Even after Microsoft reported record earnings a few days ago, one of its former executives has effectively written the company’s obituary in a New York Times op-ed piece. Is Microsoft (s msft) not savable? Here are three surprise scenarios that could have a lot of upside for the company.
It Branches Out As An Investment Holding Company. People familiar with the way Warren Buffett has run Berkshire Hathaway over the years know it’s seen enormous contributions to its earnings come from ownership of stocks, bonds and various types of fixed-income investments. Sure, it owns businesses ranging from GEICO to See’s Candy, but Buffett has driven billions of dollars of profit through simply owning shares in companies such as The Washington Post (s wp) and Coca-Cola (s ko). Over the long run, Microsoft may well move toward this kind of future as an investment holding company, too. It has nearly $35 billion in cash and equivalents, which is more than 10 percent of its entire $246 billion market capitalization.
In today’s New York Times op-ed piece, Dick Brass takes his former employer to task for desperately struggling to come up with new product innovations, but failing miserably. “It is failing, even as it reports record earnings,” he writes. Indeed, Microsoft just reported a record $6.66 billion in quarterly earnings, but that’s primarily due to operating system and Office application suite sales, not new product innovation. It won’t happen overnight, but over time, if Microsoft invests its cash wisely, investment returns could start to approach the returns it gets from its software business. If the idea seems far-fetched, consider the fact that Red Hat (s rhat) gets nearly half of its earnings from investment activities.
It Finally Gets the Web Right. Microsoft has a long history of downright boneheaded moves on the web. Indeed, ranging from its multiyear efforts to turn MSN into a meaningful web brand to its current efforts with Bing, it has primarily generated billions of dollars of losses with its web efforts. This could change, though, especially as the web and the cloud become more central to how people use applications. Microsoft employs some of the smartest software engineers on the planet and is showing signs of commitment to the cloud with its Azure rollout.
I’m definitely in agreement with Matt Asay that more Microsoft leadership on the web would be good from a competitive standpoint, and Google’s (s goog) founders have made the point more than once that their company’s brand is only “one click away” from competitors. Additionally, it’s worth remembering that the commercial web just isn’t that old. If Microsoft can find a way to combine success online with success in its traditional software business, the combination could be powerful.
The Ray Ozzie Era. Ray Ozzie holds the title of Chief Software Architect at Microsoft, which Bill Gates held as well. This is not an accident. Going back to his days behind Lotus Notes, I remember Ozzie as a product guy and a smart guy. Under Steve Ballmer, Microsoft’s stock has dropped significantly over the last 10 years, and Newsweeek, among others, has predicted that he won’t continue to run the company much longer. If anyone at Microsoft can introduce new products and innovation, it’s probably Ozzie. If he takes the CEO spot, as some predict he will soon, Microsoft could head in new directions.
In general, it’s hard to argue with Brass that the software company he used to work for has crafted its own “creative destruction,” but the cash registers continue to ring in Redmond, and there are smart people there. Over the next decade, Microsoft could easily pull a few rabbits out of its hat, and become a very different kind of company.
Related research from GigOM Pro (sub. req’d):