What Does Microsoft's Bizarre Leadership Claim Really Mean?

The press (and I assume the blogosphere) is picking up on Steve Ballmer’s comment at the Microsoft (MSFT) financial analyst day Thursday July 24, that Microsoft is “close to declaring” itself the leader in enterprise software. I found Ballmer’s statement so strange when I heard it that I didn’t consider writing this blog, until I noted the press attention to the remark.

If Microsoft is only “close to declaring” such leadership, the company must define the words enterprise and software differently than the English-language meanings of the word. Or there must be some interesting Microsoft marketing blitz on the horizon.

Overall, “software” is a $250-billion-plus-or-minus market worldwide, according to publicly released IDC data. IDC—and I believe Gartner Dataquest—include perpetual and more limited right to use [RTU] license revenue and “other license-related” fees to estimate that overall number. The quant houses do not include professional services revenues for training and implementation of the software and similar one-time revenue. For IDC—at least for the almost 10 years I worked there ending in May 2006—“other license-related” revenue includes estimates of the value of software bundled into services such as ADP (ADP) payroll processing and estimates of the value of the software bundled into other fees, such as the ad revenue that supports Google’s (GOOG) publishing/advertising-industry application. But annual subscription maintenance fees assessed on users the second and subsequent years after paying for a RTU license, if the licensee so chooses, represent about 60% of the $250 billion in software revenue. “Maintenance” typically is twice RTU license revenue and “other” that is not “maintenance” is probably less than 10% of the pie.

Overall Microsoft is three times larger than the second place software-market player, the IBM (IBM) Software Group. Oracle (ORCL) is third and closing on IBM, followed by SAP (SAP) and Google or vice versa depending on whether you count Google’s TAC revenue. I don’t think you should count Google TAC; I don’t know how IDC estimates Google’s market share because Google was not a factor three short years ago when I was last involved.

Assuming “enterprise software” means software sold to an enterprise, if only 33% of Microsoft’s revenue meets that definition, it is already the leader over the others, whose totals are definitely all enterprise software. If enterprise software means software that can be used by an enterprise (no matter who buys it), Microsoft’s dominance is even larger. I use the latter method and estimate that Microsoft is already doing $30 to $40 billion in enterprise software sales vs. the IBM Software Group’s $20 billion or so. 

But if there is some marketing advantage in just now declaring that leadership, it’s going to be interesting to see what it is.

Comments

[WACG:]

Ballmer's blatherings is starting to remind me of Hitler's ravings in his bunker just before the end. All sorts of imaginary military assets were being ordered to "save the day". IMO, MSFT is destined to become another "GM" - not tomorrow but within most of our lifetimes - too moribund and anal retentive

2008 Jul 28 09:47 AM

[croflags:]

As Steve says, don't get too excited about MSFT
the stock isn't going any where for another 2 years, making it
almost 12 years now.
As a very frustrated stockholder, I ask the other stockholders,
why is this clueless b##stard still in charge??????????????/

2008 Jul 28 10:16 AM

[Tom B:]

Gee, I saw your title and I thought MSFT was going to claim they had leadership.

I think leadership wouldn't much matter at this point, anyway. All their engineers must have been pulling all nighters-- on networked World of Warcraft-- to have come up with the abortion known as Vista. All the various complaints from users are all real and valid and, yet, don't even get to the root of the problem. All MSFT's competitors have solid, fast, secure UNIX-based OS's (Apple; LINUX companies); MSFT hasn't even made the upgrade to UNIX. And I don't think it's even in the works for Win7!

2008 Jul 28 10:49 AM

[LAD:]

A second to comment by Tom B. A leader who allows a product like Vista to get in the hands of even a beta test group of consumers should be fired immediately. The quality of Vista is incomprehensible. They probably don't have a quality assurance manager - if they do the position should be vacant. I am waiting for the opportunity to unload my shares, but Ballmer has no interest in his investors or customers, so I may have to hold till they become an inheritance for my 2 year old grandson (at age 25). Trying to buy a bigger loser in Yahoo is an even dumber move. Notice how slow and unavailable Yahoo has been lately. Must be distracted workers, unmanaged. Yahoo probably doesn't have a quality assurance manager either, if so, hopefully it has become vacant.
40+ years in systems development and operations management focused on software quality gives me the responsibility to express my opinion, if not the right.

Larry

2008 Jul 28 02:28 PM

[Tom B:]

"I am waiting for the opportunity to unload my shares, but Ballmer has no interest in his investors or customers"

I hope you don't have a big number. Do it some year you need a tax loss.

"Trying to buy a bigger loser in Yahoo is an even dumber move."

Say what you will, I use several Yahoo services willingly: Mail; Yahoo; Finance; My Yahoo; and, by far the best, Flickr. I use NO MSFT products VOLUNTARILY. I use a bunch at work, where you have no choice, but I wouldn't spend money on Vista; or on Powerpoint, which is a distant second to Keynote, IMHO; or on a Zune. People have mocked me for saying it, but I predict better earnings growth over the next 12 months for Yahoo than MSFT.

2008 Jul 28 03:23 PM

[Neil Anderson:]

Ballmer wants Microsoft to be more like Apple and Apple creates suspense by not saying what they're doing, so Ballmer emulates that by saying cryptic stuff that no one knows what he means.
;)

2008 Jul 28 04:25 PM

[zs450:]

All I have to say for the Vista haters....

www.mojaveexperiment.c.../

2008 Jul 29 08:49 AM