Microsoft makes 85% margin on Windows system

Microsoft has revealed for the first time that it has made profit margins of 85 per cent on its Windows system while its remaining businesses made losses, raising questions about the benefits of the group's costly efforts at diversification.

The client division, which markets Windows, generated operating profits last quarter of $2.48bn (£1.57bn) on revenues of $2.89bn, implying margins of 85 per cent.

The disclosure of its profitability, released in an SEC filing late last week, will infuriate many rivals. Microsoft was found guilty of illegally maintaining its monopoly in personal computer operating systems in 2000.

A subsequent settlement between the Department of Justice, nine US states and the company was widely criticised as being too lax.

Nine other US states attempted to have greater constraints placed on the company. But on November 1, their proposals were largely ignored by the district court in Washington DC, which formulated the eventual remedy and almost all the DoJ settlement.

Among Microsoft's other businesses, the home and entertainment division, which includes the Xbox games console, lost $177m in the quarter on revenues of $505m. Salomon Smith Barney estimates the company loses about $120 on each console it sells.

MSN, the internet service provider and portal, lost $97m, down from losses of $199m in the same quarter last year, on revenues up from $431m to $531m.

The business solutions group, which provides software for small and medium-sized businesses and includes recent acquisitions Great Plains of the US and Navision of Denmark, lost $68m on revenues of $107m.

And the CE/Mobility division, which includes mobile telephone software and the Windows CE operating system for handheld computers, lost $33m on revenues of $17m.

Bill Gates, Microsoft's chairman, speaking yesterday in Las Vegas at Comdex, America's largest information technology conference and show, warned that investors and pundits were becoming too pessimistic about the prospects for innovation in the industry.

Although the IT industry was struggling, the rate of innovation and the industry's rate of growth were being underestimated, he argued.

Mr Gates said a transition was taking place in which the personal computer was becoming less important than personal computing.

"Given that Prozac was recently evaluated as having the effectiveness of a sugar pill, I would tend to agree with you."

My secretary took Prozac and it worked. In fact, it worked so well she stopped taking it. It nulled out the "lows" but also the "highs" so she felt...nothing.

She decided she'd go back to feeling something, and so she stopped taking it.

==============

Years ago, after a failed romance, I was placed on a tricyclic antidepressant (Adapin?) for 3 months. It is an experience I would not have missed for anything. As I explained to the doctor, it was like having a heavy raincoat on. Depressing thoughts still came, but had no purchase; they ran off like water from the back of a mallard.

I don't know; the placebo effect might be present, but I guarantee these things work for the majority of people.

--Boris

Ah, the power of monopoly. I don't care what anybody says, Bill Gates was slick in the beginning. And his products leave a lot to be desired.

That much is certain. However all the alternatives leave much to be desired. I regard the bickering as to which is better to be pointless - there are times when a Mac is a better tool for the job, there are times when a PC is better, and times when a Linux / UNIX machine is appropriate. The Operating System Jihad, to use a Dutch expression "laat mij koud".

Regards, Ivan

The facts about MS are simple, they dominate a static market, and all attempts to expand out of it have failed, and will continue to fail. Their core is desktop OS and Office....there is little reason to update office or your OS, so vast majority of sales are with new machines, and people and more importanly companies are starting to wisen up to this fact. I mean lets be honest with ourselves, what really new features has Office had in years? What about the OS? What Killer feature would warrant a company to upgrade? None... and with new machines now far faster than even the average business user can push, lease trade in will be only reasons for upgrading, not forced obsolecense.. This does not bode well for MS.

Secondly, the world today is about free information exchange, its the DATA.. The web exploded because of what? DATA!!! Fast, endless and useful/useless data. Format/OS independent data! The same movement will happen in other data formats.

The writing is on the wall and every attempt for MS to escape from those basic fundamental facts has to this point failed. Tried to go into gaming, and blew it in the all important Japanese market, losing money and not gaining market share but will keep fighting the mod chip guys... handheld attempts are doing about the same.

There is a huge thing to be said for places like Europe right now where the governments have conciously chosen to go all opensource... all documents, data etc is common.. the applications used to access and change them is free, as is an os they sit on. Anyone in the community can get a CD with all the software on it for free, or virtually free, and then install on their machines. Any government agency, and the people themselves are now all free to exchange any info they want, with anyone else that they want and have reasonable expectation that every one will be able to use or view the information.

The day of the proprietary solution for the general case application are coming to an end, its not going to happen overnight, and its not going to kill companies in that industry, but they will become less and less important. And every attempt by MS to keep forced proprietarianism will make it more and more irrellevant. MS suffers from IBMitis... WE KNOW BETTER THAN YOU DO HOW TO DO THINGS.. ITS OUR WAY OR THE HIGHWAY.... IBM had that same mentality in the 80s, we do EPSIDIC not ASCII... etc etc etc.

MS is not going anywhere, but they still don't realize the fundamental shift that is happening, or maybe they realize it, but have no idea how to deal with it.

I am sure the usual suspects will show up to tell me I'm wrong, but I do believe its going to happen, and its not because I hate MS, and love Linux. Though portraying me as such may make good fodder. Computers are commodities, and as the base model price point continues to DROP I just don't see MS keeping its margins, and I have yet to see MS effectively expand its operations outside its core, it keeps trying, but just haven't seen it manage it yet.

I should be depressed. I've had two companies shot out from underneath me this year, my first went bankrupt and in the process of not paying my settlement, bankrupted me. This second pulled the plug on my entire department after only 4 months.

This is after a pretty hectic two years involving a divorce, moving from the Netherlands, to Belgium, back to Britain, and various flats, cities, and other jobs.

But then I remember some of my American heroes such as John Quincy Adams. JQA suffered from what would be called clinical depression today, "melancholy" in his day. Yet by force of will, he got up in the morning and carried on.

I remember what my other hero, Calvin Coolidge had to say:

"Nothing in the world can take place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."

I have had moments of depression, but with family and friends around, I've picked up and carried on - partially because I have no other mode of existence. No drugs required. I am of the opinion we're all overmedicated as it is.

Regards, Ivan

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