Why the Yahoo Deal Must Happen

Gartner analysts Michael Silver and Neil MacDonald told a conference audience yesterday that Microsoft’s (MSFT) Windows product is collapsing and must make radical changes to its operating system or risk becoming a has-been.

They specifically pointed out the slow adoption rate by businesses - just 6% to date - and the fact that the Vista code base is so large. That means changes take years, and only high end computers can really take advantage of it anyway.

For most early adopters (and all Mac users), the browser is increasingly the only operating system that matters anyway. Windows isn’t really that relevant any more just because of the increasing utility of online applications like Google (GOOG) Docs, which competes with Microsoft Office. Vista could be perfect and it still wouldn’t matter. The fact that it is flawed only makes the situation worse.

Microsoft makes a ton of revenue on sales of software that sit on the computer. $15 billion a year for Windows alone, and another $16 billion for Office and Exchange Server in 2007. That’s 60% of Microsoft’s total revenue, and profits from those groups float the rest of the company. Microsoft isn’t a viable company without their consumer and business desktop software profits.

The real question isn’t “What can Microsoft do to fix their Windows product?” but rather “Even if Windows and Office were perfect, would it be enough to keep Microsoft relevant in the medium term?” I think the answer to that latter question might be “nope.” And that, of course, is why they want Yahoo (YHOO) so badly. Online advertising revenue is their only real hope of long-term survival.

Original post

Comments

[User 172507]

For most early adopters (and all Mac users), the browser is increasingly the only operating system that matters anyway. Windows isn’t really that relevant any more just because of the increasing utility of online applications like Google (GOOG) Docs, which competes with Microsoft Office. Vista could be perfect and it still wouldn’t matter. The fact that it is flawed only makes the situation worse.

Utter crap- do u get paid for this drival

[James Z]

I　ｔｏｔａｌｌｙ　ａｇｒｅｅ．　Ｍｉｃｒｏ...

[MarcelMcSweeney]

"the browser is increasingly the only operating system that matters anyway" = you're describing a single user who simply surfs the web.
If that's what makes up the world, than we agree.
If it were that simple, MSFT would have no ago solved the problem.

[chush.net]

As much as geeks and early adopters dislike Windows Vista and think that only browsers matter, the reality is that the overwhelming majority of users use Windows, and MS Office, and even IE 6 (actually there are more IE 6 instances on browsing internet than even IE7 - I saw the stats), and do not care about Google docs, Amazon computing cloud, etc. It would probably take another decade to take that OS and Office market share from Microsoft even if they keep doing what they have been doing all along.

[Dennis Byron]

I believe Microsoft needs Yahoo to get to its services-oriented future more quickly. There are other ways to get there but the $40 billion is money well spent, in that it will allow Microsoft to skip multiple R&D steps, and therefore save time.

But the discussion about Vista's problems and the "browser is the operating system" misdiagnoses the issues Microsoft faces between now and when it gets to its "services-based&q... future.

I do not have the advantage of having seen the Gartner presentation but I have seen it described three or four different ways on the blogsphere (which leads me to question how all the blogposters could have seen the same presentation).

For starters, "just 6%" sounds pretty good after a year. I am guessing that that means 6% of the XP installed base has upgraded (what else could it mean, since virtually all new PCs shipped since Vista's launch include Vista?). The number will be 18% by the end of 2008, 27% by the end of 2009, and so forth (of remaining active XP desktops, a number that will decline for PC performance reasons not strictly Vista related).
-- Did Gartner say how that rate compares to XP when it came on to the market?
-- It compares pretty well relative to the rate Linux replaced Unix on existing desktops and the rate that Windows itself replaced DOS on existing desktops.

Second, uptake on new desktop operating software is totally dependent on applications taking advantage of the OS. As native Vista apps kick in, Vista upgrades will follow (or, more likely, given performance issues, people will retire their XP-based PCs). This has been the pattern in the IT industry since the beginning. (And I mean the IT industry, not just the PC industry.)

Third, the whole Google-Apps-will-repla... thing doesn't compute on multiple functional levels but just sticking to the operating system discussion, the whole browser as operating system analogy is a server issue, not a desktop OS issue. And if Microsoft has had booming growth so far this year, imagine what's going to happen when Longhorn kicks in next year.

- Dennis

[Tom B]

"For most early adopters (and all Mac users), the browser is increasingly the only operating system that matters anyway."

Utterly bizarre statement. And wrong.

But interestingly, unlike Windows machines, Macs do come bundled with a modern web browser. The same one in the iPhone (more or less). Actually, Macs come with ANOTHER web browser, of sorts. iTunes. A web-based media manager. And they come with a bundled Office suite I happen to prefer to MSFT's bloatware.

The world USED to be about spreadsheets and clip art. Now, it's about a rich, streaming multimedia, home plus "cloud", experience. An experience hard to enjoy on stability and security challenged legacy systems (Windows)that haven't made the upgrade to UNIX, like Apple has.

and as a hardware vendor, Apple can COOPERATE with Google, instead of locking horns with them. The same way MS and INTEL synergized in years past.

[Tom B]

"Third, the whole Google-Apps-will-repla... thing doesn't compute on multiple functional levels"

The only reason it "doesn't compute" is because it is still a work in progress.

"And if Microsoft has had booming growth so far this year,"

???? MSFT has been pretty flat this year.

[Dennis Byron]

Thomas, you're a hard man to please if you consider 29% revenue growth "pretty flat." (You are probably talking about share price?)

As for the Google-Apps thing being a work in progress, that's the point. Microsoft is doing that same work (that's what Ozzie was hired for) and is starting at a much higher level of functionality than Google.

- Dennis

[Tom B]

"As for the Google-Apps thing being a work in progress, that's the point. Microsoft is doing that same work "

You'd trust on-line security with any MSFT-based service? I sure wouldn't. As for the revenue growth-- pent up demand. People held off buying computers until Vista came out and now they are stuck with it. And I was referring to the stock price. Perhaps I shouln't have; stock prices have failed to reflect reality this past quarter-- sub prime fears and failing consumer confidence.

[My Idea]

I think many people see that the internet is the future. An operating System is just something to boot up a computer. When i go home, i use the internet almost 90% of the time. I search the net and have 80% of my work done without a PC based software or application. I think most people do the same too. Just imagine how powerful the net can get?

[bill d]

If you are like most users that already use Windows, IE & Outlook then security is kinda moot.


On Apr 11 03:41 PM Thomas Barta wrote:

> "As for the Google-Apps thing being a work in progress, that's the
> point. Microsoft is doing that same work "
>
> You'd trust on-line security with any MSFT-based service? I sure
> wouldn't. As for the revenue growth-- pent up demand. People held
> off buying computers until Vista came out and now they are stuck
> with it. And I was referring to the stock price. Perhaps I shouln't
> have; stock prices have failed to reflect reality this past quarter--
> sub prime fears and failing consumer confidence.

[300mph]

Quite simply, a browser is not an operating system. A browser is an application that runs on an operating system.

[steveballmer]

Now that is just a bunch of baloney!
These "anallyst" say we may only have five years left before we are yesterday's news, RUBBISH! (excuse my language) Do any of you people know how much money we have? How many people we hire? How many design committees we have?

Please just dismiss this latest report by the "experts" claiming that we are clueless about what you people want! We know, I know exactly what you want!

I'll prove it, you want:

1. Computers integrated into your furniture! ie: the Surface Coffeetable.

2. The ZunePhone! Those who have bought iPhumbs will trash them when we release ZP1

3. A Home Server in the basement! It will control everything from lights, to backups, to toilets.

4. All subscription Software! Why buy Windows when you can rent it?

5. Software so secure that even you can't get in it! (Cancel or Allow?)

6. XP to be killed so that everyone can experience Vista, even if they are too ignorant to know it's a must-have! We will choose for you, don't worry!

... What these "anallyst" have not factored in is the fact that Bill will be gone soon and me and my rubber-stamp team will lead Microsoft into this glorious future as Ballmersoft!

Now I KNOW you feel better!

[bill d]

Wow - I can hardly wait !
Gee - maybe you could hire Gary Kildall - to have an original thought for you - unfortunately he passed away 7/11/94. For those of you who don't know who he was and what he did, here is a an excerpt from a DiGITAL RESEARCH memoriam to him(www.digitalresearch.bi...)
Gary created the first Operating System for the microprocessor, CP/M. The most advanced current version of CP/M in 1999 is IMS Ltd. REAL/32. CP/M also serves as the basis of all modern DOS versions including the outstanding Caldera DR DOS and other derivitaves including PC-DOS from IBM, and MS-DOS from Microsoft, whose position in the computer industry is based on its unauthorized 1981 "cloning"of Dr. Gary Kildall's Digital Research CP/M, which gave birth to the IBM PC standard upon which Microsoft MS-DOS, Windows CE, Windows 95, Windows 98, and Windows 00 (now 2000, formerly NT) are based today.
They are being very polite - I called it a Blatant Rip Off.
Not much has changed today either , eh Steve ?
Except perhaps there isn't much worth ripping off today.

[Shia]

I'm sure Gary Kildall would have a few original thoughts, if he was still around.

At present Office 2007 is way ahead of Google docs. There is simply no comparison. Google docs is fine for quick simple docs, but no match for all the cool features in Office.

I guess if the Microsoft/Yahoo deal goes through Microsoft will put a web version of office to compete with Google. The big problem for Microsoft they will be competing against the versions they sell - Catch 22.

[Partners inGrime]

Once Microsoft's Windows and Office revenue dries up, they're toast.

[User 178586]

if youre just browsing the net there is no need for you to "experience Vista" which get a lot of negative feedback ( to the point that most retailers went back to giving u the option of offering xp on their machines) unless u play games and want Dx10 gfx then u got no choice, but there are still a lot of programs and software out there that dont really function well with vista and its been out for quite a while. And if you try to force people to use vista there is an altrernative its not the only OS around u know. Microsoft has been on top for long time but truth is its not gonna last forever and they know it.

[Voice ofReason]

Two points.

The typical business user doesn't jump in with both feet until SP1 arrives. That just happened.

Does anyone in this thread do anything with their computer beyond download porn and make moronic comment here?

Judging on what was said, don't seem like it.