Wednesday, May 31, 2006

Microsoft Brings Back...The Comfy Chair

So! You think you are strong because you can survive the soft cushions. Well, we shall see. Biggles! Put her in… the Comfy Chair!

—Monty Python

I don’t know what’s worse—Steve Ballmer’s refusal to spring for iPods for his children and his insistence that they not use Google (see “Over-Share from Dr. Evil’s Hideaway,” April 18) or the recent announcement that Microsoft would restore free towel service in company showers and offer loyal staffers “dinners to go from Wolfgang Puck.”

I am not making that up. Here’s the story from MSNBC:

Microsoft said it would supply free towels in company showers, better food in staff canteens and on-site laundry service in an effort to boost employee morale as it battles for talent with Google and other recent start-ups.

The outbreak of the internet "perks war" is the latest sign of Microsoft's attempt to keep some of the trappings of a fast-growing Silicon Valley start-up as it takes on more of the characteristics of other large, slower-growing blue chip companies.

No kidding.

If we learned anything from Microsoft’s bombshell announcement that spending was going to go up a lot more than Wall Street's Finest ever dreamed, it’s that Microsoft’s business model is not what it used to be. The operating system monopoly that allowed 30 cents of every sales dollar to flow to net income is, in my view, no more.

This is due in no small part to Google and its spend-like-there’s-no-tomorrow mentality. Google keeps new products coming so quickly that Microsoft—chained like Frankenstein’s Monster to the dungeon wall that is Vista (the next generation Operating System Formerly Known As Longhorn and soon to be renamed Long Lost, Lost Horizon, or something more appropriate)—has no chance to out-innovate the kids in Mountain View.

A couple of weekends ago, however, Barron’s offered a very different take on Microsoft from Joe Rosenberg, the long-time ace investment strategist at Loew’s Corp—a man whose words I read and consider very carefully. (If you haven’t seen the interview, I’d advise you to study it, if for no other reason than Rosenberg’s contrary take on the bond and commodities markets.)

Rosenberg has this to say about the iPod-distaining Ballmer:

I think Steve Ballmer spends too much of his time on the operational side and not enough time on the financial side. He unfortunately shuts himself off from the financial community. He only meets with the financial community once a year.

Personally, as I have said before (see “Bill’s Hideaway” Parts I and II, from 2005), I think Ballmer’s boss, Bill Gates, should spend more time in a local Starbucks or college campus watching how people use the technology which Microsoft and Intel pioneered—and others have exploited.

And I think the last thing Ballmer needs to do—at least if Microsoft wants to become something more than a slowly-dying, high-margined software enterprise whose main goal is to return cash to shareholders—is spend time with Wall Street’s Finest.

As MSNBC points out:

Google has become the most visible exponent of Silicon Valley's entitlement culture, using the free food in its highly rated cafeteria, along with the availability at its campus of services ranging from massages to automobile oil-changes, to help attract and retain workers. The tech companies defend the on-site perks as a way to reward employees who often work long hours and who would otherwise have to leave the premises, making them less efficient.

Simply put, the cost of being a technology leader has gone up.

As one of many who has migrated entirely away from Microsoft’s dreadful MSN product—email, calendar and all—in the last six months, and who looks forward to a full suite of online application products, for free, sometime in the near future, from the Mountain View crowd, I expect the cash flow available to fund that higher cost will dwindle more quickly than anybody in Redmond expects.

And that trend will not be reversed merely by changing the perks for the engineers working on finding the latest security flaw in an ancient operating system.

Towel service? Wolfgang Puck? The whole thing reminds me of a Monty Python routine.

Fetch…the comfy chair!

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Wilburpup said...

“We now have a situation where some of the largest companies, that were overvalued six years ago but have continued to grow earnings at 10% to 15% a year, are completely unloved on Wall Street. These companies are all household names. I never in a million years thought that I would be recommending stocks like Microsoft, Pfizer, Johnson & Johnson [JNJ] or Wal-Mart. These are some of the best values anywhere in the world.”

-Joe Rosenberg in the Barron’s interview.

jb said...

It's the "micro serfs" vs.the knights of googleplex. The serf's till a rocky soil, while the knights forge far and wide savoring the bounty of the lush internet.

When going into battle the serf's ride invisible horses and make clip-clopping sounds.

Dead right - pure Monty P.

Peter Clark said...

Ballmer's is actually in New York this morning meeting with Wall Street's finest: Sagging stock sends Ballmer to Wall Street to quell critics. Did you get an advance copy of his itinerary, or did he get an advance copy of your posting?

凹凸小生 said...

it's weird no one has written a comment yet. I guess it's been a turbulant couple of days in wall street, everyone is busy decide buying or selling. Microsoft is hitting a transition period for about 5-6 years now. So far Ballmer hasn't done a very good job. A level-3 leader at best.

MyDailySlice said...

In this week's Fortune, Bob Iger of Disney (when asked how big animation is to his company) said that his son took Toy Story 2 to bed with him. He goes on to say that's when he knew Disney had to go after Pixar.

If Ballmer was in charge of Disney, I think my kid would be watching re-releases of Song of the South.

deodand said...

At least Microsoft finally paid a dividend.

Google insiders are selling their stock by the boatload, and they make no money outside of their adsense progam, a program notoriously riddled with rampant click fraud.

Aaron Koral said...

Hi Jeff - I think an interesting issue your post brings up is this: if the cost of "perks" (i.e., free hand towels, dinners to go, on-site laundry service, et. al.) is going up, along with productivity, at tech companies, what is happening to the cost of perks and productivity at non-tech service businesses, competing for the same talent and, more importantly, what does this mean for inflation (i.e., are bond-market participants expecting (anticipating?) a higher inflation rate by selling bonds as the Fed continues to raise interest rates to combat inflation expectations)?

Jeff Matthews said...

Google insiders have been selling for a long time. So have Microsoft insiders. That's what you do when your compensation comes mostly in stock.

However GOogle makes its money--and click fraud appears to be vastly over-rated--the company is reinvesting in new products.

Microsoft's dividend does nothing to address its competitiveness--it just makes Wall Street happy.

Rodger said...

Admittedly, Microsoft didn't invent the axle, but it is only fair to recognise that they did develop a pretty good wheel to carry a lot of us around it!

Thanks for the Blog-Op,

Westcoast Buckeye said...

This is off topic, so I apologize.

Jeff said that he recently migrated away from Microsoft's email, calendar and all.

What did you migrate to?

I am looking for alternatives.

k9thunder said...

Here's some insights from ex-MS employee.

Towels? What? Only very few who jogged during lunch used them. Better food? Heck it's cafeteria ran by Eurest! Food price which was reasonable in the 90's crept up. Perk not to take away is wall to wall of sodas.

My take is that Billg and the management should not have got into the X-box biz then and now. It was huge resource drain not to mention taking the focus out of net and beating google.

Why? MS has terrible history of hardwares. Ever heard of: Very expensive tv remote with Mark Levinson/Madrigal and very expensive pc speaker with Philips (Logi is leader for both now)? How about very expensive 900 mhz phone? Worthless photo viewer using floppy? Truly pathetic talking toys - Barnie, Arthur and all of Teletubbies? Jettisoning gaming controllers? Shutdown of MS wirelss products?

Morale is very low indeed and bringing back towel and Wolfgang's cuisine is not going to help when google set up recruiting office near MS campus.

Jeff Matthews said...

"Westcoast Buckeye": Google Mail is a very good product, once you get the hang of it, and Google Calendar is to Outlook as Google Maps was to Mapquest--way easier, slicker, more flexible.

So get a Google Mail account and then start using the Calendar, and keep your eye on what Google Labs is doing. It's great stuff--limited in that it doesn't do everything for everybody, but great stuff.

Oh, and it's free.

Michael Kassen said...

The picture the other day in the New York Times of Gates, Ozzie, and Mundie spoke more than 1000 words. All were dressed alike! It is eerily reminiscent of IBM in its glory years when everyone wore navy suits and white shirts.