Microsoft Tackles Tough Times

• By Doug Barney
• 01/23/2009

That is, until this beauty of a quarter.

To get the bad news out of the way fast, Microsoft pre-announced its numbers. Profits are down 11 percent, but total sales are up 2 percent. For Microsoft, this is dismal, and is leading the company to lay off some 5,000 people. But for anyone else, this would be cause for celebration.

I expect a few more rough quarters, but I also believe that Microsoft has the best technical lineup in its history. Azure and Mesh are looking great, Windows 7 appears to be the killer operating system that Vista should have been, and the company's server tools are solid and respected.

Should I take off my rose-colored glasses? Where do you see Microsoft heading in '09? Prognostications welcome at [email protected].

So What Went Wrong?
Microsoft bean counters are facing two problems, and the first is the economy itself. That albatross is dragging down everything and anything. But Redmond also faces weakness in the PC sector, where there's a fairly saturated market. (How many working PCs do you have? I have nearly a dozen!) Then there's the Vista problem. Many who would like a faster machine believe that Vista is slower than XP, no matter how many gigs of RAM you throw at it.

The result? PC sales are flatter than a squirrel on Highway 40 in Tennessee.

My guess is that PC sales will stay sluggish for the rest of year, then literally explode when Windows 7 ships. Why do I think this? Because you, the Redmond Report, reader told me so!

Lotus and Microsoft: Still Hateful After All These Years
I've had the joy and honor of covering the software business since June 4, 1984. Back then, Lotus and Microsoft hated each other. I also followed both throughout the 1990s, and you know what? Lotus and Microsoft still hated each other. It's now 2009 and, as you've already surmised, Lotus and Microsoft still hate each other.

In the '80s, the fight was over spreadsheets, word processors and databases. Lotus got its clock cleaned in all three areas. The '90s brought a battle over messaging and collaboration. Lotus took a quick lead, but ultimately its clock was again cleaned by the boys in Redmond.

Lotus, now owned by IBM, hasn't given up. It's still pushing Notes and Notes-like products, such as the recently announced LotusLive, a hosted messaging tool.

Microsoft has two reasons to be irritated by this announcement. First, LotusLive sounds an awful lot like WindowsLive. Second, Lotus has been telling the world that Notes has a majority share of the Fortune 100 messaging and collaboration market. Notes may be alive and well in many big IBM shops, but the market as a whole has clearly moved to Outlook and Exchange.

Are you an IBM shop? Why are Notes and related products better than Exchange and Outlook? Honest answers readily received at [email protected].

IE 8: Your Turn
IE 8 is currently in beta and will be a key part of Windows 7. Are you using IE 8? What do you love, hate or just mildly adore? Shoot me an e-mail at [email protected]. I'll send you back a bunch of questions and build a feature story based entirely on your feedback!

Mailbag: Government and the Economy
Readers share their thoughts on what the government should and shouldn't do to solve the economic mess:

Cut spending by government (we all know that there is abundant waste). Cut the size of government agencies (they are bloated and inefficient). Cut taxes to entrepreneurs who are starting or expanding businesses. Light a fire under research for renewable energy sources.
-Bernie

I know it is very popular to demean government and public employees (Ronald Reagan made it a national sport), but I think your question misses some important points. As a 35-year worker for various government agencies, I can tell you it is a myth that our ranks are bloated. With economic downturn comes increased demands on unemployment offices, social service agencies and government services of all kinds. Even in normal times, population growth and demographic changes increase our workload. I cannot remember the last time we were allowed to add staff to meet these increasing workloads. In fact, we have repeatedly cut staffing levels over the years.

I am here, working on an official holiday, without pay, just to keep things running. And I'm one of several in my agency alone who do this routinely. We do this mostly because we believe the services we offer are vital. So, I am very resentful when we are so unfairly stereotyped.
-Anonymous

The government should be cutting spending and its work force just like everyone else is having to. Then it would not have to collect as much from the average American taxpayer and businessmen. The businessmen of America should be able to be competitive in the world market. With the high taxes that we Americans pay, it keeps our prices high and makes our products not attractive to the world. We were doing just fine until the government got involved in the economy and now look what it did and is doing. Maybe we Americans can pull out of this despite the government.
-Kent

Talk is cheap! It's easier for companies to downsize; they can make those choices. They exist only for profit and they have no responsibility to the citizens of the U.S., only to the company owners. But the government is not for profit and (when it isn't being corrupted) exists solely to serve the people of the U.S. The government is not a company, so it can't be run like a company. And when times are tough economically, internationally or socially, we generally ask more of the government, not less -- more people ask for unemployment, more people ask for jobs, more companies ask for bailouts, more people bring lawsuits, more people demand action from the military.

It would be nice if we could just send someone to Washington to solve all our problems with zero funding (zero taxes) and zero resources. But how many companies have been successful at putting out a new product or service by devoting no resources to it? You can't ask the government to solve your problems without paying for a solution.

How to solve the problems? Pay your taxes. Demand responsible and smart spending, a balanced budget, intelligent ideas, and qualified people. If you get somebody who says the solution is to lower taxes, show them the way out. And most important, get involved, not by complaining, but by helping to solve the problems.
-Dan

You asked, "If Microsoft and others can run fine with smaller budgets and workforces, why can't government...do the same thing?" Well, as someone who works for local (county) government, I can tell you that we are! We have to. Our county runs primarily on property tax revenues and those are down significantly and getting worse. We already lost 10 percent of our IT department and may lose more this year. As an example, we take care of 300 servers with only three techs, and our two DBAs take care of 600-plus databases. We now have to get five to six years out of our hardware.

We are very fortunate to have a great dedicated team. We are being worked harder then ever before with no raises in sight. So before lumping all of "government" together, be careful -- only the feds can print money.
-JB

The issue is not whether the government can do with less. (And by the way, all of the my non-profit clients are having to do just that. Government contracts for the current year are being shaved by 20 percent and N.Y. state is cutting state budgets right and left.) The real issue is whether the economy can do with less. If you remember the Great Depression, you will remember that two things happened: First, the credit markets seized up, which was exacerbated by the Federal Reserve's tightening of credit. Second, prices plummeted, incomes went down, companies that couldn't market their products cut back on employment and the economic spiral went down from there.

Now, I think the banks are getting away with murder and acting outrageously, but doing nothing could trip us back into the 1930s. That's why most reputable economists, whatever their differences on particulars, realize the need for the government to do something to prevent a catastrophic collapse. Will it be enough? Well, FDR's New Deal only got unemployment down to 12 percent from 25. If the new administration's policies can keep it below that level, we will have missed a very bad bullet.
-Gary

Why can't governments run more lean and mean? It depends. Microsoft is out to make money, but governments have a different goal. Let's say you are a quasi-governmental agency who is providing bus and subway service. Can you cut costs and "make" more money? Well, of course you could -- just cut the least profitable runs, like the ones with very few people on them. Except that making money isn't what a public transportation agency does. The job of a public transportation agency is to get the public to where they need to go. The largest proportion of the costs of such an agency are those directly tied to providing bus and train service. So cutting the least "profitable" runs is out of the question.

Can government do things more efficiently? Absolutely. But consider this: Do folks in government get rewarded for doing more with less? Do governments go out of business because they aren't as efficient as they can be and their 'competition' survives while they don't?
-Anonymous

Is massive debt/stimulation the answer? NO. We need FACTORIES with JOBS inside them. Roads to empty factories and welfare offices aren't going to get us out of this race to the bottom.

The Answer: No more H1B workers. No more illegal foreign workers. WE need those jobs. I used to make $90K per year in the computer industry (after 25 years of steady employment). Now I work for $9 an hour, temp, part-time. That's all I can get with two bachelors degrees and 25 years of experience. With all the H1B workers coming over and working for cheaper labor rates, my career is over. Now it's all about downsizing labor rates and supersizing CEO and BOD bonuses and salaries. Unfortunately, this is the evil outcome of ultimate capitalism: One guy owns everything and everybody else has nothing.
-Win

A lot of right-leaning people will say that government doesn't create anything except bureaucracy. That is not entirely true. Government pools resources and creates things like roads, bridges and interstates that have a payback over the years. However, I do not know of any useful product that it aggregates to create that employs people in the "new" economy (i.e., white-collar employees).

Bureaucracy for the sake of creating jobs is a waste as it will consume resources without ever providing a payback. Stimulus to businesses that are already failing seems to be a double-waste of resources. If the government is going to fix the economic mess through stimulus, it has to be by creating jobs that provide value. In the past, this has been achieved through research and development that brought about a new level of commercialization of that research. Unfortunately, I don't know what the next step of advancement is going to be or I would be a really wealthy person.
-Joe

It is the nature of government to grow and expand and usurp more power and resources; it is what government does. When people held the cherished ideal that government should not do for people what they could do for themselves and their fellow man, we had true charity and government was held in check. Now that we look to government to solve our problems and use the force of law to do so, the beast has been released from the cage. Rather than charity, we have coercion through taxation and redistribution of wealth through social programs, ideals that sound good on paper but in practice leads to economic and social turmoil and a further excuses for government to take on more and more. As revenues fall and the economy contracts, self-seeking politicians and bureaucrats have ample opportunity to save us with more government programs and bailouts. This in turn feeds the cycle of dependency on and growth of government, despite the fact that we are bankrupting our nation and its future.

The only thing that will change this is for the American public to demand real change and a return to the practice of limited government and adherence to the Constitution,rather than change for the sake of change, patriotic rhetoric and lip service. If history is any indication, I do not think this change will come from either side of the aisle as both Republicans and Democrats are equally responsible for maintaining and expanding the status quo.
-Kurt

More reader letters coming your way on Monday. In the meantime, share your own thoughts with us by leaving a comment below or sending an e-mail to [email protected].