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Joel's market mistake

In Joel's foreword to Ricks "In search of stupidity", he makes the observation "The personal computer software market >is< Microsoft". He bases this on the revenue rankings in the Soft-letter 100, that he says publishes the list of the hundred largest personal computer software publishers. I do not know what criteria a company has to pass to be acceptable for the list. However, I do feel that Joel's usage of the list is a bit far fetched.
To me at least Joel presents the top ten as prove that hay, there is Microsoft, and then there is the rest of the world fighting over breadcrumbs. This paints a picture of a giant only beseiged by little mice that get trampled at will.

Now instead let us look at the following revenue list for 2001 that paints, at least to me, a more realistic view of some of the competion:

1) IBM: $87,401,000,000
2) Sony: $57,787,110,000
3) HP: $45,226,000,000
4) AOL: $37,224,000,000
5) Dell: $31,888,000,000
6) Intel: $26,539,000,000
7) MSFT: $23,845,000,000
8) SUN: $18,250,000,000
9) Oracle: $10,859,672,000
10) Apple: $5,363,000,000

This list is by far not including all big competition, just some I quickly pulled up. Now as apposed to Joel's 69%, in this list of competition Microsoft scores just 7%. Even IBM in its own is 4 times the size of Microsoft, Sony more than double. Sun is around the same size and even Oracle, a company that covers far less is still about half the size.

Presenting a sort of "pure software play" as if it is something completely disconnected from the rest of the business universe is IMHO a realy bad distortion of reality. All of the competitors in that list are actively trying to commoditize Microsofts revenue streams. That is the playing field, that is what is going on in the real world.

Just me (Sir to you)
Wednesday, August 06, 2003

Could you point to the source for the revenues?

Prakash S
Wednesday, August 06, 2003

Nasdaq site. There is some drift as not all companies report over a precise calendar year 1/1 -> 12/31, but figures should be close enough.

Just me (Sir to you)
Wednesday, August 06, 2003

GM produces software and technology. Does that qualify them for the list, too?

What I took away from Joel's forward was that he was dealing with companies that strictly dealt in software. Microsoft doesn't compete with Sony on portable CD players. Microsoft doesn't compete with Dell on laptop sales.

I suppose I understand your point that there are plenty of  companies larger than MS that also deal in software, but I'm not sure how that negates the point of what Joel was saying.

Mark Hoffman
Wednesday, August 06, 2003

Thus, to this list to be accurate, only software divisions revenues should be included.

Leonardo Herrera
Wednesday, August 06, 2003

From looking at your list of who's who's.
IBM makes the most custom software.
You don't see RPG or DB2 on my desktop.
The fact that my airline uses it don't
count as a desktop software.

If you look at Sony, case closed. It's not
even anywhere near my computer. It's in
the living room. And they hardly uses Intel
platforms for their most popular or money
earning devices. And no most of us don't have
Sony computers.

HP, when was the last time you saw HPUX on
someone's desktop?

AOL write Instant Messenger and AOL client,
that's not an OS. Just a thin proprietary
shell to TCPIP. And not everyone uses AOL.

Dell? Case closed.
Intel? Case closed.

That leaves MSFT. So MSFT does produce
the most desktop software on the planet
where the criteria is:

1. Personal Computers
2. Operating systems and desktop applications.

Li-fan Chen
Wednesday, August 06, 2003

Here's another problem. If you can reduce all of the businesses the list of companies do in terms of Microsoft related business and non-Microsoft related business, (ex: I consult for businesses who dependon Microsoft software/I sell Microsoft-friendly hardware or I don't, I only support Linux and HPUX folks/We don't use x86 here) you'll get a clear picture of just how big (or.. how little) Microsoft's influence has over each of the other companies in the list. In that case, you'll probably be able to show that IBM is MUCH bigger than the Microsoft-oriented desktop hardware/software business.

Li-fan Chen
Wednesday, August 06, 2003

FYI, Software Magazine puts out an annual top 500 software companies by revenue list ( http://www.softwaremag.com/SW500_2002/SW500.cfm ). Not that this has anything to do with desktop software. Many of these companies make their money from consulting - which is perhaps why Joel used desktop software for his example.

Besides, "Joel's market mistake" wasn't a mistake. He set out to provide an example of companies whose doom was cast by poor business decisions. He provided a very persuasive one. QED.

Nick
Wednesday, August 06, 2003

Sir,
I don't think Joel made a "mistake". Microsoft has some 48 billions US-$ cash. The only other company on the globe which could compete in that area is Toyota (roughly 40 billions cash), though they are unlikely to enter the software market.
Now, compare that to IBM's earnings or savings. The point is: Microsoft could develop some five products, with investments of 3 billions in each, and if all of them were huge disasters, Microsoft would still have a rock-solid standing. I'm sure such a failure would break the necks of almost all of Microsoft's competitors.

Johnny Bravo
Wednesday, August 06, 2003

Of course the real competition isn't pure software play. If they where they would not be so dangerous. Tyhey would have to write better software.
But all of these companies offer computing solutions. The hardware <-> software <-> services boundaries have always been very fluid and in the case of "convergence" they are disapearing completely by the minute.

Do you realy want us to believe the major competition for Microsoft comes from Adobe, Novell, Intuit and Autodesk?  Or are IBM, Sun, AOL, Oracle and Apple more likely candidates? Is their some magical fence that protects the pure-play software business model from competition?

Every electronic device is already basically the same: a computer running software with some I/O capabilities. What differentiates them is form factor and specialized I/O. Think your PS2 is not up to running an office suite? What if suddenly every Sony screen came with a "free" interal computer? IBM can give away al software for free and rake it in on consulting and hardware and support. Same for Sun.
Apple can do whatever it wants. They might have only 1-2% of computer sales but that gives them a revenue of about 20% of Microsoft's. Don't think Microsoft is scared of Nokia? Why should they be? Not pure software-play right?

This magical land of pure software companies only far beyond the reaches of the rest of the univers does not exist.
In this business we are witness to a battle of the giants, not some episode out of Gulivers travels as some would have you conveniently believe.

Just me (Sir to you)
Wednesday, August 06, 2003

Um, no. Toyota has around $16-17 billion in cash not $40 billion.

John Rosenberg
Wednesday, August 06, 2003

Does Microsoft's revenue include their hardware sales? XBox, Mouse, Keyboards, etc...

The other thing to think about is did Microsoft actually not make any mistakes or were they so far ahead of everyone else that there had some breathing room allowing them to make mistakes? ie just like Michael Schumacher can afford to have a bad pit stops every now and then cause he is miles away from everyone anyway (not that he ever has bad pit stops ...)

S
Wednesday, August 06, 2003

"From looking at your list of who's who's.
IBM makes the most custom software.
You don't see RPG or DB2 on my desktop.
The fact that my airline uses it don't
count as a desktop software.

If you look at Sony, case closed. It's not
even anywhere near my computer. It's in
the living room. And they hardly uses Intel
platforms for their most popular or money
earning devices. And no most of us don't have
Sony computers...."

I think what the poster is trying to say is that they may not have competing products, but they are competing for dollars, i.e. if windows was free IBM could charge more (without affecting the consumer price) per laptop.

Now the way they do this currently is by relentlessly improving oppen source products, this is why IBM and HP are pouring money into  Linux, and Open Office.

If you doubt this strategies effectiveness look what IBM's development work on improving and "mainstreaming" linux did to Sun!

Eventually they may do the same to MS Office, and Windows.

Daniel Shchyokin
Wednesday, August 06, 2003

"Microsoft could develop some five products, with investments of 3 billions in each, and if all of them were huge disasters, Microsoft would still have a rock-solid standing."

It does not work that way when you work aganst a commoditization horizon. Let's say Microsoft is 5 years ahead of the "commoditizing" competition. They spend the next 3 years on 5 projects, all of which are abysmal failures. Now instead of 5 years they have just a 2 year lead.
Furthermore, what takes 3 billion to research and develop might just take a few million to clone.
But worst of all, their own products don't rust, break or die. Every new version has to beat all of its own ancestors for a chance of making it. This is a race where you do not just run against every adversary that ever lived, you even have to beat your former self by a substantial margin each and every time. I do believe that this is their most difficult competitor, their former self. This is also the reason why they would just love it if the whole world went to limited time licences.

All of this is why Microsoft now spends almost 7 Billion a year on R&D. They have to. If they stop running the're dead.

Just me (Sir to you)
Wednesday, August 06, 2003

As a company gets bigger, the scope of its products increases.  All those companies listed probably are the real  competition for MSFT these days, but that's only because they already crushed all the companies on Joel's list.  Once you have 90% of the market-share, it's time to find new market spaces if you want to continue to grow at the same pace.  So Joel's point is valid, because he's talking about the past.  If they do to the companies on Just Me's list what they did to the companies on Joel's list, their list of competitors will evolve again.

Ken
Wednesday, August 06, 2003

Sir makes a very valid point.  Not only do these companies represent a stronger financial position, but they are also more diversified.  Microsoft profits are based on a very concentrated product base:  Windows OS and Office.

Should these products lose their appeal or competetive edge (however unlikely), Microsoft would face a major short term cash problem.

Its no secret that Joel has a strong bias for Microsoft.  Joel also seems to think that the sun rises and falls with Windows based software.  Sir merely stated the obvious: there is a much larger world out there.

Extra virgin olive oil
Wednesday, August 06, 2003

With more than 45 billion Dollars cash, and annual spendings of 7 billion Dollars in R&D, and perhaps 1 billion Dollars for administration, facilities etc. each year, and assuming Microsoft would suddenly sell no single piece of software anymore, that would leave them with some 5-6 years before they run out of cash.

So, how do you define "major short term cash problem"? If the above were to constitute a cash problem, a large part of currently listed NASDAQ titles had to immediately announce _serious_ cash problems.

Johnny Bravo
Wednesday, August 06, 2003

It doesn't matter that Microsoft makes more than software.  They are a SOFTWARE company.  Ask anyone involved in the general computer industry what business Microsoft is, and they will say SOFTWARE.

Does that hold true for the others? Let's see.

What business is ___ in?

IBM : Computer Services
Sony : Consumer Electronics
HP : Computers, Printers
AOL : Internet Services
Dell : PCs
Intel : Semiconductors.
MSFT : SOFTWARE
Sun : Server Hardware
Oracle : Database SOFTWARE
Apple : Non-"PC" Computers (Yes, I know they are technically Personal Computers, but you know what I mean).

So there you go, two software companies among your list.  The rest are not software companies even if they create software just as Microsoft isn't a computer peripherals manufacturer just because they make keyboards and mice.

Mister Fancypants
Wednesday, August 06, 2003

Whoops, did I say "cash".  Sorry, financial.

Extra virgin olive oil
Wednesday, August 06, 2003

Mr. Fancypants:  another person who thinks that PC software starts and stops with the Windows OS.

Almost all of the companies on the list are both partners with Microsoft and competitors - and they all have deep vestments in software development.

Extra virgin olive oil
Wednesday, August 06, 2003

It all depends on how you difine it. You could say that Microsft is in the OS business and not software as Windows is their main product.

They also make mice, keyboards, gaming consoles, database,  etc.

To say that one company is "software" because you know there software products and that another one isn't "software" because there software is only part of there offering is telling the true but isn't telling the whole story.

IBM : Computer Services, Software, Database, OS
Sony : Consumer Electronics, Software, Consles
HP : Computers, Printers, Software, OS
AOL : Internet Services, Software
Dell : PCs (ok they outsource their software)
Intel : Semiconductors. (no software that I know of)
MSFT : SOFTWARE, computer accessories, conaoles, database, OS
Sun : Server Hardware, OS, software.
Oracle : Database SOFTWARE
Apple : Software, Hardware.

You could say that since these companies do stuff other than software they aren't a "SOFT" company but if that's the case then neither is Microsoft. They well computer accessories and gaming consoles both of which aren't software.

Nathaniel Brown
Wednesday, August 06, 2003

Olive oil,

By your reasoning, just about any company these days is a software company. 

Nokia is a software company because they have many software assets!  List them too! (Despite the fact that anyone with half a brain would recognize them as a cellular telephone company that happens to create software). 

If you don't see why that is an absurd way to look at things, nothing I say will change your mind so I won't bother trying, but Microsoft and Oracle are the only software companies on that list.  The other companies just happen to make or use software.  There's an obvious and large difference. 

Mister Fancypants
Wednesday, August 06, 2003

Some 4 years ago, IBM happened to get higher revenues from software licensing than Microsoft did.

Johnny Bravo
Wednesday, August 06, 2003

No matter which way you cut it all these lists prove is that in the arena of desktop software, personal and business, Microsoft has a functional monopoly.

That wasn't Joel's point, which has been covered elsewhere and which I generally agree with, but it is interesting in itself.  It is even more interesting when the EU Commission has just delivered its last opportunity to MS to justify its monopolistic practices.

Simon Lucy
Thursday, August 07, 2003

All these companies are solution providers around digital systems: bitspace. Bitspace used to be a vertical market. You leased an IBM computer with IBM software and IBM operators and IBM consultancy services. You bought a Sun, for most with all the software included or free. The PC was unique, in that it created an ecosystem where the vertical integration was replaced by different horizontal layers and a whole universe of competitors fighting it out at different layers of the solution space. 

When you buy a Windows 2000 licence, you do not buy this to display the CD jewelcase in your cabinet. You install it on a computer, maybe a Dell or HP or IBM, and you run programs on it that entertain you are get part of your work done. You employ different companies for maintenance, software consultancy, you contract with an ISP for communication etc etc..

It is also important to understand that these different horizontal layers have no “natural” boundaries. You have to go really far to almost the physical I/O sensors and actuators to find something that is clearly hardware. Everything beyond that can be hardware, firmware, software, layered, integrated. Also these boundaries are constantly shifting. What was once software becomes hardware (large parts of the I/O stacks), what was hardware becomes software (upper processor layers, winmodems), what was disparate verticals becomes horizontal (video API’s), different layers are added (virtual machines) etc etc. This flexibility is a unique nature of bitspace. There is nothing comparable to it, and this is also one of the reasons why most people do not “grok” the markets of the digital world.

Except for special I/O most digital devices nowadays are full general purpose computers. What is the real difference between a phone, a PDA, a tablet, a notebook, a set-top-box, a game console, a desktop, a server? They are all computers at hart, with some form factor optimization and specialized I/O. Applications and users shift form one to the other. Where is your agenda? On your PDA? Your Phone? Your laptop? Still outside bitspace? Where will it be in 3 years, 5 years, 10 years?
Where is your music on the move? CD player? Mp3 player? PDA? Phone?
Where is your email? PDA? Phone? Desktop?
Where do you play games? PDA? Phone? Console? PC?
Do you think Sony does not see PDA’s as a threat to their CD-player business? Do you think Nokia does not see PDA’s as competition to its phones? Do you think Microsoft should not see the PS2 as a threat to Windows XP Home/Mediacenter?

Markets are a virtual concept. They are partial views on the whole of an interlinked economy. We can slice and dice it any way we want, course grain (manufacturing), extremely narrow (cone served chocolate ice creams on Baker Street). Fine as a theoretical exercise, but I’d say a selective artificial delimitation of a “market” that excludes all the major competitive treats to show the dominance of a certain player is a hopeless reality distortion.

Just me (Sir to you)
Thursday, August 07, 2003

"If you look at Sony, case closed. It's not
even anywhere near my computer"

Vaio.


Thursday, August 07, 2003

Here is another angle: Why would a company such as Sun be 100% focussed on destroying Microsoft, when according to some they are not even competitors?

Just me (Sir to you)
Thursday, August 07, 2003

Because Sun found that every average garage startup already occupied the "9/11 destroyed our business" position, thus they try to be perceived as one of Microsoft's competitors so one day, when they burnt through the remaining 5 billions, they can blame Microsoft - and everyone will believe that story.

Moliere
Thursday, August 07, 2003

""If you look at Sony, case closed. It's not
even anywhere near my computer"

Vaio."

Everquest :-)

Leonardo Herrera
Thursday, August 07, 2003

Sony, besides "traditional" computers and computer peripherals, is mostly the competitor of MS in the small form factor and home sector.
Small form factor means a device for your pocket: The devices can record and play media, has communication functionalities and all computing that is not dependent on "large" I/O or big power budgets. Now the devices as mostly dedicated and seperate, but convergence is setting in rapidly: Music player, video player, pocket game machine, voice recorder, photo camera, video camera, phone, PDA -> 1 device. This is a >huge< market in bitspace and Sony is >very< strong in this area. They chose not to play with MS.
Home: Larger I/O form factor media consumption: Set-top-box, game console, Internet access, PVR, Video/DVD/CD/Music player, occasional knowledge worker stuff, media manipulation. Again, Sony is very strong there with the most likely convergence candidate the Playstation line. Playstation is being developed towards and can most certainly become the one home bitspace box. The only thing holding it back is the fear of canibalising their own successful lines. Also here they chose not to play with MS.
Sony is a formidable competitor of MS in anything but traditional form factor business computing. They do not do servers and there PC strategy thus far has used a Microsoft OS. I'm sure they would like to and will bump MS from this space in their lineup as well.

Just me (Sir to you)
Friday, August 08, 2003

solution providers? bitspace? horizontal layers?

Save me from the marketing speak!

Mister Fancypants
Friday, August 08, 2003

Tell me which terms you prefer for these concepts and I'll do the auto-translation for you Fancypants.

Just me (Sir to you)
Monday, August 11, 2003

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