Posted by Tom Foremski - October 23, 2009
Microsoft is facing many challenges but it is still an incredible cash machine. Revenue for its first fiscal quarter, which included deferred revenues of $1.47 billion was $14.39 billion, a slight decline of 4 per cent compared with the year ago period. Operating income was $4.48 billion.
Many industry pundits like to compare Microsoft with Google. GOOG reported revenues of $5.94 billion and operating income of $2.07 billion in its most recent quarter.
At a rate of revenue growth of seven per cent per quarter, a rather generous growth rate, it would take it more than 3 years to reach Microsoft's current quarterly revenue. There is a lot that can happen over the next few years in terms of Microsoft's competitive position against Google.
Microsoft can patiently build up its search services and other areas where it lags Google. And it will continue to generate large revenues from its business software -- a tiny market for Google.
Can GOOG continue to grow its search business to nearly $13 billion per quarter? What other businesses does it have that could generate comparable rates of growth and revenues? None.
Microsoft has many different business groups that have the potential for growth and it is building up its Internet business groups to better compete with Google. MSFT is a much more diversified business than GOOG.
While it is fashionable to talk about the demise of Microsoft and its poor competitive position against Google, the fact is that it's still going to be around for a long time and it will continue to be a potent, cash-rich competitor for many years.
Foremski's Take: Google will need to make some acquisitions to generate revenues and give it the heft that Microsoft already has. It needs to have a more diverse business base. Google has only one main business - text ads next to a search box or on a 3rd party web site.
What type of acquisition could help it be more competitive against Microsoft? What about a telco acquisition?
AT&T would give Google a powerful position in terms of the net neutrality debate, and also in wireless markets, providing it with a key position with respect to both Android and iPhone phones.
And it would give Google a direct billing relationship with a huge number of US households. There are a ton of services it could introduce and without dealing with the telcos and their walled gardens.
Google's ability to build large server farms would further boost the types of on-demand services that it could market to consumers, and more importantly, to business users.
AT&T would be a big pill to swallow but strategically, it makes a lot of sense, imho.