Microsoft's Going to Be Hard to Save Because It's So Successful  

Moneybox
A blog about business and economics.
Jan. 24 2014 9:45 AM

For All Its Problems, Microsoft Is Still a Huge Success

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Basically, you have to use it for work so we'll be rich anyway.

Photo by Stefan Zaklin/Getty Images

If you've been reading coverage of Microsoft over the past month or year or even five years you've been reading coverage of a company that's in a state of crisis. Its CEO was basically fired, their efforts to get into the mobile-phone game have flopped, their signature PC operating system is losing market share even as the PC industry declines, and their Web search engine is a distant second place to Google's market leader. And yet out came another quarterly earnings report yesterday with $24.52 billion in revenue and $6.56 billion in net income.

Which is to say that for all the anti-hype, Microsoft is an extremely successful business. It has both a lot of revenue and very healthy profit margins. Almost any company outside the tech sector would be thrilled to have these financial results, and the vast majority of hot highly praised tech companies don't have anything close to the kind of sound, consistent, and stable business model that Microsoft has.

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And that's the problem.

Because delving into this earnings report, everything that makes people pessimistic about Microsoft is basically still true. Microsoft boosters are touting the quarter-over-quarter doubling of Surface revenue to $893 million. We're still waiting for Apple's results from its holiday quarter. But if iPad revenue is as low as 10 times that figure, it'll be a huge disappointment for a company that shipped $10.67 billion worth of iPads in the previous holiday. And it's the same with Bing. There's no real sign in this earnings report that it's becoming a successful business.

At the same time, even though selling Windows PC and Office software is a boring business whose long-term future looks bleak, it's still a really good business. Microsoft sells a ton of this stuff, and the margins are high. Combine that with a not-so-exciting but still very solid set of enterprise solutions and you have a company that's much too successful to dramatically shake things up. There's simply too much money floating around to force any kind of hard choices on the company. It has some great businesses, and it can afford to keep playing in whatever markets it wants to play in, whether or not it does it successfully.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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