which ends June 30. Noting that Office and video game sales are doing better than expected, the company said it expects revenue for its fiscal year in the range of $59.9 billion to $60.5 billion. Three months ago, the forecast was $58.8 billion to $59.7 billion.The report, however, provided only a momentary uptick in Microsoft shares and the Nasdaq, even though other news on the software front was good.Enterprise database vendor Sybase, for example, said Thursday that it had its first billion-dollar sales year in seven years, helped by a 15 percent jump in revenue for the fourth quarter to $295.2 million. What&#39;s more, its forecast for this quarter remains strong.&quot;We have a balance in our product portfolio and a balance geographically as well,&quot; said company Chief Marketing Officer Raj Nathan.Though Sybase has a stronghold in the financial vertical market -- a sector that is in trouble -- Nathan pointed out that the company is strong in the telecom arena as well, does about 50 percent of its business outside the U.S., and is developing new analytics products that will help financial companies manage risk and do program trading.The company was one of the few that ended the week on a happy note with its share price increasing by $0.56 to close Friday at $27.44.Other companies did not fare so well, as investors jumped on any scrap of bad news.&#160;Apple got hit hard even though it reported quarterly revenue of $9.6 billion, a whopping 35 percent year-over-year increase. Investors were spooked about slowing iPod sales and a weak forecast for this quarter. iPod shipments of 22.1 million were about 10 percent below what had been expected.Apple shares plunged, dropping from $161.36 last Friday to $130.01 this Friday.Motorola had a rough week, reporting Tuesday an 84 percent plunge in income for the fourth quarter&#160;to $100 million and warning that its market-share losses would continue as the U.S. market -- the company&#39;s cell-phone stronghold -- continues to slump until next year. Company shares dropped $2.27 to hit $10.05 Wednesday on the news, and stayed below $11 through the week.&quot;Management&#39;s view of [a] recovery being a 2009 event pushes the recovery further past the horizon most investors are willing to hear at this point,&quot; said Citigroup Global Markets in a research report.Nokia, with hit products and a strong presence in Asia, on Thursday reported a 44 percent rise in profit for the fourth quarter, to &#8364;1.84 billion ($2.7 billion), on a 34 percent sales increase. A slump in U.S. sales was more than offset elsewhere. Nokia shares jumped Thursday on the news, rising $4.05 to close at $36.48 -- and then fell right back down Friday after IDC issued a report that suggested Nokia&#39;s confidence in 2008 was misplaced.In an economy that has investors focusing on the bad news, it&#39;s going to take some evidence of strong sales in the current quarter to bring confidence -- and tech share prices -- back up to where they were. The Nasdaq finished 2007 up by 9.8 percent, but in the first four weeks of this year, last year&#39;s gain has been wiped out with the index closing Friday almost 300 points down from the end of December.
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Microsoft Corp. forecast a rosy 2008 Â despite broader economic worries Â after it blew by Wall Street's expectations for a second consecutive quarter.
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Goldman Sachs said new media offerings from Microsoft (nasdaq: MSFT - news - people ) &quot;are not likely to be material to earnings this fiscal year and possibly longer.
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(InfoWorld) - Microsoft chief executive officer Steve Ballmer believes that sales forecasts for itsÂ new Vista operating systemÂ may be "overly aggressive." In a conference call Thursday with financial analysts Ballmer said lower selling prices, limited new corporate sales, and software piracy may combine to temper Vista sales forecasts. "I'm really excited about how enthusiastic everybody is about Vista," he said. "But people have to understand that some of the revenue forecasts I've seen out there for Windows Vista in fiscal year 2008 are overly aggressive." Microsoft's 2008 fiscal year begins this July 1. Ballmer did not provide specific sales numbers. Sales of Microsoft's Windows operating systems are driven by the growth in sales of personal computers (PCs), Ballmer explained. But PC sales growth tends to come more from the consumer market these days than the business market. Also, while Ballmer expects Vista to see greater sales growth in emerging markets such as in China, India, and Brazil, that growth will be on a smaller base than in developed countries. Also, those emerging markets are alsoÂ high-piracy markets. Even though Microsoft has added features to Vista to thwart piracy, it is still a problem in some countries, he said. And while Microsoft sold a lot of Vista upgrades to corporate customers, they have already been accounted for in previously signed contracts, so forecasts of additional corporate sales "may be a little more bullish" than is warranted, he said. Vista is the first totally new desktop operating system from Microsoft since the introduction of Windows XP in 2001. Vista has been much-delayed in coming to market as the company tried to avoid releasing a product with defects and security flaws that plagued previous Windows versions. Although Ballmer reported a strong early surge in Vista sales, which began for corporate customers in November 2006 and for consumers in late January, the surge may be limited to what's left of fiscal 2007 and "will not recur in fiscal year 2008."