Last week, we discussed Google’s spreadsheet and word processor in context of a $300 PC offer from Dell; The PC — monitor included — cost more than the full version of Microsoft Office:
"A few weeks ago, I got a snail mail offer from Dell for a pretty fast
2.4Ghz machine — 17" CRT included — for the "low low price" of $300.
I was about to buy (yet another) machine for the office — when it
dawned on me that Office Professional-Small Business cost $320 — more
than the PC itself. I decided to pass. (I could have gotten Office
Basic — Word, Excel and Outlook — for $70). I suspect this process
occurs lots of times in small businesses in America.In Google’s short history, they have continuously rolled out more
and more offerings. I suspect that 5 years from now, we will look back
to discover that a full featured Office equivalent has developed.In the alternative, is there anyway this ends up helping Microsoft? I can’t think of any."
Today’s NYT has a similar column:
"The biggest expense in buying a new computer is not always the computer. After all, you can buy a new Dell desktop, and a good one at that, for $300 and get a monitor in the bargain.
The software to make a PC do anything useful can cost you as much as the computer. To accomplish even the most basic functions on the computer, like writing, you could pay $400 for the standard edition of Microsoft’s Office suite that includes Word for word processing, Excel for spreadsheets, Outlook for e-mail and PowerPoint for boring everyone with slideshow presentations.
You can find software that is cheaper. Yet a stripped-down student and teacher edition of Word still costs $150 and even Microsoft Works 8.0, a really basic version of Word and Excel, is $50.
There is another way to do almost everything these programs can do — some would say you can actually do more — and you can do it free. A number of smart programmers have developed word processing, spreadsheet, calendar and other software that you operate while in a Web browser.
No one is saying they are a direct substitute for Word or Excel, but they do have a distinct advantage. The programs can be used by several people at different computers to collaborate on a document."
Its not quite a "read it here first," but it does have a similar flavor.
I like the Times’ focus — not on the Google vs Microsoft aspect of this,
but rather on the variety of free web based software you can put on a
cheap PC. Its a good set of resources for those looking for a cheap 2nd
or 3rd machine.
In addition to Writely and Google Spreadsheet, the column also tips:
• Yahoo Mail
• Google Gmail
• Flickr.com
• Google Labs
• Jotspot
• Zoho Writer
• Writeboard
• Ajax Write
• 30Boxes
• Firefox
• Google Notebook
• Clipmarks
• Plum
>
UPDATE: June 17, 2006 9:13am
Okay, okay! When 5 emailers tell me Open Office is th way to go within minutes of this posting, I must offer up a link:
>
Sources:
Google vs Microsoft: Now We’re Getting Serious
The Big Picture, Wednesday, June 07, 2006
http://bigpicture.typepad.com/comments/2006/06/google_vs_micro.html
Now, Free Ways to Do Desktop Work on the Web
Your Money
DAMON DARLIN
NYTimes, June 17, 2006
http://www.nytimes.com/2006/06/17/technology/17money.html
Use Open Office! Nuff said!
If you need the full functionality of Office and Excel, Open Office will do nicely for free. But I’ve been using free web-based alternatives for some time. Personally I find that writely.com meets my needs for word processing, and Yahoo suits me for email – quite secure compared to MSFT software products. Google spreadsheets will do for now and will be better when they add charting capability. I have uninstalled the comparable Microsoft products from my system. My next computer will be a basic box. This does not bode well for MSFT.
Now all we need is for these web based software items to get more publicity.
After that, all we need is a legit alternative to windows.
On a side note: I can’t believe Gates is leaving Balmer to run that ship. It’s a very noble thing in wanting to put his money to work for humanity. But I think he’d be better off running microsoft.
I figure if he ran microsoft, his wealth would hold up alot better and appreciate more, as opposed to leaving Balmer there to let everything rot. Then he would be able to donate more.
Has anyone seen any articles on how much Balmer is costing Gates per day, year, etc?
“No one is saying they are a direct substitute for Word or Excel, but they do have a distinct advantage. The programs can be used by several people at different computers to collaborate on a document.”
Document collaboration is also a function of the MS Office suite, if I’m not mistaken.
I agree that the multitide of free offerings are a great boon to individual users. However, it’s only a matter of time before someone realizes they have to make money from them, or what’s the point? Nothing is “free.”
It’s possible that Gates is leaving Microsoft because he knows that it is no longer a growth company and he doesn’t want to be associated with its slow decline into a normal company that provides a useful service at a small profit. By leaving now, he can claim that he ran the most profitable company ever and it only stopped being so profitable after he left.
I don’t think there is anything anyone can do to keep Microsoft growing at historic rates. They have saturated the developed markets and are getting serious competition at much lower prices. The emerging markets won;’t care about software piracy anytime soon, and if they do the people won’t be able to afford Microsoft anyway.
While you absolutely can set up an office environment for “free” (and these days, it’s not that bad), I have to give Microsquash credit. They have earned their Office monopoly, and its pricing reflects that. Given the stickiness of such applications, I would not bet against them maintaining their dominance there long after other names have made inroads into their ownership of the desktop itself.
That said, I absolutely look forward to a “Google Office” if only for reasons of remote collaboration. If Google manages to track document changes in some sort of office-document CVS, I can see them having a product they can give away to the masses, and sell to business. Nice work if you can get it.
C: It is not entirely correct that “nothing is free”, or rather it depends on one’s frame of reference. Your lifetime, for the most part, has no (set) cost in terms of money, only opportunity cost in the sense of forgone alternative uses. Regardless to which end you decide to put your time, it is “free” unless you successfully charge or barter with somebody for it, or take the (in my opinion misguided) view that every minute could be used to “make” 1/60th of your hourly rate (if applicable).
Much (not all) of freeware/open source is created by enthusiasts in their spare time. I’m disregarding finer points like amortization of computer equipment or utility costs (electric power, internett access fees).
Have you never heard of Open Office?
Google Spreadsheet is nothing like Excel, but I don’t even use Excel. I use Open Office and it’s pretty much the same if not better and best of all it is free.
This illustrates the point that it’s not so much MSFT vs GOOG as it is MSFT vs everyone or MSFT vs What’s Next.
Google doesn’t even have to come up with the killer apps themselves, they can let 10,000 little guys go for the longball on their own and then roll up the ones that hit.
Ray Ozzie seems like a smart cookie and Gates talks a good game about focusing on the cutting edge and being responsive to change, but the reality is that MSFT’s profit centers are deeply averse to change; the fitness landscape has shifted, and by necessity Microsoft will spend a great deal of time and energy trying to fight that reality. It’s part of the evolutionary process; if past advantages never became present day liabilities, evolution would not work.
Maybe Gates is leaving because he knows it’s time to take the advice of his new fans (value investors) and turn MSFT into a low-speed cash cow spinning off dividends far into the horizon. If all these costly growth and innovation efforts are eating into the attractiveness of the company, at some point the MSFT guys must realize they are burning the furniture to heat the house. Maybe that realization is part of Gates’ exit.
Two lists from Listibles:
Most Popular Freeware for Windows
Windows opensource and/or freeware
Cliff: Technical question, are you using Open Office on Windows or Linux, and which version? I undertook the experiment to convert my work desktop to Linux. It generally performed very well, but the version of Open Office that our IT would support (and allow me to install) was so pathetic in terms of speed and more importantly features, document rendering, and compatibility that I was forced back to Windows desktop (with MS Office) and remote login to Linux workstations. I have to receive and contribute to other people’s MS Office documents, and that version of Open Office was not making the cut.
trader75: Good point in your last paragraph. I noticed similar things from my vantage point, and indeed it is a general phenomenon. Some things don’t work out, or don’t take off according to expectations, and even successful things accumulate so much baggage over time as to become unwieldy, or windows of success close. Often enough people involved on a daily basis see the writing on the wall earlier than outsiders having to rely on public appearances.
Will be interesting to see how this goes over… will Microsoft have any more luck then Dell’s doomed DJ Ditty? Will this be another X-box pyrrhic victory quest? How long before MSFT breaks below $20?
———————————————————
Microsoft developing a rival to Apple’s iPod
Fri Jun 16, 2006 12:18 PM ET
By Kenneth Li
NEW YORK (Reuters) – Microsoft Corp. is developing a music and video device to compete with Apple’s iPod and creating its own music service to rival Apple’s iTunes, sources familiar with the plans said on Friday.
Robbie Bach, a rising star at Microsoft who headed development of the Xbox video game business, is overseeing the project, one source said.
The Redmond, Washington-based company has held licensing discussions with the music industry and is already demonstrating the entertainment device, the sources told Reuters.
I’m sorry but the anti-Microsoft commentary is dripping. I’ve seen nothing to convince me even one small bit that Microsoft is threatened by anyone IF they get off of their arse.
I’ve been sour on Microsoft for ages but I surely need to see something other than the geek squad over at Google coming up with a pos spreadsheet that is good for data entry. Any significant spread sheet user uses functions this doesn’t have at all. And who the hell cares about spreadsheets. We are on the verge of digital content storming the world. Where’s Google in that? Microsoft is very well positioned as the top IT software company on earth. Companies will do the spending, developing and transforming of the web to the tune of $2 trillion spending annually and that is Microsoft’s sweet spot. (And, if IF IF IF, any of this free stuff became a threat, all MS has to do is drop the price of their software. Its legacy, the costs are sunk and they’d squash this stuff like a bug. Or simply out-innovate Google. Because unless Google is going to put a team of developers behind this product which they DID NOT develop, it will not keep up with Excel. And, if Google does put a team of developers behind it, how are they going to pay for them with the product being free? Reduced margins by using their only viable product of paid search to fund it?)
There is something very subtle that happened a few days ago that only corporate execs and competitiors understand. Ray Ozzie is THE GOD of software in our time. He is THE visionary and THE creative genius. He has made the single biggest impact on software and innovation of any human being in modern times. He is totally anti-establishment and has poked Bill Gates, the anti-Christ of software, in the eyes so many times Gates finally bought Ozzie’s latest incarnation a few years ago. In all prior instances Ozzie has flipped off the buyer of his latest incarnation to stay independent and start a new venture including when IBM bought Notes, Ozzie’s invention and the greatest piece of software of its time.
Ozzie was brought to Microsoft for this position and this day. He now has total control over the richest and most influential software company’s future. And, we are on the verge of a major explosion of how we use the net over the next decade. If Ballmer goes or another person steps up as an heir apparent that is as strong as Ozzie on the biz side, Microsoft will become a mighty force with more cash than any company on earth, the top IT software company and a visionary extraordinare setting their technical strategy. ie, All they need is to groom an equivalent on the business side and eventually get Ballmer out.
This announcement was huge. Now execution is key but Ozzie in charge of technology will likely transform the research culture in MS into an engine that will unleash the tremendous brain power and creativity that has been smothered by big company disease for so long. Trends never last forever. MS may yet emerge for another powerful run soon enough.
Look at SunMicrosystems new Open Office for free. It is great for small business and is completley compatible wiht Microsoft products.
Google does have a team of developers working on this. One of my friends started working there last summer and when this came out he said this was the project he’d been working on. I don’t know how big the team is or if this is all they are doing, but there are developers working on it.
Google is very secretive about what they are doing. People who work there aren’t allowed to tell anyone what they are doing until it is released publicly. Which means only company insiders know what they are planning to release in the future.
Google is an advertising company. Their revenue primarily comes from selling context-based ads and searching corporate web sites. They are being run by software people, not business people. So they are taking their revenues and writing software they think is cool. This has no tangible benefit, but it does generate goodwill and name recognition. It also means that the best developers want to work for them.
Microsoft has a large image issue. Given equal pay and benefits, most people would prefer to work at Google rather than Microsoft. Both companies have enough money to pay good money to developers. Which means that Google is getting the best ones. So Microsoft will have a hard time out-innovating Google. And you can’t compete on price against a free product. But Google and Microsoft aren’t competing. Microsoft sells software and support, Google sells ads and searches.
Google is participating in a fundamental change to the way software is written and distributed. If the shift succeeds, then Microsoft won’t be able to charge for their software, which will leave them selling support. It will succeed eventually, because the number of people working on Open Source products dwarfs the number of people who have ever worked for Microsoft.
Please…………
spare me.
He he… I’m not much for Buffett quotes, but I believe twas he who said (paraphrase) “When a manager with a great reputation takes on a business with a bad one, it is usually the reputation of the business that wins.”
Less filling! Tastes great!
So, let’s see. Is selling software a bad business? Would Warren think its a bad business? Well, the global IT market is $2+ trillion and will grow significantly if and when the global economy grows. Then there is the software component. Hmmm…. 70% gross profit margins and the most cash of any company on earth after giving away nearly $50 billion in dividends.
Well, shucks, let’s just see what would Warren say? I guess we should just ask him.
http://www.fatpitchfinancials.com/131/buffetts-opinion-of-microsofts-moat/
What did you say? Tastes great AND is less filling? I see. Let’s see how Microsoft plays out over the next five years.
As for “free software”, well, let me see if I get this. In the utopian vision of freeware or open source software, thousands of software developers around the globe write code for free and it will replace trillions of dollars of custom code and canned commercial software? (The custom application software on IBM’s mainframes alone is estimated at a replacement cost of $3 trillion. Yes, with a “T”.) And these freeware coders will exhibit this grand altruism in a capitalistic world economy?
And who is this group of developers? People who have inherited so much wealth they just sit at home and hack all day without worries of a paycheck? Or are they employed developers hacking part time who are going to eventually work themselves out of employment by doing as you say, writing free code so that they no longer can collect a paycheck? ie, Ultimately doing away with clients paying for software. Wow, both of those sound very realistic. Do you have a job or do you just sit around and work for free? What is next as open source? Maybe free hardware? Free computers? Free groceries? Free cars? I’d like an Aston Martin DB8 or a fully blown AMG Mercedes.
Open source is not a new concept. It has been around as long as software has. Programmers write utilities or tools that help them plug a hole in a piece of code or provide some function they don’t have. Or, in the case of Internet Explorer, band together to write an alternative to something they despise. Is that a “new way” of writing software that is sustainable and a threat to commercial software? Can anyone name an innovation that was not monetized in a capitalistic society? Maybe we will come up with the cure for cancer and give it away. Come on.
C’mon people now, smile on your brother, try to love one another right now…
Is selling software a bad business? Probably not… but is selling shrink-wrapped software still a great business? Probably not.
70% gross profit margins… that’s kind of a smoking gun right there. As Milton Friedman observed, the purpose of capitalism is to compete away profit margins until they asymptote above zero–to the benefit of customers and consumers.
What is Microsoft doing to preserve its 70% profit margins? How do you justify insane profit margins like that? The answer is, you don’t. You just enjoy them while you’ve got the moat and you hope the moat lasts.
Microsoft is fighting an evolutionary process in an effort to preserve its gigantic profit margins, just as lots of big, dominating companies throughout history has done. And if capitalism continues to evolve and do its job, Microsoft will ultimately fail to preserve those huge margins, just as big companies before it have done, because the market will eventually find a better way.
It’s not free software or open source hippies that MSFT needs to fear… it’s change in general. Change to the fitness landscape that no longer supports a business model with 70% gross margins.
“Free” may be a pipedream as you point out, but utility computing isn’t… the idea that once we have the bandwidth and the logistics, it will make more sense to use software like we use electricity–sent through a fat pipe and billed on a usage basis. No more shrink-wrap, no more annoying upgrades, no more huge upfront purchase costs.
There are plenty of major players who will embrace utility computing bigtime when the technology becomes viable. Heck, Microsoft might embrace it too. Microsoft Office might continue to dominate as Ray Ozzie makes it available through fat pipes for everyone and adds in all kinds of compelling bells and whistles.
But I tell you what–Ray Ozzie ain’t gonna sustain no 70% profit margins! Not gonna happen. No way, no how. To keep their lead, if they do keep their lead, MSFT is going to have to compete more and more on quality and price, which means those fat-tail margins are gonna come down, just like they’ve come down in every industry.
MSFT could still be a world beater ten years from now… but their best days are still behind ’em imho. A huge chunk of their profit came from a right place / right time combination with a network effect / monopolistic overlay that will never, ever be repeated.
I’m not pro-Google as much as I’m pro-evolution… and whatever MSFT looks like under Ozzie, whatever it evolves into, it’s glory-day margins will ever be captured again. In that regard, it looks like a sunset play.
But from a capitalist perspective, that’s a good thing. It would be a failure of the system for a company to capture 70% profit margins forever. And the great margin shrinkage seems to be a tech-wide phenomenon… also a good thing for consumers and customers everywhere.
The beat goes on…
Funny, because 70% gross profit margins are the norm for software and have been since it was developed figty years ago. It isn’t just Microsoft. It’s the nature of the business. It’s intellectual property and it’s man hour intensive but once you hit the stride with volume as a major player, incremental sales are just stamping a new CD.
It’s nice to take the counter argument that any industry with 70% profit margins are not sustainable but your dog doesn’t hunt. It might some day but it will be with the advent of a radically new something or another which is not on the drawing board. Not to say it won’t be at some point but it is likely that the well capitalized leaders will benefit the most. Maybe you could make the same argument for Coca-Cola or Pepsi as well. They’ve had massive profit margins for 100 years. It’s pumping juice in a bottle baby and no one has figured out how to shut them down.
When you figure out how to re-invent how software is developed and to replace that cycle, let me know. There’s a few companies by the name of IBM, BEA, Oracle, SAP, Microsoft, HP, Sun, Microstrategy, Cognos, CA, STK, BNC, NCR, Micros, Siemens, Cerner, Quality Systems, Symantec, and on and on and and on who will buy our concept. Ours because you want to share. lol. Because their profit margins are also 70% and have been since software was invented.
Well, keep me posted. I am off for now.
Hmm. I’m no software guru, but it seems to me the shrink-wrap software business was able to maintain those huge margins because of high barriers to entry.
The old model for putting out a software product was to throw tens of millions or even hundreds of millions into the launch, in an effort to blitzkrieg the market and grab huge share all at once. This model only worked for a small number of well-capitalized players, enabling them to charge big bucks–and maintain fat margins.
In a world where software is more easily distributed and more incrementally distributed, you no longer need a huge marketing blitz or a capital intensive blowout to get a product launched. You can do the beta thing and roll out in stages. And the development tools and horespower have improved enough for little guys to become players.
Intellectual property doesn’t necessarily translate to high margins automatically. Profit margins, as far as I can see, should be a function of competition and logistical advantage. The old barriers that kept software margins high are slowly eroding and will continue to erode imho. 50 years isn’t really a long time in some respects but in other respects it is an incredibly long time. Just look at where technology was ten years ago vs today. Look at where newspapers were ten years ago vs today. The pace of change is speeding up. This network neutrality brouhaha is standing between us and another explosion in bandwidth availability. On the other side of that change will accelerate faster still.
Coke is a funky analogy to Microsoft because 1) Coke is an old world business, with no ‘killer apps’ about to come along and replace soft drinks 2) Coke has a global distribution network built up over a very long time, whereas software distribution requires no network, and 3) Coke has positive brand equity and the perception of reasonable / low pricing, whereas Microsoft has negative brand equity (in my opinion) and a reputation for price gouging. Whether that reputation is fair or not, “high priced bully” is an epithet that many would apply to MSFT on both the corporate and the customer side. If Coke and Pepsi continue to pump out sweet profits I would argue they are doing it by expanding their sales over a larger swathe of customers, something else that MSFT will have significant trouble doing.
I certainly won’t figure out how to reinvent software personally but it seems to me the process is happening right now before our eyes. These throwaway applications that look pathetic now are initial attempts to implement a new model. Price competition between Intel and AMD, Dell and Lenovo etc are cutting away margins on the hardware side. The opportunity to deliver software via fat pipes will cut away margins on the software side too. Look at companies like salesforce.com, or IBM’s big service push, or companies like Redhat. Lots of little fleas and pests bothering mighty Microsoft but there are a lot of players ready and willing to invest in the sea change that moves software away from a shrink-wrapped high margin model and more towards a utility-type model.
p.s. I don’t really have a dog in this fight and I’m sure you know a lot more about software than I do. I’m arguing more from a mental model perspective–I’d have to agree with Bob Dylan that the times they are a changin’ and with whoever said it that all good things (including fat profit margin moats) come to an end.
speak o’ the devil:
RESEARCHERS SAY NEW CHIP BREAKS SPEED RECORD
Mon Jun 19 2006 22:57:25 ET
Researchers at IBM and the Georgia Institute of Technology are set to announce Tuesday that they have broken the speed record for silicon-based chips with a semiconductor that operates 250 times faster than chips commonly used now.
The NEW YORK TIMES reports: The achievement is a major step in the evolution of computer semiconductor technology that could eventually lead to faster networks and more powerful electronics at lower prices, said Bernard Meyerson, vice president and chief technologist in IBM ‘s systems and technology group. He said developments like this one typically find their way into commercial products in 12 to 24 months.
I used to work for that group at IBM as a wee lad………..What does that have to do with freeware? Speed tests are done all of the time. Now go ask IBM when that chip will be released. It won’t. Speed tests are a combination of researching the limits of transistor gating abilities testing new process technology and marketing hooey.
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