Cash Cow Disease: The Cognitive Decline of Microsoft and Google(ronburk.blogspot.com)
ronburk.blogspot.com
Cash Cow Disease: The Cognitive Decline of Microsoft and Google
http://ronburk.blogspot.com/2010/08/cash-cow-disease-cognitive-decline-of.html
102 comments
I think this article is a little off-base. Having money and a less than dire need to survive does not automatically stifle innovation. Microsoft has an enormous amount of management overhead and process that grinds brilliant engineers and their output into a fine paste. They have cannibalistic internal competition for resources and teams are actively discouraged from sharing code and cooperating. You might argue that their war chest allows this insanity to continue, but it's not the root of the issue.
I believe you just inadvertently proved the author's point. The cash cow products allow the insanity to continue, which wastes the potential of the employees and resources. The "cognitive decline" that the author mentions is the rationalization that allows this wasteful process to continue.
Poor, short-sighted leadership is the root cause of cash cow disease, not the profit itself.
Poor, short-sighted leadership is the root cause of cash cow disease, not the profit itself.
> Having money and a less than dire need to survive does not automatically stifle innovation
No, but it makes space for the kind of complacency that stifles it. Also, having a successful product that's your cash cow makes it hard for you to develop the next-generation product that will kill it, specially if it does so by generating lower revenue.
Having huge amounts of cash also help you to make very bad product decisions. In order to learn what it learned with Wave, did Google really have to create such a monstrous flop? Couldn't it be a private beta or an internal tool? Couldn't it be a private beta? As for the original Xbox, I am not sure the only reason for its existence was to hurt Sony. It's very nice to say "we intended it to fail" years after you release a second-generation product. Microsoft was into games before, with Sega (the Saturn ran a version of WinCE). Did Microsoft really have to release the Kin?
But I agree with you on one thing: Microsoft is the Grand Master of using vaporware and half-assed products to damage the competition. Why would anyone consider the date Courier was "shown" be days before what was suspected to be the date Apple would announce its tablet? I also disagree with the article when it considers Google's 20% time a waste. Neither them nor we know what is the Next Great Thing that will make search-driven ads obsolete. They, like us, have no idea. That's why they encourage creative people to shoot in all directions: because one will eventually hit something big.
And yes, as of December 2010, he is wrong about Android. It's a huge success and telcos, AFAIK, pay Google a fair amount to use it (although open-source, you pay for some apps like Gmail and contacts and to use the Android and Google trademarks). I am not sure whether he would sound better in August.
If Wave has any pressure to be a successful application, it would have been integrated with plain old SMTP e-mail, and would possibly be eating Gmail's lunch by now.
No, but it makes space for the kind of complacency that stifles it. Also, having a successful product that's your cash cow makes it hard for you to develop the next-generation product that will kill it, specially if it does so by generating lower revenue.
Having huge amounts of cash also help you to make very bad product decisions. In order to learn what it learned with Wave, did Google really have to create such a monstrous flop? Couldn't it be a private beta or an internal tool? Couldn't it be a private beta? As for the original Xbox, I am not sure the only reason for its existence was to hurt Sony. It's very nice to say "we intended it to fail" years after you release a second-generation product. Microsoft was into games before, with Sega (the Saturn ran a version of WinCE). Did Microsoft really have to release the Kin?
But I agree with you on one thing: Microsoft is the Grand Master of using vaporware and half-assed products to damage the competition. Why would anyone consider the date Courier was "shown" be days before what was suspected to be the date Apple would announce its tablet? I also disagree with the article when it considers Google's 20% time a waste. Neither them nor we know what is the Next Great Thing that will make search-driven ads obsolete. They, like us, have no idea. That's why they encourage creative people to shoot in all directions: because one will eventually hit something big.
And yes, as of December 2010, he is wrong about Android. It's a huge success and telcos, AFAIK, pay Google a fair amount to use it (although open-source, you pay for some apps like Gmail and contacts and to use the Android and Google trademarks). I am not sure whether he would sound better in August.
If Wave has any pressure to be a successful application, it would have been integrated with plain old SMTP e-mail, and would possibly be eating Gmail's lunch by now.
Did Microsoft really have to release the Kin?
Word is they did. Apparently they had some contractual obligation to do so.
And I don't think they intend for XBox to fail, but the goal wasn't to make profit in of itself, but rather to block and clear the way for their own living room initiative.
Why would anyone consider the date Courier was "shown" be days before what was suspected to be the date Apple would announce its tablet?
Huh? Courier was first shown in 2009. Way before the iPad was announced. If anything MS cleard the field for the iPad by announcing they were killing the Courier project.
Word is they did. Apparently they had some contractual obligation to do so.
And I don't think they intend for XBox to fail, but the goal wasn't to make profit in of itself, but rather to block and clear the way for their own living room initiative.
Why would anyone consider the date Courier was "shown" be days before what was suspected to be the date Apple would announce its tablet?
Huh? Courier was first shown in 2009. Way before the iPad was announced. If anything MS cleard the field for the iPad by announcing they were killing the Courier project.
> Huh? Courier was first shown in 2009. Way before the iPad was announced.
It was shown days before an Apple event. Rumors at the time pointed to Apple releasing its tablet at that event. They didn't and watching the rushed CGI video of a concept that would never become a product being released right before a non-event was priceless.
> If anything MS cleard the field for the iPad
I wouldn't hold my breath
It was shown days before an Apple event. Rumors at the time pointed to Apple releasing its tablet at that event. They didn't and watching the rushed CGI video of a concept that would never become a product being released right before a non-event was priceless.
> If anything MS cleard the field for the iPad
I wouldn't hold my breath
I took a look at the time line and you appear to have improperly recollected. The Courier leak happened 9/22/2009. The Apple event was 9/9/2009. By the time the Courier leak occurred everyone was already speculating the Apple Tablet was coming out in February as Apple's September event had long passed with no mention of a tablet. See this Mashable story:
http://mashable.com/2009/09/22/microsoft-courier/
MS cancels the Courier on April 29th -- the same month the iPad came out (and actually a day before the launch of the 3G version).
There doesn't seem to be a FUD play at all here, except in the eyes of the most ardent consipracy theorists. RBanffy? :-)
http://mashable.com/2009/09/22/microsoft-courier/
MS cancels the Courier on April 29th -- the same month the iPad came out (and actually a day before the launch of the 3G version).
There doesn't seem to be a FUD play at all here, except in the eyes of the most ardent consipracy theorists. RBanffy? :-)
There was an Apple product announcement on October 20th 2009. That's when they announced the new LED-backlit Macbooks, the Magic Mouse and a new line of iMacs. By the time the Courier video was shown, there was a lot of speculation on what would Apple announce that October.
As for the September 9th event, it was disappointing. Lots of people expected a "one more thing" moment with what would become the iPad.
So, it was right after an Apple event and right before a couple product announcements from Apple.
As for the September 9th event, it was disappointing. Lots of people expected a "one more thing" moment with what would become the iPad.
So, it was right after an Apple event and right before a couple product announcements from Apple.
According to the author, Apple should have never developed the iPod, iPhone, or iPad....
Actually Apple until recently didn't have a cash cow per se. When the iPod was first developed Apple was making very little money, and broadening its product base was a good strategy.
I think the main popular tech giant that seems to avoid most of the consequences of the cash cow disease is Apple. Even though they are turning a profit comparable to microsoft's, you don't see nearly as many spin-offs or research departments or other leakages. Pretty much the only things that come out of Apple are its top-of-the-line products.
While this is scary for someone who would one day like to work in an industrial reaearch lab, they certainly seem to know how to make money.
I think the main popular tech giant that seems to avoid most of the consequences of the cash cow disease is Apple. Even though they are turning a profit comparable to microsoft's, you don't see nearly as many spin-offs or research departments or other leakages. Pretty much the only things that come out of Apple are its top-of-the-line products.
While this is scary for someone who would one day like to work in an industrial reaearch lab, they certainly seem to know how to make money.
On the other hand, Apple didn't have a cash-cow before the iPod, if you regard it as their first cash-cow after Jobs' return.
And going from there to iTunes, to merging the iPod and mobile phone everyone carries around, to arriving at the iPhone and iOS, and then to expand the screen size to build the iPad doesn't represent huge deviations from their core business.
Ping might fit within what the OP describes though.
And going from there to iTunes, to merging the iPod and mobile phone everyone carries around, to arriving at the iPhone and iOS, and then to expand the screen size to build the iPad doesn't represent huge deviations from their core business.
Ping might fit within what the OP describes though.
This article is poorly thought out. He accuses Google of stifling innovation, then he spouts this gem:
"Meanwhile, at Google, the cash cow is search-driven advertising. That allows the company to encourage engineers to waste 20% of their time on "projects", like Google Wave."
Apparently he thinks that a) A company should only stick to its core product. (and some how this is innovation) b) If a company experiments it is "waste" and crushes other smaller companies stifling innovation (which is why twitter got crushed... oh wait)
Waste of my time reading this.
"Meanwhile, at Google, the cash cow is search-driven advertising. That allows the company to encourage engineers to waste 20% of their time on "projects", like Google Wave."
Apparently he thinks that a) A company should only stick to its core product. (and some how this is innovation) b) If a company experiments it is "waste" and crushes other smaller companies stifling innovation (which is why twitter got crushed... oh wait)
Waste of my time reading this.
The key here isn't innovation, but useful innovation.
But the net result of cash cow disease is a waste of brainpower, and a decrease in useful innovation.
From what I can tell, there isn't as much of a contradiction as you imply, and the author is merely advocating a spin-off technique for investing in non-core innovation.
But the net result of cash cow disease is a waste of brainpower, and a decrease in useful innovation.
From what I can tell, there isn't as much of a contradiction as you imply, and the author is merely advocating a spin-off technique for investing in non-core innovation.
What's useful innovation? How do you know it is useful innovation? How long does it take until you discover it's not, if it isn't? What about if it is?
Was the pitch line of Twitter good enough for you to consider it 'useful' before it became what it is?
Was the pitch line of Twitter good enough for you to consider it 'useful' before it became what it is?
One of the author's points is that things like Twitter are not being developed and released by Google and Microsoft, despite the massive R&D spending. Furthermore, the only reason why we have Twitter at all is because those founding developers didn't happen to be working for one of the cash cow diseased companies.
My point was that, at least to me, twitter sounded like a stupid idea on paper. I was proven wrong, but there are many ideas just like it that you have to implement to see if it's useful. The phrase "try it and see" comes to mind. That's what many of these side projects are for; and, when you have a TON of money to play with, you can go off and throw a few hundred thousand or million at it and not worry about it. If it turns out to be a good idea, then yay! Victory. If not, oh well, you're still making enough outside of that project to cover everyone.
Well you'll get no disagreement with me that "try it and see" is a good thing and needs to be funded. What the author is saying, and I take as a very insightful point, is that you're unlikely to efficiently find a project's make-or-break point if you're always awash in cash. Time and resources tend to get used if they are available. Research tends to recommend more research. Delivering a self-sustaining product is hard compared to discovering and exploring within a sandbox.
What the "startup" mentality has that the cash cow companies lack is the sink-or-swim pressures that create success or failure from new projects. Market pressures, in other words. Cash cow companies can afford to have many projects in limbo, sucking time and energies away from progressing towards projects that will ultimately succeed.
Because cash cow companies (by their very nature) haven't had to develop many successful projects, they tend not to be very good at it. Not only that, but cash cow company executives often become fearful of any line of development that may undermine the cash cow's market performance. When those two factors coexist, you're left with a company that's not only painted itself into a corner, but has also forgotten how to paint.
BTW, I think Twitter sounded like a simple idea on paper, but certainly not a stupid one. If a small group of people finds a passionate use case, there are likely others out there who will feel the same.
What the "startup" mentality has that the cash cow companies lack is the sink-or-swim pressures that create success or failure from new projects. Market pressures, in other words. Cash cow companies can afford to have many projects in limbo, sucking time and energies away from progressing towards projects that will ultimately succeed.
Because cash cow companies (by their very nature) haven't had to develop many successful projects, they tend not to be very good at it. Not only that, but cash cow company executives often become fearful of any line of development that may undermine the cash cow's market performance. When those two factors coexist, you're left with a company that's not only painted itself into a corner, but has also forgotten how to paint.
BTW, I think Twitter sounded like a simple idea on paper, but certainly not a stupid one. If a small group of people finds a passionate use case, there are likely others out there who will feel the same.
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The author is advocating giving the profits to shareholders rather than investing in innovation. He phrases his "spin off" comment as "let someone else invest in innovation."
Cash cow disease costs _stockholders_ untold (sometimes actively buried in accounting maneuvers) dollars. Consider Xbox, which consumed billions (that's with a 'b') before eventually turning a profit of millions (that's with an 'm'). If Xbox had been spun into a separate company, then Microsoft _stockholders_ could have kept those billions (with a 'b') and let _someone else_ decide to invest billions in trying to jump into the game console business.
(emphasis mine).
Cash cow disease costs _stockholders_ untold (sometimes actively buried in accounting maneuvers) dollars. Consider Xbox, which consumed billions (that's with a 'b') before eventually turning a profit of millions (that's with an 'm'). If Xbox had been spun into a separate company, then Microsoft _stockholders_ could have kept those billions (with a 'b') and let _someone else_ decide to invest billions in trying to jump into the game console business.
(emphasis mine).
And what of the "unuseful successful innovation"?
1) Android is growing like wildfire-- contributes over a billion to revenue last year it was claimed.
2) Google App Engine serves over a billion page load a day.
3) Google Apps? I love it--
etc etc.
Spin-off is a technique, but I don't think it's the only way to go.
1) Android is growing like wildfire-- contributes over a billion to revenue last year it was claimed.
2) Google App Engine serves over a billion page load a day.
3) Google Apps? I love it--
etc etc.
Spin-off is a technique, but I don't think it's the only way to go.
The point the article is making is that if Google hadn't entered those markets, someone else would have and done it a lot better.
Who's going to seriously invest in an online word processor or spreadsheet with Google apps squatting on the territory? Just MS.
Google apps is still pretty basic and they're not operating under commercial conditions, which means potentially the customer is not getting what they actually want.
I think in some ways he's wrong, not operating under commercial pressures is not necessarily a bad thing, but Google and Microsoft have recently been extremely weak on following through on promising technology, abandoning projects instead of pivoting.
But in Google's case it can be especially toxic, it's then difficult for others to enter those markets as suddenly there's a free competitor. That's not healthy and on that I agree with the author.
Who's going to seriously invest in an online word processor or spreadsheet with Google apps squatting on the territory? Just MS.
Google apps is still pretty basic and they're not operating under commercial conditions, which means potentially the customer is not getting what they actually want.
I think in some ways he's wrong, not operating under commercial pressures is not necessarily a bad thing, but Google and Microsoft have recently been extremely weak on following through on promising technology, abandoning projects instead of pivoting.
But in Google's case it can be especially toxic, it's then difficult for others to enter those markets as suddenly there's a free competitor. That's not healthy and on that I agree with the author.
But in Google's case it can be especially toxic, it's then difficult for others to enter those markets as suddenly there's a free competitor. That's not healthy and on that I agree with the author.
But isn't this the grave we've dug for ourselves (as software developers)? We've pivoted the whole market so that software has no intrinsic value on its own?
Look at WordLens for example. Mindblowing technology. If you could only get it in a standalone piece of HW the markup would purely be a function of the HW cost. As it is, they started pricing at $5. And as ridiculously cheap that is I can see people saying, "Why isn't it 99 cents?"
At this point the horse is out of the barn. The value of your product is no longer the utility of the product, but rather how well advertisers can leverage your audience.
Although that makes me think, there's great advertising angles with WordLens since you know what words/signs people are looking at. I freaking went to sleep thinking about that product... sorry for the tanget. :-)
But isn't this the grave we've dug for ourselves (as software developers)? We've pivoted the whole market so that software has no intrinsic value on its own?
Look at WordLens for example. Mindblowing technology. If you could only get it in a standalone piece of HW the markup would purely be a function of the HW cost. As it is, they started pricing at $5. And as ridiculously cheap that is I can see people saying, "Why isn't it 99 cents?"
At this point the horse is out of the barn. The value of your product is no longer the utility of the product, but rather how well advertisers can leverage your audience.
Although that makes me think, there's great advertising angles with WordLens since you know what words/signs people are looking at. I freaking went to sleep thinking about that product... sorry for the tanget. :-)
I don't really agree with you here, the size of the biggest market they can go after, anyone who takes foreign vacations, is so massive that $5 is fine.
By keeping the cost lowish, they're discouraging immediate competition, but can still make a large profit if they market it right. And that video certainly looks like the right marketing to me!
By keeping the cost lowish, they're discouraging immediate competition, but can still make a large profit if they market it right. And that video certainly looks like the right marketing to me!
I'm sure they'll make plenty of money, no disagreement there. My point is that I don't think they can charge much more than $5. Consumers just don't value software enough to pay that amount. The people that complain about a $10 app w/ this functionality will have no problem paying an extra $20,000 for the top line package on a new car. Or $20 for a T-Shirt. Or will pay an extra $2,000 to upgrade to 1st class on that foreign vacation.
For most people software has the value of a Happy Meal prize.
For most people software has the value of a Happy Meal prize.
BTW, here's a review of the product.
http://gigaom.com/mobile/augmented-reality-translations-word...
read the last line of the WordLens review... "A price cut would also help a lot." $5 is too much to pay for this app! A medium caramel frappucino from Starbucks is almost $5!
It just seems like over the past 20 years I've seen this evolution of programmers building intricate valuable product, to now it being generally viewed as disposable crap... even the best stuff. It only has value when coupled with HW or is a service.
http://gigaom.com/mobile/augmented-reality-translations-word...
read the last line of the WordLens review... "A price cut would also help a lot." $5 is too much to pay for this app! A medium caramel frappucino from Starbucks is almost $5!
It just seems like over the past 20 years I've seen this evolution of programmers building intricate valuable product, to now it being generally viewed as disposable crap... even the best stuff. It only has value when coupled with HW or is a service.
> Who's going to seriously invest in an online word processor or spreadsheet with Google apps squatting on the territory? Just MS.
There are 6 listed here: http://en.wikipedia.org/wiki/Office_suite
Google's word processor began life as a startup (Writely). It now has real-time collaborative editing from Google's Etherpad acquisition.
There are 6 listed here: http://en.wikipedia.org/wiki/Office_suite
Google's word processor began life as a startup (Writely). It now has real-time collaborative editing from Google's Etherpad acquisition.
1) Android is growing like wildfire
This was an acquisition.
2) Google App Engine serves over a billion page load a day.
Is it profitable? (I'm actually ignorant here.. not snarkiness).
3) Google Apps? I love it--
As do I, but not yet so much to pay for it.
Spin-off is a technique, but I don't think it's the only way to go.
Indeed, I'm not sure even the author is suggesting it's the only way.
This was an acquisition.
2) Google App Engine serves over a billion page load a day.
Is it profitable? (I'm actually ignorant here.. not snarkiness).
3) Google Apps? I love it--
As do I, but not yet so much to pay for it.
Spin-off is a technique, but I don't think it's the only way to go.
Indeed, I'm not sure even the author is suggesting it's the only way.
You cannot discuss innovation without discussing Christensen's Innovators Dilemma and disruptive innovation.
The market incumbent strives upmarket and creates a performance oversupply (a surplus of features in excess of customer demand) which opens space below for a downmarket competitor to disrupt upmarket.
The market incumbent strives upmarket and creates a performance oversupply (a surplus of features in excess of customer demand) which opens space below for a downmarket competitor to disrupt upmarket.
I completely agree with @evilmushroom and strongly disagree with the article. Especially about the "That allows the company to encourage engineers to waste 20% of their time on "projects", like Google Wave."
Maybe I was the one user that really enjoyed using wave, it is a great collaboration tool if you have between 2 and 8 people working on one thing. We wrote entire(60+pages) of design documents in wave. Its also a great note taking tool since for example in class, especially if you have many people working together on the same set of notes.
And now to get to the "20% of wasted time", this time is NOT wasted. It is an investment in the companies ability to innovate and also in their employees themselves. Without time to spend on other projects, one starves the creative mind, which is bad for the individual and especially bad for the company as a whole.
Maybe I was the one user that really enjoyed using wave, it is a great collaboration tool if you have between 2 and 8 people working on one thing. We wrote entire(60+pages) of design documents in wave. Its also a great note taking tool since for example in class, especially if you have many people working together on the same set of notes.
And now to get to the "20% of wasted time", this time is NOT wasted. It is an investment in the companies ability to innovate and also in their employees themselves. Without time to spend on other projects, one starves the creative mind, which is bad for the individual and especially bad for the company as a whole.
Google Wave sucked, and was a stupid idea on way too many levels to list (the concept, the technology, and the interface to begin with).
But Wave was not a 20% project, and that is probably one of the reasons it flopped, it got over hyped and over engineered in ways that would never have happened if it had been a 20% project.
But Wave was not a 20% project, and that is probably one of the reasons it flopped, it got over hyped and over engineered in ways that would never have happened if it had been a 20% project.
I would be very interested in why you believe that Wave sucked.
Did you use it?
It is the only collaboration tool i know that works well on Windows/Mac/Linux. Yes it has its bugs, and I agree it could be implemented differently. But there is nothing like it, especially when many people want to edit the same document,
Did you use it?
It is the only collaboration tool i know that works well on Windows/Mac/Linux. Yes it has its bugs, and I agree it could be implemented differently. But there is nothing like it, especially when many people want to edit the same document,
Agreed. The author seems to have a very bean-counter attitude towards things; I think he is saying, if it's not immediately making money, or can't be shown to be immediately making money, axe it!
Real innovation is so radical there is no business case for it until you create demand for it.
Real innovation is so radical there is no business case for it until you create demand for it.
Disagree strongly.
That said, I do not totally agree with the article. Last time I tried out duckduckgo and blekko, google was still better. Googles word processing and spreadsheets are getting better, and the android phones seems to be the only alternative in the iphone class right now.
That said, I do not totally agree with the article. Last time I tried out duckduckgo and blekko, google was still better. Googles word processing and spreadsheets are getting better, and the android phones seems to be the only alternative in the iphone class right now.
Well.. nice thoughts.
But didn't gmail start off in one of those "wasted" 20% of time?
this guy is an idiot. the whole point of other products, 20% time, diversification, etc. are to not only create other cash cows but allow tolerance for a product's growth/earnings to slow down. ever hear of "don't put all your eggs in one basket"?
the simple fact is, when you have a cash cow, you got extremely lucky. it's really hard to duplicate that so you do your best to support it and keep it going by creating an ecosystem around it and expanding it wherever you can. see: gmail, google webmaster tools, MS SQL server and friends, and so forth.
his real gripe seems to be, though he may not realize it, that companies aren't operated as short-running events that generate a burst of money for shareholders and then fizzle out and die. he doesn't seem to like the long-haul approach that has kept e.g. MS in business for 30 years.
the simple fact is, when you have a cash cow, you got extremely lucky. it's really hard to duplicate that so you do your best to support it and keep it going by creating an ecosystem around it and expanding it wherever you can. see: gmail, google webmaster tools, MS SQL server and friends, and so forth.
his real gripe seems to be, though he may not realize it, that companies aren't operated as short-running events that generate a burst of money for shareholders and then fizzle out and die. he doesn't seem to like the long-haul approach that has kept e.g. MS in business for 30 years.
"the simple fact is, when you have a cash cow, you got extremely lucky"
And here we have yet another comment purporting to argue against the article, and inadvertently proving it's main thesis.
Google should give the profits back to shareholders instead of trying to duplicate or continue what you yourself agree was success that was "extremely lucky".
The author isn't expecting lightning to strike twice at Google, and thinks they should put the money back in the marketplace where it can be spent wisely.
And here we have yet another comment purporting to argue against the article, and inadvertently proving it's main thesis.
Google should give the profits back to shareholders instead of trying to duplicate or continue what you yourself agree was success that was "extremely lucky".
The author isn't expecting lightning to strike twice at Google, and thinks they should put the money back in the marketplace where it can be spent wisely.
when you have a cash cow you can either take the money and run, or reinvest and try to milk it for all it's worth. sometimes the former is the best idea, sometimes the latter works out well. MS, google, apple, facebook, etc. are all examples of the latter. which completely goes against the premise of the article -- google wouldn't be google if they didn't have a wide breadth of products and would have likely gotten bought out if their only concern was a quick return on investment money.
If you're Google shareholder and think they don't return a large enough dividend, you can sell your shares.
The market will fix the issue better than lectures.
The market will fix the issue better than lectures.
Disagree with this article. There was a rather good article on hacker news a few weeks ago which made a lot more sense as a reason for Microsoft/Google/et al dropping projects. Wish I could remember the name so I could link to it.
The essence though is that the Googles of this world have completely different sets of requirements to the startups of this world. Additionally the public has expectation of the Googles that are vastly different to their expectation on smaller, younger company's. This is not Google or Microsoft screwing up, but rather dropping products that don't meet their requirements or what they perceive are the requirements of the public/customers.
I am no fanboi, almost the opposite in fact as far as Microsoft is concerned, but I do respect the power of these companies to lead and to innovate.
The essence though is that the Googles of this world have completely different sets of requirements to the startups of this world. Additionally the public has expectation of the Googles that are vastly different to their expectation on smaller, younger company's. This is not Google or Microsoft screwing up, but rather dropping products that don't meet their requirements or what they perceive are the requirements of the public/customers.
I am no fanboi, almost the opposite in fact as far as Microsoft is concerned, but I do respect the power of these companies to lead and to innovate.
Some articles make you stupider for having read them. This is one of them. It is full of nice sounding misinformation that you'd be better off forgetting.
The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Microsoft across a range of areas. This was a wise strategic move, and profit was not the main motive.
According to Google's Q3 release, Google's annualized run rate on mobile is over a billion dollars. Android is a disproportionate share of that. Android is not a waste of resources for Google. It is a profit center.
As for Wave, it was a great experiment. It didn't work out. But lots of ideas from Wave are showing up in docs. I think it was a worthwhile risk to take, and Google learned something from it.
The one thing that I agree with the article on is that Microsoft's mobile strategy is severely broken. But the reasons for it are more complex than simply saying that Microsoft has a bunch of cash.
And now I'm going to try to forget having read that article.
The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Microsoft across a range of areas. This was a wise strategic move, and profit was not the main motive.
According to Google's Q3 release, Google's annualized run rate on mobile is over a billion dollars. Android is a disproportionate share of that. Android is not a waste of resources for Google. It is a profit center.
As for Wave, it was a great experiment. It didn't work out. But lots of ideas from Wave are showing up in docs. I think it was a worthwhile risk to take, and Google learned something from it.
The one thing that I agree with the article on is that Microsoft's mobile strategy is severely broken. But the reasons for it are more complex than simply saying that Microsoft has a bunch of cash.
And now I'm going to try to forget having read that article.
The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Microsoft across a range of areas.
What areas are those and why do we we think that spending billions with a "b" on Xbox to kill Sony's profits was a more effective defence of those areas than spending those same or fewer billions with a "b" making those areas more competitive?
And more importantly, are any of these areas Sony threatened actual cash cow businesses like Windows or Office?
What areas are those and why do we we think that spending billions with a "b" on Xbox to kill Sony's profits was a more effective defence of those areas than spending those same or fewer billions with a "b" making those areas more competitive?
And more importantly, are any of these areas Sony threatened actual cash cow businesses like Windows or Office?
And more importantly, are any of these areas Sony threatened actual cash cow businesses like Windows or Office?
Yes. Microsoft thought that Windows in the consumer marketplace was threatened.
Here was the theory that both companies had then (and maybe still have). A digital convergence between media and computers is inevitable. Whoever controls that platform will see a large growth in business. Whichever gets replaced will see a large drop in business. One of the keys to winding up in control of that platform was to get richer content for your platform. The key to that was to deliver a DRM system that Hollywood liked.
With that in mind take another look at Sony's WebTV, Microsoft's Media Center, the Blu-ray vs HD DVD war, and moves towards DRM from both companies over the last decade. The battle so far has been a draw. WebTV failed to dent the PC market place. Blu-ray won. Consumers don't like DRM, but a certain amount of it has been shoved down our throats anyways.
Incidentally I believe that Sony still thinks this could happen, and this is one reason that they are involved in the Google TV platform.
Yes. Microsoft thought that Windows in the consumer marketplace was threatened.
Here was the theory that both companies had then (and maybe still have). A digital convergence between media and computers is inevitable. Whoever controls that platform will see a large growth in business. Whichever gets replaced will see a large drop in business. One of the keys to winding up in control of that platform was to get richer content for your platform. The key to that was to deliver a DRM system that Hollywood liked.
With that in mind take another look at Sony's WebTV, Microsoft's Media Center, the Blu-ray vs HD DVD war, and moves towards DRM from both companies over the last decade. The battle so far has been a draw. WebTV failed to dent the PC market place. Blu-ray won. Consumers don't like DRM, but a certain amount of it has been shoved down our throats anyways.
Incidentally I believe that Sony still thinks this could happen, and this is one reason that they are involved in the Google TV platform.
It is not obvious to me that spending billions on Xbox to suck the wind out of Sony's sails is superior to investing in Windows itself as a means of protecting Windows in the consumer marketplace.
You're describing spending billions of dollars to become the dominant player in an uncertain business in the hope that someday down the road you will be able to recoup all your billions by enjoying a monopoly position. But (a) they have spent years on this and are only fighting to a draw, and (b) it's not clear that by the time one of them "wins" that the business will work the same way for media that it did for PC software or operating systems.
They are trying to replicate the business model for Windows, and failing, while meanwhile companies like Apple, Amazon, and Google are bringing entirely new business models to the marketplace.
As Mitch Hedberg would put it, that's a double-whammy.
You're describing spending billions of dollars to become the dominant player in an uncertain business in the hope that someday down the road you will be able to recoup all your billions by enjoying a monopoly position. But (a) they have spent years on this and are only fighting to a draw, and (b) it's not clear that by the time one of them "wins" that the business will work the same way for media that it did for PC software or operating systems.
They are trying to replicate the business model for Windows, and failing, while meanwhile companies like Apple, Amazon, and Google are bringing entirely new business models to the marketplace.
As Mitch Hedberg would put it, that's a double-whammy.
In business the right course is often not obvious, and the merits of different approaches can be heavily debated.
In the case of the Xbox, Microsoft did both. It spent money developing the Xbox. It spent money investing in Windows. It also took lessons from the Xbox to make Windows itself a better gaming platform. And finally the cost of the Xbox approach was not as much as you'd think, because the division stood to recoup much of its costs.
How much did this cost Microsoft in the end? Less than you'd think, given the article. While it is true that costs were measured in billions and profits in millions, those costs were fixed development costs in the low billions, and profits recently have been quarterly profits in the hundreds of millions. I believe that at this point, over all generations of the Xbox, Microsoft is in the black. (But if they had invested their money differently, they could be further in the black.)
So what was the result in the end? I think they sliced something like a quarter off of Sony's profit margin. Almost for free. And Sony failed to execute on their strategy of having TVs replace PCs in the home.
Whatever you think of the merits of the strategy, Microsoft clearly thinks it works. They have used it repeatedly. For example look at Bing. And I wonder whether Google TV is an attempt to return the favor.
In the case of the Xbox, Microsoft did both. It spent money developing the Xbox. It spent money investing in Windows. It also took lessons from the Xbox to make Windows itself a better gaming platform. And finally the cost of the Xbox approach was not as much as you'd think, because the division stood to recoup much of its costs.
How much did this cost Microsoft in the end? Less than you'd think, given the article. While it is true that costs were measured in billions and profits in millions, those costs were fixed development costs in the low billions, and profits recently have been quarterly profits in the hundreds of millions. I believe that at this point, over all generations of the Xbox, Microsoft is in the black. (But if they had invested their money differently, they could be further in the black.)
So what was the result in the end? I think they sliced something like a quarter off of Sony's profit margin. Almost for free. And Sony failed to execute on their strategy of having TVs replace PCs in the home.
Whatever you think of the merits of the strategy, Microsoft clearly thinks it works. They have used it repeatedly. For example look at Bing. And I wonder whether Google TV is an attempt to return the favor.
In business the right course is often not obvious, and the merits of different approaches can be heavily debated.
At the time many things are obscured by "the fog of war," however, in publicly traded businesses the wrong course is perfectly obvious after the fact by examining the result as measured by the return on investment in the stock.
If you wish to laud Microsoft's choices, carry on without me.
At the time many things are obscured by "the fog of war," however, in publicly traded businesses the wrong course is perfectly obvious after the fact by examining the result as measured by the return on investment in the stock.
If you wish to laud Microsoft's choices, carry on without me.
There is a lot more that feeds into the return on investment in the stock than specific decisions due to one business conflict.
Microsoft's fundamental business problem is that they are on the wrong side of some disruptive innovations. And that is a very difficult business problem to face. No matter how competent the management, if a company is caught in that trap it is normal to see poor returns in the stock market. Read _The Innovator's Dilemma_ and _The Innovator's Solution_ for more on that.
Microsoft's problems are made more difficult by the fact that Bill Gates stepped down and left Steve Ballmer in charge. They went from having one of the most effective CEOs out there to someone who I think is a liability.
However, despite those factors, it is still possible to look at specific decisions and have opinions on how good or bad they were. And I think that Bill Gates' decision to start the Xbox was good.
Microsoft's fundamental business problem is that they are on the wrong side of some disruptive innovations. And that is a very difficult business problem to face. No matter how competent the management, if a company is caught in that trap it is normal to see poor returns in the stock market. Read _The Innovator's Dilemma_ and _The Innovator's Solution_ for more on that.
Microsoft's problems are made more difficult by the fact that Bill Gates stepped down and left Steve Ballmer in charge. They went from having one of the most effective CEOs out there to someone who I think is a liability.
However, despite those factors, it is still possible to look at specific decisions and have opinions on how good or bad they were. And I think that Bill Gates' decision to start the Xbox was good.
However, despite those factors, it is still possible to look at specific decisions and have opinions on how good or bad they were. And I think that Bill Gates' decision to start the Xbox was good.
I think it is possible and laudable to make up your own mind about specific business decisions. However, it isn't really possible for us to argue the point unless we can agree on a metric for measuring their efficacy.
From an empirical perspective, a theory ("XBox is a good decision") is only meaningful if it is falsifiable. I only have two metrics in my toolbox for starting a new line of business: The ROI of the specific business and the ROI on the stock overall.
However, not all discussions neatly map to empirical methods, and even then there are other metrics besides those two ROIs. If you are saying that there is some validity to this discussion that can't be measured quite so neatly, if there are these "strategic" considerations that require a leap of faith to appreciate, well I can't argue with you.
I'm not trying deflate your argument by suggesting it's faith-based. Most corporations make a lot of decisions that aren't falsifiable. Executives stand up all the time and say, "it looks bad but it could have been worse," and it's very difficult to naysay them because we can't run A/B testing and find out whether Microsoft-Xbox does better or worse than Microsoft+Xbox.
So... In the spirit of Christmas I will wish you well and thank you for sharing your opinions in a reasoned tone.
I think it is possible and laudable to make up your own mind about specific business decisions. However, it isn't really possible for us to argue the point unless we can agree on a metric for measuring their efficacy.
From an empirical perspective, a theory ("XBox is a good decision") is only meaningful if it is falsifiable. I only have two metrics in my toolbox for starting a new line of business: The ROI of the specific business and the ROI on the stock overall.
However, not all discussions neatly map to empirical methods, and even then there are other metrics besides those two ROIs. If you are saying that there is some validity to this discussion that can't be measured quite so neatly, if there are these "strategic" considerations that require a leap of faith to appreciate, well I can't argue with you.
I'm not trying deflate your argument by suggesting it's faith-based. Most corporations make a lot of decisions that aren't falsifiable. Executives stand up all the time and say, "it looks bad but it could have been worse," and it's very difficult to naysay them because we can't run A/B testing and find out whether Microsoft-Xbox does better or worse than Microsoft+Xbox.
So... In the spirit of Christmas I will wish you well and thank you for sharing your opinions in a reasoned tone.
I'm glad you elaborated on your original comment, but you're showing the fallacy of a zero-sum game perspective between Microsoft and Sony. I'd consider both companies to have lost, and lost greatly, to Apple. The battle over media formats and the console market share opened the door to disruptive products and services from Apple. Both Microsoft and Sony gave up an early lead in the mobile device market to Apple, as well. If they aren't sweating yet about those little $99 iOS boxes from Apple, then they still aren't paying attention.
You're right about Apple, as I indicated in my initial post when I said that Microsoft's mobile strategy has been a disaster. However it is important to keep in mind that a company always has to deal with problems on multiple fronts. The fact that I think they made a good decision on one issue doesn't mean that they didn't make bad ones elsewhere.
I think it is also important to pay attention to the timeline. The Xbox decision was made under Bill Gates. The Apple missteps were made under Steve Ballmer. There may be a reason for that...
I think it is also important to pay attention to the timeline. The Xbox decision was made under Bill Gates. The Apple missteps were made under Steve Ballmer. There may be a reason for that...
It was really one area. The TV in the living room. MS feared that Sony would end up winning that with the PlayStation and then use their consumer electronics arm to have an integration stranglehold on the living room.
You have to remember that this started back in 2000 (or so). Nobody had a clear vision of Netflix or Roku or Hulu.
I don't think they ever worried that Sony would take Office, but I think the fear was that they would move computing to appliances and take Windows revenue... now that fear is the iPad will do it.
You have to remember that this started back in 2000 (or so). Nobody had a clear vision of Netflix or Roku or Hulu.
I don't think they ever worried that Sony would take Office, but I think the fear was that they would move computing to appliances and take Windows revenue... now that fear is the iPad will do it.
It started a bit earlier than that. Sony's WebTV came out in 1996. Which fed perfectly into Microsoft's paranoia that the web was about to make Windows irrelevant.
Absolutely. I meant XBox planning proper, but you're right, this paranoia goes back as MS also had WebTV in the 90s as well (I don't recall Sony's, but I'm not surprised that they had one).
Sony's WebTV was a set-top box (Phillips produced them as well) for WebTV Networks, Inc. Microsoft later bought WebTV Networks in '98.
If anything MS mis-calculated with XBOX, thinking Sony was the threat in 2000, but the real threat was Apple. Now it's 2010 and the money is not in the living room (and it never was really), it's in mobile.
A false dichotomy, it's in both. Home entertainment in the form of music, tv, and video games is a massive industry. Just because mobile is new and hot doesn't mean it defines the extent of the known business universe. Ignoring a multi-billion dollar market for the sake of intellectual simplicity is the epitome of zealotry.
Well there's money everywhere - groceries is a 100 billion dollar industry too, I don't think it's the "epitome of zealotry" for MS to ignore groceries.
Mobile wasn't exactly a hot industry 10 years ago. It's the job of a hundred billion dollar company like MS to make big investments in billion dollar markets, sure, but I don't think there's any denying Xbox was a miscalculation on MS's part.
See the market caps of Apple and MS now for lessons learned.
Mobile wasn't exactly a hot industry 10 years ago. It's the job of a hundred billion dollar company like MS to make big investments in billion dollar markets, sure, but I don't think there's any denying Xbox was a miscalculation on MS's part.
See the market caps of Apple and MS now for lessons learned.
10 years ago mobile was an incredibly hot industry. In December 2000 the market cap of Nokia was around 200 billion, roughly comparable to the likes of Intel or Microsoft. Just a few months before telecoms had bled themselves dry in the German 3G frequency auction, seriously believing that the rights were worth tens of billions.
Should have quantified my statement, mobile software wasn't hot 10 years ago.
> Some articles make you stupider for having read them. This is one of them. It is full of nice sounding misinformation that you'd be better off forgetting.
You make this sweeping statement but do not explain it beyond suggesting that a couple of details may be incorrect. Please provide justification that the central argument of the article is incorrect.
You make this sweeping statement but do not explain it beyond suggesting that a couple of details may be incorrect. Please provide justification that the central argument of the article is incorrect.
A couple of details??
Go read the article carefully. The "details" I criticized include every significant supporting example offered. The fact that the article got them all wrong should make you suspicious of the grandiose reasoning that they were meant to support.
In short there is no evidence that having cash makes companies stupid. Companies with cash should be doing a certain amount of experimentations with it. They should experiment with projects outside of their core area. And the fact that it isn't obvious to you why they are doing something doesn't mean that they don't have a good reason to do it.
Go read the article carefully. The "details" I criticized include every significant supporting example offered. The fact that the article got them all wrong should make you suspicious of the grandiose reasoning that they were meant to support.
In short there is no evidence that having cash makes companies stupid. Companies with cash should be doing a certain amount of experimentations with it. They should experiment with projects outside of their core area. And the fact that it isn't obvious to you why they are doing something doesn't mean that they don't have a good reason to do it.
I thought that this was one insightful article, but after reading your comment I see that not everything is as this person is trying to make us see.
There is no black and white, and not every decision/project can be put in the same sack (even though lots of em are the result of what the article says)
There is no black and white, and not every decision/project can be put in the same sack (even though lots of em are the result of what the article says)
I believe the over-investment in consoles (by MS and others, but amped up in large part because of MS) has largely killed the PC gaming market, and the death of the PC gaming market is what's killing Windows in the consumer computing space; it's the last major "sticky" item keeping people back from switching platforms. And where the consumers go, businesses will soon follow.
The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Microsoft across a range of areas. This was a wise strategic move, and profit was not the main motive.
If you think that btilly is not describing and then praising wealth destruction in that quote about Microsoft's Xbox business, please downvote this comment. Thanks.
HOW TO DESTROY WEALTH:
When I spend $100 on materials and labor, and I can -- at best -- sell the result to you for $80, $20 of wealth is destroyed. Why? Because the original $100 came from the creation of wealth equal to that, and I transformed that $100 into something that is now only worth $80. Literally, wealth was destroyed.
If you'd like a more concrete analogy, what Microsoft did is a lot like taking a a 1 carat diamond and smashing it into diamond dust. Only the arrangement of matter has changed, but in terms of wealth, the diamond dust is worth far less than the sparkling 1 carat diamond.
It's the same with the $100. As a $100 bill, it is worth exactly $100. Microsoft took that $100 and spend it on labor and materials. The matter in the world stayed the same. But the new arrangement of matter (an Xbox) was only worth $80 to the world. Microsoft destroyed $20 in wealth to the world.
This, in a nutshell, is what Microsoft did with the Xbox. Sony was doing something the world wanted with the Playstation. They were literally spending $100 and getting $120 in value out of it. That's what wealth creation looks like.
Microsoft did the opposite. Even worse, they did so in order to make it impossible for Sony to create wealth, too. In my book, reducing the wealth of the world for something so stupid, so small, as to "eliminate competition" is about the worst sin a business can do.
The literally billions of dollars of wealth destroyed at both Sony and Microsoft by the behavior of Microsoft has hurt the world in enumerable ways. For all we know, had the money been returned to shareholders, we may have made more progress on green energy. Or food production. Or water purification. Or cancer research. Or any of the other things we could have done instead of destroying wealth.
That is why the OP is so off base. And why the rest of you should upvote my comment like crazy. Wealth destruction is bad, full stop.
If you think that btilly is not describing and then praising wealth destruction in that quote about Microsoft's Xbox business, please downvote this comment. Thanks.
HOW TO DESTROY WEALTH:
When I spend $100 on materials and labor, and I can -- at best -- sell the result to you for $80, $20 of wealth is destroyed. Why? Because the original $100 came from the creation of wealth equal to that, and I transformed that $100 into something that is now only worth $80. Literally, wealth was destroyed.
If you'd like a more concrete analogy, what Microsoft did is a lot like taking a a 1 carat diamond and smashing it into diamond dust. Only the arrangement of matter has changed, but in terms of wealth, the diamond dust is worth far less than the sparkling 1 carat diamond.
It's the same with the $100. As a $100 bill, it is worth exactly $100. Microsoft took that $100 and spend it on labor and materials. The matter in the world stayed the same. But the new arrangement of matter (an Xbox) was only worth $80 to the world. Microsoft destroyed $20 in wealth to the world.
This, in a nutshell, is what Microsoft did with the Xbox. Sony was doing something the world wanted with the Playstation. They were literally spending $100 and getting $120 in value out of it. That's what wealth creation looks like.
Microsoft did the opposite. Even worse, they did so in order to make it impossible for Sony to create wealth, too. In my book, reducing the wealth of the world for something so stupid, so small, as to "eliminate competition" is about the worst sin a business can do.
The literally billions of dollars of wealth destroyed at both Sony and Microsoft by the behavior of Microsoft has hurt the world in enumerable ways. For all we know, had the money been returned to shareholders, we may have made more progress on green energy. Or food production. Or water purification. Or cancer research. Or any of the other things we could have done instead of destroying wealth.
That is why the OP is so off base. And why the rest of you should upvote my comment like crazy. Wealth destruction is bad, full stop.
It is not praising wealth destruction, it is praising competition. The market is not a zero-sum game where Sony's loss is everyone's loss.
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btilly's not praising anything, and (s)he's not describing wealth destruction. You may want to take your own advice.
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Anyone know why I'm not getting more downvotes? Lots of people have upvoted replies to my comment that disagree with me, and I'm assuming they also downvoted my comment.
Is the downvoting on some kind of logarithmic scale? I've lost something like 27 karma points, so clearly something is happening. Any ideas?
UDPATE: I suppose it could be that people can't read it anymore, and so the downvotes have stopped. Hard to say. My karma has started creeping back up though.
Is the downvoting on some kind of logarithmic scale? I've lost something like 27 karma points, so clearly something is happening. Any ideas?
UDPATE: I suppose it could be that people can't read it anymore, and so the downvotes have stopped. Hard to say. My karma has started creeping back up though.
However many downvotes something gets, the lowest score that will be shown is -4. The goal of this is to mitigate bandwagon downvoting. I'm not sure it actually works, because when I see -4 I just assume it's something significantly lower, but there you go.
That explains a lot then. Thanks for the info.
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Putting my investor hat on here:
Cash cow businesses have a cash flow that they either return to investors or reinvest themselves. The only metric for success reinvesting the cash flow is whether the company's stock grows at a higher rate than investors could obtain for themselves if they invested the dividends in the market.
Microsoft has consistently failed this test. It doesn't matter whether their investments are purported to be defensive to protect their main businesses or offensive to develop new sources of cash flow.
Defending Windows from competition, for example, is only useful to the extent that it helps the company's stock grow. If the stock does not grow, it would be better to preside over a gradual decline while throwing off as much cash as possible so that investors could invest the remaining dwindling cash flow in better companies.
Google is an entirely different animal because their stock is much more attractive to investors. As long as their stock continues to grow, management are able to get away with much more "wasteful" attempts to get lightning to strike again. But the moment its stock plateaus, they will be subject to the same merciless metric from me, namely can they establish that they can manage the company's stock price such that reinvesting cash is superior to giving it to shareholders to invest for themselves.
Cash cow businesses have a cash flow that they either return to investors or reinvest themselves. The only metric for success reinvesting the cash flow is whether the company's stock grows at a higher rate than investors could obtain for themselves if they invested the dividends in the market.
Microsoft has consistently failed this test. It doesn't matter whether their investments are purported to be defensive to protect their main businesses or offensive to develop new sources of cash flow.
Defending Windows from competition, for example, is only useful to the extent that it helps the company's stock grow. If the stock does not grow, it would be better to preside over a gradual decline while throwing off as much cash as possible so that investors could invest the remaining dwindling cash flow in better companies.
Google is an entirely different animal because their stock is much more attractive to investors. As long as their stock continues to grow, management are able to get away with much more "wasteful" attempts to get lightning to strike again. But the moment its stock plateaus, they will be subject to the same merciless metric from me, namely can they establish that they can manage the company's stock price such that reinvesting cash is superior to giving it to shareholders to invest for themselves.
When i put my manager hat it turns into a nighmare.
If you, hypotetically, are managing a cash cow business, your first mission as a manager is to protect that business. You have to develop long term relationships with clients, spot early all the competition, grow organically your main business and control costs so you don't end in jail when the bad times arrive.
Here comes the first problem. Usually, in the business sense, innovation isn't something 100% new, is something 10-30% new. You know, the car still have 4 wheels but now it comes with a sensor that makes parking easier. The problem appears when your innovations start to compete with your main product. To compatibilize that stuff (think the way MS killed the IE team) requieres very large amounts of quality managment, something that is as scarce as high quality programmers. Think politics (hey, that is MY business!), incentives (you told me to control costs, else I would have done that!) or resistance to change (that will be a failure, it will make us look bad in front of X and Y), etc.
The proposition of the author is one of the classics propositions to sterilize change: to spin off. Make the change independent from the current managers, let them suffer their rigidity... but it may not be the better business decision to spin off somthing that will compete with yourself in 80% of the business.
The article just tries to (mis)analize a management problem without relevant expertise in management and from an investment point of view, and commits the usual mistakes that inexperienced managers make to a level that is doesn't even spark the usual insighful analysis from a engineering POV from the HN crowd.
If you, hypotetically, are managing a cash cow business, your first mission as a manager is to protect that business. You have to develop long term relationships with clients, spot early all the competition, grow organically your main business and control costs so you don't end in jail when the bad times arrive.
Here comes the first problem. Usually, in the business sense, innovation isn't something 100% new, is something 10-30% new. You know, the car still have 4 wheels but now it comes with a sensor that makes parking easier. The problem appears when your innovations start to compete with your main product. To compatibilize that stuff (think the way MS killed the IE team) requieres very large amounts of quality managment, something that is as scarce as high quality programmers. Think politics (hey, that is MY business!), incentives (you told me to control costs, else I would have done that!) or resistance to change (that will be a failure, it will make us look bad in front of X and Y), etc.
The proposition of the author is one of the classics propositions to sterilize change: to spin off. Make the change independent from the current managers, let them suffer their rigidity... but it may not be the better business decision to spin off somthing that will compete with yourself in 80% of the business.
The article just tries to (mis)analize a management problem without relevant expertise in management and from an investment point of view, and commits the usual mistakes that inexperienced managers make to a level that is doesn't even spark the usual insighful analysis from a engineering POV from the HN crowd.
Defending Windows from competition, for example, is only useful to the extent that it helps the company's stock grow. If the stock does not grow, it would be better to preside over a gradual decline while throwing off as much cash as possible so that investors could invest the remaining dwindling cash flow in better companies.
Given their stock buybacks and dividends they may just be doing that...
Given their stock buybacks and dividends they may just be doing that...
This is just back of the envelope, but 24 years ago Microsoft's [EDIT: split-adjusted] stock price was .10. With today's price at $28, that is an annualized rate of return of a little over 26%, which should exclude the $5.79 they've distributed in regular and special dividends since they instituted their policy in 2004.
Also, the criteria for investing money you've described is baffling. I thought return on invested capital was based on earnings, not stock price.
I think you are confusing sentiment with fundamentals.
Also, the criteria for investing money you've described is baffling. I thought return on invested capital was based on earnings, not stock price.
I think you are confusing sentiment with fundamentals.
The last time I looked, 24 years was far too long a period to examine the performance as the stock has had a reverse hockey-stick profile for quite some time.
I think Obama should focus on creating overseas jobs for Americans.
Failed experiments is what makes science go forward.
How can people who make a profits of innovation (yes, the shareholders he is talking about) ignore so much on the process that leads to innovation ?
This is why I believe there is a problem with the stock market : people who buy stocks don't have a clue, they just want to gather profits.
This only lead to shortsighted investment, pushing management to take "actions" to reassure clueless shareholders like him.
How can people who make a profits of innovation (yes, the shareholders he is talking about) ignore so much on the process that leads to innovation ?
This is why I believe there is a problem with the stock market : people who buy stocks don't have a clue, they just want to gather profits.
This only lead to shortsighted investment, pushing management to take "actions" to reassure clueless shareholders like him.
He did get one thing right. Google starves the valley of engineers (as does Facebook). Their starting salaries are now so high for even straight-out-of-college grads that it actually harms startups.
The article has the classic issue of a strong degree of selection bias. While MS and Google don't drop hit songs every release, the fact of the matter is neither does every startup.
MS and Google effectively become angel investors in startups of their choosing. This seems like a rational way to spend the money. And given that Apple is dominating the consumer market, giving money back to shareholders indirectly means funding Apple.
MS and Google effectively become angel investors in startups of their choosing. This seems like a rational way to spend the money. And given that Apple is dominating the consumer market, giving money back to shareholders indirectly means funding Apple.
Applying this article's advice retroactively - HP should be producing oscilloscopes, Sony should be producing cassette players, and 3M should be producing... rocks.
I don't understand how there's a title called "Making Economic Sense" yet for the most part monetary benefit is the main subject while social benefit is nowhere to be seen. There are claims that the 20% of employee time is being wasted? Would that not make an employee's work-life that much happier? It also seems the article preaches that almost every decision that Microsoft or Google makes cannot fail.
Maybe Google should go further with its 20% time concept and let people who want to work on ideas of their choosing for months at a time instead of just part time.
From the original article:
Meanwhile, at Google, the cash cow is search-driven advertising. That allows the company to encourage engineers to waste 20% of their time on "projects"
If I remember correctly, didn't Paul Buchheit create Gmail and AdSense on his 20% time?
Meanwhile, at Google, the cash cow is search-driven advertising. That allows the company to encourage engineers to waste 20% of their time on "projects"
If I remember correctly, didn't Paul Buchheit create Gmail and AdSense on his 20% time?
This has to be one of the worst articles I have read in a long time. While it's true that companies exist to profit their shareholders, sometimes the best way to do that is to withhold immediate current revenue for the hope of even large future revenues by re-investing it in other products to move the company forward.
Google's 20% time is one of the best things Google has even done, and many profitable projects have already come out of it - GMail and AdSense to name two.
Google's 20% time is one of the best things Google has even done, and many profitable projects have already come out of it - GMail and AdSense to name two.
See http://news.ycombinator.com/item?id=1991950 / http://www.reddit.com/r/IAmA/comments/ej32l/we_are_the_hotma...
where the hotmail team seemingly can't understand the reason why someone would need IMAP support when ActiveSync exists