ERICOPOLY

Right, client side applications in Java are by definition lowest common denominator applications. Any rich functionality that a given platform offers cannot be utilized. "Write once, crawl anywhere" is more like it. Client side apps were perceived too slow due to all that overhead that needed to be initialized -- on the server that initialization overhead is done once when the service is started.

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one. Try from the Jackson decision and Microsoft's own internal papers that came out during discovery, all of which are publicly available documents. Jackson is an individual. He was overruled by the way for being openly biased. And it wasn't the first case where bias was suspected, so guess why he was selected for the trial? Oh, maybe that wasn't the reason why. He was also physically sleeping through some of the testimony, and he didn't understand the technology (which is why you couldn't really provide technical facts to argue a point). Did MSFT's legal department tell you to use that argument? I was working with the IE product team. It's the technical arguments that were ignored (that I understood) that led me to believe he was ill suited for the case. Here's something you might remember. Rob Glaser went to the Senate floor to argue that Internet Explorer's installation package removed RealPlayer as the default media player for specific file types. What Glaser didn't tell them is that RealPlayer failed to register as the default player for those file types. So in setup, IESetup would check if there were already a default player (looking at a registry key) and there was none listed, so it would claim the registry key for itself. It was clearly documented in MSDN how to register as the default media player for a given file type. You know, it's part of that "hidden API" that is right here for free for all to find? http://msdn.microsoft.com These are the kind of accusations that work great on Senators and lawyers, but engineers laugh at the outrageousness of the allegations. And good luck explaining how the registry works to a technical layman like perhaps a federal judge.

Yeah, now you can. But not back in the day. Plus, you have to pay to install Windows on a MacBook, don't you? That wasn't Microsoft's fault that Apple didn't think of this sooner -- they were on PowerPC chips forever. It might cost them $30 or $40 bucks per employee per year for the Windows license. Cost of the Windows license is not the reason why they don't do this. Can't Apple offer them machines pre-installed with Windows for this very reason?

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. No, that's not by my definition. Apple's computer is a viable alternative to Microsoft's. I should know, I'm using one. It is not a new "disruptive" technology -- it's just another laptop with their own code in it. And I don't have a choice between Comcast and some other cable company. I just have Comcast. I can walk into any Best Buy and purchase something other than a Windows PC. I can even have Office pre-loaded on the Mac. If you were a businessman in the early 90s, did you really have a choice other than Windows? Of course not! That's what the network effect was all about! The QWERTY problem in full effect. Businessmen get to control what software does and does not get installed on the corporate desktop. They can deploy Netscape automatically to every desktop with automation software from Microsoft! Ever heard of SMS? MOM? How about InTune? The DOJ case was about consumer choice, and in the late 1990s you could buy a Mac with Office and you could browse the web and that's all consumers do anyhow. Yeah, right. Anybody who has worked in an office has experienced having to use shitty software because it is compatible with Microsoft technologies, which everyone else is using. You can install Windows on a MacBook you know. The "shitty" app is the only time you need to use Windows. You don't even need to reboot or anything. It all runs together at the same time. It just take innovation, which they've now done.

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one. Try from the Jackson decision and Microsoft's own internal papers that came out during discovery, all of which are publicly available documents. Jackson is an individual. He was overruled by the way for being openly biased. And it wasn't the first case where bias was suspected, so guess why he was selected for the trial? Oh, maybe that wasn't the reason why. He was also physically sleeping through some of the testimony, and he didn't understand the technology (which is why you couldn't really provide technical facts to argue a point). Microsoft overreacted with making their own client VM. It would not have taken off anyhow (Netscape failed with Sun's VM for example). And still nobody today is shipping significant packaged client software written in Java VM. Or maybe I'm just not aware of any.

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. No, that's not by my definition. Apple's computer is a viable alternative to Microsoft's. I should know, I'm using one. It is not a new "disruptive" technology -- it's just another laptop with their own code in it. And I don't have a choice between Comcast and some other cable company. I just have Comcast. I can walk into any Best Buy and purchase something other than a Windows PC. I can even have Office pre-loaded on the Mac. If you were a businessman in the early 90s, did you really have a choice other than Windows? Of course not! That's what the network effect was all about! The QWERTY problem in full effect. Businessmen get to control what software does and does not get installed on the corporate desktop. They can deploy Netscape automatically to every desktop with automation software from Microsoft! Ever heard of SMS? MOM? How about InTune? The DOJ case was about consumer choice, and in the late 1990s you could buy a Mac with Office and you could browse the web and that's all consumers do anyhow.

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one.

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. No, that's not by my definition. Apple's computer is a viable alternative to Microsoft's. I should know, I'm using one. It is not a new "disruptive" technology -- it's just another laptop with their own code in it. This is not the internet destroying AT&T. Apple brings nothing revolutionary in their laptop -- they just made it in such a way that people like it more. And I don't have a choice between Comcast and some other cable company. I just have Comcast. I can walk into any Best Buy and purchase something other than a Windows PC. I can even have Office pre-loaded on the Mac.

I grew up with Apple, then Apple II, then Apple IIplus, then Mac. My family never even used a Windows PC until I became the first in the summer of 1995. It was dual-boot with LINUX! And that came pre-installed dual boot from a retailer. Fact is, Microsoft wiped the floor with Apple. Now the reverse may be happening. Neither had a true monopoly. All Google had to do is build a Chromebook instead of whine -- nobody is going to use it until it comes to market. All Apple had to do is build a much better product and people are all over it. There's no monopoly to Windows that keeps competitors from succeeding, there's only a bunch of whiners in the late 1990s who tried to litigate instead of innovate. Once litigation failed, they innovated. Now that innovation is bearing fruit. Coke has a monopoly on their recipe, and Pepsi has a monopoly on theirs. It's really not that big of a deal -- Netscape actually sucked, I should know I stress tested it to see where they were at. Apple cuts the OEMs out all together! Can you imagine what little choice there would be if Microsoft had lost the initial battle to Apple? You're giving too much credit to Microsoft on that one. Anyone could write their client side programs in Java based on the Sun VM, but they didn't want to because of performance. I mean, I ditched my Blue Ray player because it booted so slowly (loading the Java VM). It is a better server side technology, something Sun wouldn't concede. How many apps can you name that were developed to the Microsoft VM. Name me five. Okay, I'll give you a long time to get back to me on that one. I think Netscape tried to develop a Sun based Java browser but it sucked so completely that they scuttled it. How about this? Did Google develop their browser in Sun Java code? Was it because Microsoft's VM existed? NOPE! Next time you're at Google, drop by the Chrome browser development lead's office and ask him why they didn't write the application in Sun's Java. A friend of mine (who left MS in 1998) was in Bellevue at a business lunch 4 or 5 years ago and Scott McNealy sat down. There were people ribbing him for how much Java sucked. It was not a Microsoft lunch.

Google would have made their Chrome free to unseat Netscape, don't you think? Aren't they doing that very same strategy by giving away productivity software? Hypocrites. Oh, and we must not suspect that they've running this strategy to protect their SEARCH MONOPOLY... no... not after the arguments you made about monopolies and how they must not be allowed to protect what they have by trying to weaken a competitor who has say, Bing! But yes, all in the name of altruism, giving consumers a free Office suite -- just like Microsoft benefited consumers by creating a free Netscape alternative. Or would it have been a platform where it doesn't ship on the OS, but then you pay for Chrome brower separately? It would be called the "Book", not the "Chromebook". Can I get one with Firefox pre-installed, called the "Firefoxbook"? I think it's great that Google has managed to accomplish what Microsoft has, which is to ship an OS platform product of their own. I want to buy a Chromebook actually, except so far I can only find models not yet shipped from Samsung for example, with extremely small drives. I want at least 128GB because my online connectivity isn't so hot and I still need physical drive storage, not just cloud. And all this time I'm using a MacBook Pro to respond on this thread. Oh wait, that's not possible because Windows has a monopoly right? Perhaps it's possible because Microsoft invested $150m in Apple in 1998.

The IE team bent over backwards to allow third parties like Yahoo and Google to provide things like search toolbars directly into the IE user interface. That wasn't hurting to Google was it? And as I've mentioned AOL built their browser using IE components -- that was hurting them? Look, finally they stopped their whining and just made their own shell on top of LINUX -- Chrome. Despite the monopoly right? Everybody wants something for free, glad they were forced to earn it in the end, just as Apple has been doing. Nothing was stopping them from making a better mousetrap. Just like nothing is stopping them today. And Netscape... please. I used NCSA Mosaic before Netscape was even a company. In fact, Andreeson was behind MOSAIC at NCSA. Then he started Netscape and decided what was free before should now be sold at a price. Microsoft merely made it free again. Netscape was always competing against a free product, not just IE. Now, IE's share has declined rapidly because Firefox has been better. Had Netscape been that much better than IE4 and IE5, they might have made it, but surely only for a given time until open source projects would have killed it and Chrome would have come along.

It is legal for congressman to trade on government inside information. So for example if they are about to investigate the banks, they can legally sell their bank holdings before the public is aware of the investigation. Several times legislation has been proposed to make such trading illegal, but it keeps getting voted down by the congressman. Go figure!

I would agree with that assessment. The businesses they were trying to protect were some of the best businesses the world has ever seen. That blinded them to the way things were being disrupted by the ubiquitous connectivity that is only now starting to come to fruition. They also used their power to control things in a way that hurt consumers in the short run, so I'm glad they have paid for it by being late to the game. Actually, I have to revise my statement, which was wrong. Microsoft wasn't blinded to the disruption that ubiquitous connectivity would cause. Bill Gates knew very well how the Internet would change things. And that's why Microsoft took actions to try to kill the web as an alternative platform that would severely reduce the value of the Wintel monopoly. It wasn't just about bundling IE with Windows. They actually told large Windows resellers like Compaq that they would terminate their reseller agreements if they put Netscape icons on the desktop instead of IE. And like I said on another thread, MSFT actually tried to kill Java by creating a shitty implementation of it because they saw it as a threat to the Windows platform. MSFT also always tries to fight against any collaborative standardization that would reduce the value of their proprietary standards which help keep their products sticky due to the network effect. You guys who are dogging on Janet Reno are letting your bias towards owning MSFT determine your view on the matter. Whether MSFT was guilty of "monopolization" is debatable, but they certainly weren't doing anything that was consumer friendly. Microsoft was like the Comcast of today. Fighting tooth and nail to protect their business to the detriment of society. They also sucked on execution even though they did foresee how things would turn out. WebTV is a good example, although they also had to go up against the last mile guys in that battle. Just read Bill Gates' 1995 memo to the troops to see how forward thinking he was. Apple boots up quickly, in part because there isn't an OEM (like Compaq for example) preloading all kinds of crap services that start up and interfere. Microsoft has a right to make the Windows experience better by shipping the product to consumers as it was originally tested (actually, the govt showed that they don't have this "right"). That software would commonly cause hangs and crashes, general performance slowdowns -- people would blame that shit on Microsoft. EDIT: I won't name names, but did you know an OEM-installed service can pop a modal dialog window on a non-interactive desktop? Or that third-party anti-virus software installed by the OEM can ruin the performance of the machine, but that Microsoft isn't allowed to preload and pre-run it's own antivirus software that it actually has immediate control over improving and fixing bugs? Oh yeah, it can't do that because it wouldn't be good for consumers to have antivirus bundled in by Microsoft, where it can be thoroughly stress tested and performance tested during OS product development. I bought a MacBook and only Safari is preloaded. Are they trying to kill the web? EDIT: I wonder if BestBuy installed their own software on MacBooks before sale: would Apple allow that, or would they instead sue or threaten to not allow BestBuy to carry Apple products?

However, it's optimal to be growing earnings while shrinking book value. I'm describing a situation of ever increasing ROE. Do more with less.

I know they lacked focus and didn't drive hard enough on phones, tablets, search, etc... Vista took forever to deliver and then underwhelmed. Etc.. There was a cultural shift that happened during this period. I joined in 1997 and there were people 35 yrs old leaving to retire or do other things. Regular retirement parties, the garage looked like a car show. People worked evenings and weekends on a regular basis. Then after the bust, nobody wanted to work evenings and weekends. Once the stock came down in price, management cut benefits and generally kicked spoiled and entitled employees when they were already feeling down. They even brought in Kevin Turner from Walmart to get costs squared away -- nobody is going to work weekends after that. Today, most of us prima donnas who remember the go go years have moved on, saying it's not "Our Microsoft" anymore. This is what has happened in the Ballmer era. Many left for Google, where they were still throwing money around, giving stock options, etc... Anyhow, I should think the current employees are more realistic and won't go through the kind of morale drain that we went through after losing so much so fast. And the stock can likely only be a tailwind from here... many employees hold a ton of it still. EDIT: I forgot to mention... you could drink alcohol in your office. It was normal for people to have mini-fridges loaded with beer in their offices. People would have whiskey right up on their bookshelves! This kind of stuff -- do you think it is tolerated at Wells Fargo? We would not just have one or two, we would get ripped especially at the weekly "unwinder" Windows 2000 ship cycle parties (about once a week). They've have kegs, wine, loud music, SVP (Brian Valentine) in a tutu comedy routine. Jim Allchin would play guitar. It was really fun. That all ended though.

Ask for your money back. They earned $1.32 per Microsoft. (before the 2:1 split)

There was actually a Microsoft TV project several years before they bought WebTV.

Based on those two metrics MSFT wins. On the first point, a business growing earnings faster than equity is a good thing. You've made it sound like under performance! Further, do they suck more because of the 10% one-time special dividend, in addition to the ongoing dividends and buybacks? Had they retained all that cash, your metric would reward the behavior. On the second point, look-through EPS is what matters -- the shift from stocks to operating companies skews these results, and makes Berkshire look to be growing faster than reality. Last, your numbers are wrong. MSFT made .66 in FY 2001 (ends in June) and 2011 TTM right now is $2.54 which is slightly understated because 4Q FY11 will beat last year's results. EDIT: I think you may have meant FY 2002, but still the EPS is 0.70, nowhere near your number of 94 cents. You need to use the current MSFT TTM numbers because of the unfairness of when the fiscal year ends (June vs December for Berkshire). That is a 3.84x increase for Microsoft and it is already better than the results for Berkshire that you gave us, yet it would be more than 4x increase if they had not returned capital to shareholders but instead had bought productive assets. The shareholders can take their cash and buy those assets themselves, then count the earnings towards their MSFT shares to level the comparison. EDIT: Better, just take the 10% MSFT special dividend and assume you used it to buy MSFT shares. So just take the $2.54 number and multiply by 1.1x, gets you to $2.79, which is 4.23x the 2001 number of 0.66. Then there have been other dividends that I've not yet counted, and of course $2.54 was a little bit understated because of Q4 2010.

Do you remember when AOL had their own browser? Well, it was just the Internet Explorer WebOC control hosted inside their own custom chrome. So without IE components on the machine, you'd break AOL. Then the govt hired a Princeton computer science professor to show that Windows Update would still work if IE were to be removed. The punch line is that his program also relied on the IE WebOC control to connect to Windows Update! All we had to do to prove this to a common layman was launch his app and press CTRL+N. Out popped a fully chromed IE window that would browse the web. CTRL+N is the "new window" command. Result? The media didn't even mention that, instead reported that government had uninstalled IE. So these days I don't believe the media as much as I did before those times.

That's right. I went to a few company meetings and he gets all pumped up like that. He spoke to my smaller product group a couple of times and was more mellow. I was at the Pro Club in Bellevue one Saturday morning bouncing a basketball alone in the gym and he came in with his young kids. Just seemed like a normal father, said "Thank you" when I sent one of their loose balls back. It was funny when he said "To Heck with Janet Reno". The media loved that. That woman was such a troll. Let me ask you... does Apple bundle a browser into every iPhone, or are you meant to download and install one separately? Seriously, that's what the whole damn thing was all about. Incredible.

They shouldn't have anyone manage the money. It is not a holding company, it is just an operating company that can fractionally be held in the portfolios of capital allocators. Their job at Microsoft is to get that excess cash back into the hands of the capital allocators, not sit on piles of it. Maybe that means biting the tax bullet when repatriating the cash -- if your typical capital allocator can grow money at least at 10% annualized returns, then the tax hit will be earned back very quickly. My opinion only of course.

Yes, simply because I said the word "leverage". People automatically assume options are used for leverage, but often not. You might simply have a position that's grown too large after a run-up but you don't want to pay taxes the entire gain. So you buy puts on it and write puts on something else. You're both writing and buying puts, but did you increase your risk? You have diversified your downside, but you still have the concentrated upside where perhaps you have more conviction.

From the conference call recently -- it's interesting that share buybacks are part of their "motto". They clearly prefer it over dividends, which is great given where the stock is at right now. And they will surely be heading down that road hand over fist given the fact that they've laid out a 2014 earnings target that requires 12% compounding growth in EPS. Right now they get approximately 14% growth in EPS on every dollar of earnings spent on their own shares (perhaps buybacks are the most explicit example of value being it's own catalyst, the deeper the value the greater the catalyst). The DOW doesn't return 14% long term, so let's see how long this lasts. I don't even think the DOW has returned 10% long term, which would imply a 50% gain from here by next year. Ben Reitzes - Barclays: Leo, you recently laid out $7 earnings figure for 2014. After doing $5 this year, I think it takes 12% EPS growth each year to get there. So, my question is, can you still get there based on what we heard today and how? Then I just was hoping Cathie to clarify the near-term guidance. It seems like the cut for 3Q versus the Street is two-third services, one-third Japan and consumer. I just wanted to clarify that? Leo Apotheker - President and CEO: So, let me answer your question first. We are making tough decisions today to set us up for the future, and in the long term, we have multiple levels to drive our EPS growth, but investments we're making today will help create sustainable growth, including sustainable EPS growth. We are focused on an improved business mix and continued operational excellence including a better mix in each one of our businesses. For example, in services, as demonstrated by today's public decision, our long-term motto is to grow operating profit faster than revenue and EPS faster than operating profit. So, yes, I can confirm that we are maintaining our $7 EPS.

The same argument as goes for puts. Calls just have an embedded put. One can use puts for leveraging a short position, and that's risky, or one can use them for hedging a long position, and that's not risky. Right now the embedded puts in calls are really cheap. I suppose a foreign investor may want to keep their money in the bank earning 6% interest rates, and not take on USD risk. I think if you were Australian and had $20 per share cash in the bank, you could sleep better holding the $20 calls knowing that USD erosion won't erase your returns. Meanwhile your 6+% yield on that cash will be safe and earning back what the embedded put cost you. You miss out on the dividend in the event of the stock going up -- nothing is free but that makes for a fairly cheap hedge against market panic and currency risk. On the other hand, if the stock goes down early in the life of that option the value of that embedded put rises.

The options do have more downside protection (if that matters for anything with the stock at this level).