Of Profit and Pickles

OK, so maybe Licensing 6.0 wasn't such a stupid idea after all.

No relationship is perfect, right? Auntie had to remind herself of this last month, when Fabio sidetracked a perfectly reasonable discussion of the best way to organize the refrigerator by dropping a copy of the July 2002 MCP Magazine in her lap. “You’re not always right, Ms. Know-It-All,” was his comment on my perfectly splendid column in that issue. As you may recall, that was the one where, joining the rest of the International Union of Pundits, I predicted dark things about Microsoft’s attempt to coerce enterprise customers into its Licensing 6.0 scheme. This didn’t so much trump our little argument as sidetrack it, because the infuriating one pointed me at the Microsoft Investor Relations Web site (www.microsoft.com/msft/) and refused to say another word about his peculiar notions of pickle storage.

You’ve got to hand it to Microsoft—it’s not shy about sharing its financial results. You can download spreadsheets and documents and even PowerPoint presentations laying out all the details. Here’s the first fact to keep in mind about the colossus of Redmond: Its gross revenue for the three months ending Sept. 30, 2002 (the period during which Licensing 6.0 became mandatory) was $7.746 billion. That’s billion with a “B” or, to put it in terms that may be more comfortable for computer folks, gigabux. Let me translate that for you. Microsoft collected about $2,000 per month for every MCP on Earth.

And where did the money come from? Thirty-seven percent from Windows clients, 29 percent from the “Information Worker” category (primarily Office), 21 percent from Windows servers and about 13 percent from everything else. Office income, in particular, was up 26 percent from the prior year, fueled by “strong demand for Office XP through volume licensing programs.” That’s not a number that indicates corporations walking away. It appears that, faced with the choice of buying or switching, enough companies chose to buy, giving Microsoft yet another record quarter.

It’s fun (and sometimes scary) to ponder some of the other financial facts you can ferret out of the Microsoft Investor site:

MSN is up to 9 million subscribers and bringing in a tidy $400 million or so per quarter (up 23 percent from the previous year). Not bad for a service that was widely seen as sure to be crushed by AOL.

Home and entertainment revenues were huge—close to a billion dollars—in the quarter when Xbox launched a year ago. Since then, that part of the business hasn’t done so well, with revenue down to less than half that for the most recent quarter.

For all the noise that Microsoft makes about Pocket PC, it accounted for a minuscule (in Microsoft terms) $17 million revenue in the quarter.

Although revenue was up 26 percent from the previous year, the cost of revenue was up 36 percent. The increased emphasis on MSN, consulting and the Xbox all contributed to driving up costs.

The bottom line: Microsoft has just more than $40 billion in cash and short-term assets.

But reading the earnings announcements, slides and so on leads your dear Auntie to another conclusion: Microsoft isn’t feeling complacent about all that success. While Windows and Office accounted for 87 percent of the income, including that yummy boost from Licensing 6.0, the executives spend a lot of time talking about other aspects of the business. MSN, the recent purchases of Great Plains and Navision, Microsoft consulting and home entertainment are the areas that appear to be capturing the interest of management as of late.

So perhaps they ought to get some of yours? Where’s the MCXbox credential, anyhow?

More seriously, if these bets are right, the smart people will make plenty of money consulting on Microsoft business applications.

By the way, the pickles go on the second shelf from the top, not on the door. Everyone knows that.

About the Author

Em C. Pea, MCP, is a technology consultant, writer and now budding nanotechnologist who you can expect to turn up somewhere writing about technology once again.

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Reader Comments:

Tue, Apr 15, 2003 Danny MCSA MCP A+ Net+ USA

That all sounds well and good...... for MS and it's shareholders. What about the buyers and users of it's products? How have they profited from all this change in licensing? I do believe that the Windows 2000 family is a nice change from NT but why the price gouging? No one should be forced to upgrade to XP/.Net/2003 architecture until it is in their own best finacial interest, not MS's. Didn't anyone in Redmond learn anything about monopolies by now?

Tue, Feb 4, 2003 PandL Cali

Network Slave is right on the money. MS lost money last q on its certification training support. Anonymous is just wrong wrong wrong and talking out the side of his mouth.

Thu, Jan 30, 2003 Anonymous Anonymous

Emma Darlin, your just too good. How about a date in New Orleans.

Thu, Jan 30, 2003 Network Slave Florida

Anonymous says that Microsoft is making a killing from certification while selling products that don't work. He obviously did not or cannot read the article.
The article did not even list certs as a blip on Microsofts's balance sheet. It did say that Microsoft is making the vast majority of it's money on the products that don't work...

Wed, Jan 29, 2003 Anonymous Anonymous

Microsoft is continuing to make a killing by forcing it's certified people to continuosly recertify on the "latest and greatest". This results in cash flow not only from testing, but from the instructional materials as well. All the while, the MS Sheep follow.....
No wonder MS is making so much money...!
Now if they could only build a product that worked!

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