Wednesday, December 26, 2012

The Score Today: Apple 280, Microsoft 38


 Some people like to think Bill Gates will be the successor to Warren Buffett as CEO of Berkshire Hathaway, if and when Warren Buffett ever leaves that post.  [Buffett will never “leave” in the conventional sense of retiring; he’ll work until his mind, or his body, or both, give out and no sooner—ed.]
 We take the other side of that trade in “Warren Buffett’s Successor: Who It Is and Why It Matters,” just released via Kindle.  [It’s a short book: you can read it during the half-hour’s worth of commercial breaks that occur in the last 3 minutes of the average NBA game—ed.
 The reasons Gates will not succeed Buffett, despite being one of Buffett’s best friends as well as a longtime Berkshire board member, are numerous and compelling, and we won’t repeat them here.  [Thank goodness—ed.]
 But there’s a very good reason Bill Gates is not going to succeed Warren Buffett at Berkshire Hathaway that is not in the book, and it has to do with the increasingly visible disintegration of the so-called “Wintel” duopoly that spelled mega profits for many years at Gates’ baby.
 That disintegration is occurring—slowly but surely—even as you read this virtual column, and it is visible in stores across America.
 Just today we visited a prosperous mall in a prosperous city in America—a mall filled with post-Christmas holiday shoppers taking advantage of the post-Christmas sales that make this one of the busiest shopping days of the year.
 And at a little after noon, we counted a grand total of 38 shoppers at the Microsoft store…and 280 customers at the Apple store.
 Both retail spaces have about the same footprint, and both occupy good, highly visible, high-traffic locations.  Also, we used the same method at each, counting everyone not wearing a corporate t-shirt as a customer—men, women, toddlers and even babies in strollers.
 Granted, it was a bit harder to count at the Apple store than the Microsoft store, because there were shoppers coming and going at the Apple store...while at the Microsoft store there weren’t many people coming or going, and there was only one person actually buying something at the counter. 
 But the ratio wouldn’t change much if we missed a couple or double-counted a couple here and there: Apple had roughly 7-times the customer appeal of Microsoft on one of the busiest shopping days of the year.  It was almost painful to walk out of the Microsoft store without buying something, because the employees were doing their best to be friendly and engaging. [He is not being ironic here—ed]
 “So what?” Microsoftians will say [grumpily—ed].  “Microsoft is a business software company.  They make way more money on server software and office software than on Windows for consumers.”
 And that’s all quite true.  More than half Microsoft’s revenues are business/server/tools sales, and whatever Apple is doing to Microsoft’s consumer franchise won’t show up in those businesses for years, maybe decades to come.
 But it’s still worth pointing out, as we’ve been doing over the years [here, here and here—ed.], that whatever Steve Ballmer has been doing at Microsoft since he took over the day-to-day business from Bill Gates in 2000—including iPhone “funeral processions” and other silly marketing tricks—it has not stopped Apple from winning a very competitive game in the free market.
 Indeed, by our count, Apple was winning that consumer game by about 280 to 38 over Microsoft today.
 And what with Google going after the business apps market, Amazon Web Services becoming the go-to cloud for today’s startups, and the iPad making its way into every “C-Suite” in the corporate world, we’ll bet the scoring only gets tougher for Microsoft from here.
 Which is one more reason Bill Gates isn’t going to run Berkshire Hathaway any time soon: he has 441 million shares of Microsoft at risk, and some time in the not-to-distant future we bet he’ll be CEO of Microsoft for the second time before he’s CEO of Berkshire Hathaway for the first.

Jeff Matthews
Author “Warren Buffett’s Successor: Who It Is And Why It Matters”
(eBooks on Investing, 2013)    $2.99 Kindle Version at Amazon.com

© 2012 NotMakingThisUp, LLC              
The content contained in this blog represents only 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 investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.

4 comments:

  1. Longshorttrader12/28/2012 3:15 PM

    "We bet he’ll be CEO of Microsoft for the second time"

    Does this mean you're betting on the stock, one way or the other, or planning to do so in the event that the above happens?

    Let's suppose Gates were to become CEO once again. Wouldn't things over at MSFT have to get materially worse, to trigger such a move? i.e., wouldn't the business + stock price have to meaningfully decline from here?

    And let's suppose Gates were to take over the helm once again. Would it make a difference, beyond the initial morale boost? Too little, too late?

    A (belated) Merry Christmas.

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  2. LST,

    I never comment on potential stock movements and I wouldn't be so bold to try to game the impact of Gates coming back: I just see the business itself in continued, slow-but-steady share loss with Ballmer at the helm. Whether Gates could make a difference--well that would depend on what he could do should he return. But given his reputation for screaming "That's the stupidest idea I've ever heard!" and going off to a lake to read white papers, I wouldn't be holding my breath.

    P.S. I feel terrible this comment fell between the cracks. My fault. And a Happy New Year.

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  3. Well, let's wait for Warren Buffett's decision about that. Great post!

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  4. The last time I checked, Warren had hired Bill (and Melinda) to run his half of the largest charitable foundation on Earth...allowing himself the ability to run his company without any onerous philanthropical concerns or obligations. It's shocking to me how poorly this aspect of the succession plan is appreciated or understood. Of course he won't be CEO. The smart money is currently on Wechsler.

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