In a typical Silicon Valley navel gaze, a San Jose State professor named Randall Stross talks about Microsoft's (NASDAQ:MSFT) cool-quotient problems vis a vis Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) in a July 24 New York Times article. The gist of the Times article is that Microsoft should really be compared to Oracle (NYSE:ORCL) and other enterprise software suppliers unnamed (unnamed by the professor but they include non-Silicon-Valley-based software market leaders IBM, Intuit (NASDAQ:INTU), Sage [LSE: Sage] and SAP.
I agree with that as far as it goes but there are two important extensions to the enterprise- vs. consumer-software thought process from an investment and market research perspective and the author goes in the wrong direction in each case (to be fair to the author, a Microsoft executive named Francis X. Shaw teed it up for the San Jose State professor with a few false premises):
First, the article implies that Microsoft is a consumer software supplier in the process of migrating to the enterprise. That's not the way to look at it. Microsoft's roots in supplying to the enterprise go back to its beginning. It knocked IBM out of the lead in technology back in the 1980s; it did not knock out a consumer-centric phone company or a consumer-centric television broadcaster. It made its money in and from the enterprise from the beginning as well as during the last 10 years. In Silicon Valley, that's boring and pedestrian. But to investors, that's still real money (and as the history of Apple proves, much more predictable).
Second, the article implies that Microsoft's historical customer has been the consumer. It is important in investing in technology to draw a distinction between the function -- consumer software -- and the customer. Microsoft's customers are historically neither consumers nor enterprises but Dell (NASDAQ:DELL), IBM/Lenovo, Compaq/HP (NYSE:HPQ), etc. Although these companies sell some of their Microsoft-based systems to consumers just the way Apple sells some of its systems to enterprises, Apple's and Microsoft's key marketing strategies, distribution channels and customers are fundamentally different and always have been.
Google is another comparative altogether and the reason I mentioned television broadcaster above. It wants into Microsoft's game much more than Microsoft --apparently in order to be perceived as cool in Silicon Valley -- wants into Google's game. Google has been invested in as if it were a publisher or broadcaster (or even content provider like Disney (NYSE:DIS)) but it claims to be a technology company and that's the way buyers -- marketers and publishers -- view it. I'm sure there is an historical analogy with the way Google is treated differently by its investors and customers but I have never researched it. When and if I do, I can probably easily explain why the only part of Google that should be compared with Microsoft is the less than 1% of Google that competes with Microsoft.
(Investing in Google because a sliver of it competes with Microsoft would be like investing in General Motors because it made tanks during World War II. Sorry that's the best I can do. Like I said, I haven't researched the odd way Google is perceived.)
Disclosure: no financial interest in companies mentioned.