When I invest in a stock I always ask myself what would keep the founder of the company awake at night. When it comes to Microsoft (NASDAQ:MSFT) and Bill Gates, it's the word "free." Microsoft was on the forefront of battling software theft and even encouraged other software hobbyists to stop working for free. While there have been open source free software companies that compete with Microsoft, such as Linux, not one of them has the financial backing and support that was close to the strength of Microsoft. This is not even calculating all the anti-commotion tactics that Microsoft has been sued for by the DOJ. Today though, Microsoft seems to have some major obstacles to overcome if it is going to stay relevant as a company.
Fears Coming True
Google (GOOG) has entered the software market and is giving away its software. What makes matters even worse is that Google is dominating the high-growth industry of the smartphone market. Microsoft has attempted to respond by developing Bing, but this has led to little success.
Google is attacking Microsoft's legacy business with its own operating system which again, is free. This may not be viewed as much of a threat yet. However, as we have seen with the move to Apple's operating system, Microsoft's moat may not be as deep as we thought.
The upgrade cycle of computers is slowing. The "cash cow" Microsoft Office suite sales are also trending down. The cost simply does not justify the benefit of having the best available presentation software or the newest word processing software.
Microsoft failed to recognize the shift to smartphones and missed the upgrade cycle. The company also has increased competition from Google by giving away what Microsoft has made an empire selling. I understand that Microsoft is relatively cheap compared to other software stocks and has a huge cash position. It seems that Microsoft has become a pitiful giant that is too slow and cumbersome to save itself. While I am not shorting the stock, I do see much better opportunities to put my money to work.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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