Over at TechFlash this morning, Todd Bishop published a guest post by a disgruntled Microsoft stockholder about to attend his first stockholder meeting. The author, Michael McDonald, has reason to be disgruntled:
November 2000, I purchased 100,000 shares of MSFT at a split-adjusted, average price of $36 per share for a total cost of $3.6 million.
As one commenter noted, this is a “well-chosen” (and well written, I might add) guest post. However, from there, the commenter – Ted Howard – and I part ways. Specifically, I disagree with his xBox optimism and his thoughts on advertising as a business model savior.
Xbox: Microsoft with the NetFlix deal and the Zune marketplace may soon be a dominant player in the living room. If they succeed in becoming the main conduit of media consumption in the living room, the rewards will be vast. The Xbox 360 is poised to leave Sony, and possibly Bluray, as a minority player in the living room.
First, when I polled Twitter (early adopter tech crowd) for recommendations on a gaming system to be part of my new HDTV system, the recommendation was overwhelmingly Sony’s Playstation because of Blue-Ray. See ArsTechnica from May – Why Microsoft’s Xbox 360 sales milestone isn’t so impressive – for a realistic look at the xBox relative to other gaming systems.
Second, Microsoft has been seeking the holy grail of home TV system for, what, 10 years? There will be more convergence as homes upgrade to HDTV systems, maybe. But maybe not. Even with incredibly easy to use DVRs like Tivo (annoying “plop plop plop” sound effects aside), it sees most Americans don’t want to timeshift. (Side note: will they want to order pizza from their TV?) And as much as geeks and timeshifters love NetFlix, it too has only a marginal penetration in mainstream U.S. (less than 10 million members).
Third, Ted positions xBox as though it has a monopoly on beaming NetFlix into the home. Not even close. TivoSeries 3 and two new Blu-Ray players also stream (as well as the NetFlix player). Heck, even Mac users will be able to stream NetFlix movies by year’s end (or so they promise). And he ignores powerhouse Amazon, which also streams to Macs, PCs and TiVo.
Finally, Ted … Sony developed Blu-Ray! Sony Entertainment makes movies! Blu-Ray provides an integrated distribution channel. And for 2000-2005, Sony was the number one studio in box-office receipts in the US (slide 17). There will probably come a day when hard media becomes the minority distribution channel. But that’s a long way in the future, at least in America where we are broadband second class citizens.
The post author, on the other hand, is spot-on with his observations about advertising. Here I disagree with Ted again.
Advertising: Despite recent trendy VC statements like ‘ads are dead, go do virtual good sales’, advertising is how a massive amount of consumers “pay” for what they receive – magazines, TV, and most website content (like this one)
First, I don’t think anyone will argue that Microsoft has demonstrated ineptness with its own advertising.
Second, talk to the newspaper business — and even TV — as they search for new revenue models and declining readership/viewership. Advertising as it developed hand-in-hand with mass media in the 20th century _will_ be replaced by something else. I’m not sure what that “something else” is — if I were, I’d be writing a book or on a consulting tour! — but I’m convinced that it will change.
Apple v Microsoft
Every now and then I lament the fact that I did not buy more Apple stock 10 years ago or so when it was less than $10 a share. Apple turned itself around, which is why I have the lament. (Well, Steve Jobs turned Apple around.) Microsoft, as Michael points out, has continued to stumble along for the better part of a decade, since its dot-com-bubble peak. MSFT closed at $19.62 yesterday; there has been one stock split since early 1999 compared to eight splits from 1987 to early 1999.
This comparison of how founders respond to sagging stockholder confidence — or changing markets — suggests that Microsoft’s initial success may have been due in large part to Bill Gates and Paul Allen simply being in the right place at the right time in the early 1980s. They had IBM over a barrel; Microsoft subsequently engaged in predatory practices to secure its monopoly dominance with Windows. In fact, in looking at the breadth of Paul Allen’s subsequent business accomplishments (and community contributions), I have to wonder just how much of Microsoft’s financial success (based on the stock returns) was due to Allen, not Gates. Allen, remember, left the company board of directors in 2000.