MSFT

[jegenolf]

1. It's a mistake to believe cellular bandwidth is or will become inexpensive to deploy. Every time the government put up a dozen MHz or so of spectrum on the block, bidding ends at $1B+. AT&T's shelling out $35B+ for T-Mobile US and in the process taking on significant regulatory risk of ramming the deal through the DoJ and the FCC, Clearwire and Lightsquare's having any value at all despite being massive capital sinkhole; it all goes back to the spectrum landgrab. Ask yourself why Sprint's CapEx is going up 50+% year over year. All that while over the air Netflix, video calling etc etc are still far from mainstream.

 

I just came across an interesting data series on this exact topic, so I thought I'd resurface the idea that carriers will go all data instead of voice+txt+data as they do today:

 

http://blog.nielsen.com/nielsenwire/online_mobile/average-u-s-smartphone-data-usage-up-89-as-cost-per-mb-goes-down-46/

 

In 1 year, the cost of bandwidth has been cut in half, while data usage has shot up 90%.

 

The headline is pretty sensational for a simple inverse correlation between units and price per unit in an all you can eat world. 1.89 * 0.54 = 1.02. 'Usage up 89% and Revenue up 2%' would be a more honest but less eye-catching headline. It does expose the business model problem of all you can eat though. 90%/2% can't last for all that long. The carriers are probably still well covered by the low usage customer subsidy, but that won't last forever.

 

[tombgrt]

Ha the famous "tombgrt bias effect". I put an order in for $23.80 this weekend after completing my research and now it's +3%.  ;D Of course now I am to stubborn to buy it at $25 even though I know it is only slightly less cheap.

 

Buying something without completing your analysis is dumb, but not buying in the hope something cheap gets even cheaper is probably even dumber.

[tnp20]

sell puts at your price and continue until your puts are put to you.

[DCG]

Wow..so I run a small website and primarily advertise through Google Adwords.

 

I got an offer from Microsoft to try advertising on Bing and they'd give me a $30 offer code to get started. I decided to give advertising on Bing a shot, and test some ads with a small budget after using the offer code.

 

What an awful experience this has been. The Microsoft adCenter website/platform (their system for advertisers to set up and track campaigns, etc - ie, their version of AdWords) is pretty painful to use. After spending a good amount of time getting various error messages every time I tried to create and save a new ad campaign (I just got pop-up messages saying there was an error - nothing stating what the error is) I contacted their Support department. I had to be escalated to a few reps until I was able to find someone there able to help me.

 

You know what I was told the problem is? You can only use Microsoft adCenter on a PC running Windows, and only through Internet Explorer or Firefox. I have a Mac. They told me their ad system is not compatible with Macs and only works with a select few Windows browsers. It also does not support virtual PC's, nor does it work on mobile browsers. I am trying to give Microsoft money, and they have no way to take it unless I have a PC.

 

And on top of that...that offer code they sent, in the fine print of the offer (which is not even stated in the email offer) it says it is only valid if you set up an account with a minimum monthly ad-spend budget of $500! FWIW, Google routinely gives out vouchers of $50-$100, with no stipulations, as it is of course a great way to get people and businesses hooked on using their service. Apparently nobody at Microsoft understands this.

 

No wonder Microsoft is having a hard time making money through advertising. I am cancelling my Microsoft adCenter account...but I unfortunately can't even cancel my account on a Mac. I'm upset I wasted time even trying to advertise on Bing, and continue to be astounded by how poorly this company is run.

 

It's things like this that investors and analysts don't see. If analysts actually took a few minutes to try to use companys' products they'd get a better understanding about why certain businesses, or in this case, divisions of businesses struggle. In addition to giving advertisers great exposure, Google made AdWords very easy for people to use. AdWords was designed to encourage people to spend more money on ads. Microsoft can't even figure out how to take money from people with certain browsers.

 

 

[Liberty]

Thanks for sharing, DCG. Crazy that they still don't have a site that works on all platform and with all browsers... That's like web 101.

 

And on top of that...that offer code they sent, in the fine print of the offer (which is not even stated in the email offer) it says it is only valid if you set up an account with a minimum monthly ad-spend budget of $500!

 

Is there any one who doesn't hate that kind of crap and then feels manipulated? I'm sure they do it because lots of people don't see the fine print and end up making an account before they notice, so they might get some hits, but it's a great way to ruin any goodwill the person might have had...

[Guest VAL9000]

Our systems have me short MSFT. It will be interesting to see how this plays out. I think I have only a 60% chance of making money off this short.

 

As Paul Tudor Jones once said, "The obvious trade is obviously wrong."

 

I must be the only guy on this thread to make any money so far on MSFT  ;D

 

 

*ahem*

 

It's been a good month. :)

 

[Parsad]

Our systems have me short MSFT. It will be interesting to see how this plays out. I think I have only a 60% chance of making money off this short.

 

As Paul Tudor Jones once said, "The obvious trade is obviously wrong."

 

I must be the only guy on this thread to make any money so far on MSFT  ;D

 

 

 

*ahem*

 

It's been a good month. :)

 

 

Moi aussi!  ;D  Cheers!

 

[Hoodlum]

I must have missed this.

 

What if patent fees for Android cost as much as licensing Windows Phone?

http://www.guardian.co.uk/technology/2011/jul/07/windows-phone-android-patent-seeking

 

If Microsoft can get that money from Samsung (though it's more likely that this is an opening salvo; Samsung is said to want to get it down to $10, which isn't much of a negotiating position) then Android is going to become the best earner Microsoft has in mobile.

 

Given that Samsung produced 19m smartphones in the first quarter, that would be $190m even at the $10 level; $285m at the $15 level.

 

There's also a lawsuit going on against Motorola, in which it's claiming that its Android handsets infringe, and with Barnes & Noble over its Nook e-reader (which uses Android).

 

And that's before Nokia - with which Microsoft has tied up a deal worth billions involving lots of intellectual property flowing back and forth - wades in with its patents against Android, because Nokia has got lots of patents in the mobile phone market. Microsoft would be able to litigate those for it quite successfully.

 

Even then Microsoft isn't really finished with the patent licensing thing, because you'll recall that it was part of the consortium last week which won the bid for the Nortel patents, which all relate to mobile. Those, it will be able to litigate once the transfer of ownership is complete (Canada seems to be cutting up a little rough about it).

 

And once that happens, then Android handset makers may really begin to wonder whether the game is worth the candle. If Windows Phone licence from Microsoft costs you around $25 (a guess), but the patent payments are costing you $24 per handset, is it really worth persisting?

 

[Liberty]

And once that happens, then Android handset makers may really begin to wonder whether the game is worth the candle. If Windows Phone licence from Microsoft costs you around $25 (a guess), but the patent payments are costing you $24 per handset, is it really worth persisting?

 

 

Handset makers make a lot of money form the Android app market, and Windows Phone is nowhere near that. Also, as long as consumers prefer Android to Windows phone, it'll be worth going with what sells and what has the best developer ecosystem (both for the OS and the apps).

 

500k Android phones are being activated every single day. How many Windows phones are being activated?

[Hoodlum]

500k Android phones are being activated every single day. How many Windows phones are being activated?

 

Either way Microsoft will make tons of profit from this.

[Guest valueInv]

And once that happens, then Android handset makers may really begin to wonder whether the game is worth the candle. If Windows Phone licence from Microsoft costs you around $25 (a guess), but the patent payments are costing you $24 per handset, is it really worth persisting?

 

 

Handset makers make a lot of money form the Android app market, and Windows Phone is nowhere near that. Also, as long as consumers prefer Android to Windows phone, it'll be worth going with what sells and what has the best developer ecosystem (both for the OS and the apps).

 

500k Android phones are being activated every single day. How many Windows phones are being activated?

 

How do handset makers make money from the apps? The revenue goes to Google and the app maker, not the handset maker. And the last time I head, the amount Google paid out to Android app makers was paltry. About $200M if I remember correctly.

[Liberty]

How do handset makers make money from the apps? The revenue goes to Google and the app maker, not the handset maker. And the last time I head, the amount Google paid out to Android app makers was paltry. About $200M if I remember correctly.

 

Your facts are incorrect:

 

http://en.wikipedia.org/wiki/Android_Market#Priced_applications

 

As for the size of the market, I don't have the latest numbers (not sure if they're released), but it's growing quite fast, with over 3 billions apps downloaded. Not at the level of Apple's store, but the trajectory is quite solid.

[Liberty]

500k Android phones are being activated every single day. How many Windows phones are being activated?

 

Either way Microsoft will make tons of profit from this.

 

Indeed, though not as much as Google (directly and indirectly).

[Guest VAL9000]

Handset makers make a lot of money form the Android app market, and Windows Phone is nowhere near that. Also, as long as consumers prefer Android to Windows phone, it'll be worth going with what sells and what has the best developer ecosystem (both for the OS and the apps).

 

500k Android phones are being activated every single day. How many Windows phones are being activated?

 

The challenging part when it comes to investing in technology is that you have to be able to see the future a bit.  With MSFT it's a little easier because we're talking about a company with a very low P/E ratio and a number of established businesses.  For companies like CRM, you really need to have the right crystal ball, because you're not protected by earnings power.

 

If you're willing to assume that today's reality, 500k Android devices per day, will be tomorrow's reality, then you might be comforted by WP7's low adoption rate.  When I look into my crystal ball, I don't see this continuing unchallenged.  The Android lawsuit is just one tactic in a greater strategy designed to move Microsoft from last place to first place in mobile.  They might not get there, but they'll fight like hell.  Everything that Microsoft is doing in mobile today is about eroding the advantages that its competitors enjoy today.  Competitors offer free software?  Sue so it isn't free.  No handset support?  Pay them for exclusivity.  No apps?  Pay developers to port, and make great app dev tools.  The software sucks?  WP7 Mango is getting great reviews.

 

Maybe Skype was a stupid way to spend that wad of cash, but using your war chest to wage war seems like a pretty smart move to me.

 

This isn't to say that MSFT is going unchallenged in the mobile space, but their advantage is that they have no advantages.  Android can't react to WP7 until there's something to react to.  As for Apple, I seem to be hearing less and less about them.  Does anyone else find that?  People care less?  They announced 15bn apps downloaded and I felt uninspired.

 

Mobile is going to be a tough slog for a long while, but MSFT would be a great business even if they had no interest in mobile.  That said, I see them easily building a mobile business that's bigger and better than RIM at RIM's best.  So that could mean another 30-50bn in market cap.  We'll see.

[Guest VAL9000]

Indeed, though not as much as Google (directly and indirectly).

 

We don't actually know if that's true.  Google hasn't reported any definitive profit/loss numbers on Android.

[Liberty]

Indeed, though not as much as Google (directly and indirectly).

 

We don't actually know if that's true.  Google hasn't reported any definitive profit/loss numbers on Android.

 

Indeed, I don't have any hard numbers. But I think I can still be approximately right..

 

The more internet-connected devices are out there, the better Google will do. They are very dominant in search on the two biggest platforms (iOS and Android), and devices with full browsers show people sites with google Adsense and Doubleclick ads. They have a terrific brand and even on devices that have other defaults, a large fraction of people will probably switch back to Google.

[Liberty]

The challenging part when it comes to investing in technology is that you have to be able to see the future a bit.  With MSFT it's a little easier because we're talking about a company with a very low P/E ratio and a number of established businesses.  For companies like CRM, you really need to have the right crystal ball, because you're not protected by earnings power.

 

If you're willing to assume that today's reality, 500k Android devices per day, will be tomorrow's reality, then you might be comforted by WP7's low adoption rate.  When I look into my crystal ball, I don't see this continuing unchallenged.  The Android lawsuit is just one tactic in a greater strategy designed to move Microsoft from last place to first place in mobile.  They might not get there, but they'll fight like hell.  Everything that Microsoft is doing in mobile today is about eroding the advantages that its competitors enjoy today.  Competitors offer free software?  Sue so it isn't free.  No handset support?  Pay them for exclusivity.  No apps?  Pay developers to port, and make great app dev tools.  The software sucks?  WP7 Mango is getting great reviews.

 

Maybe Skype was a stupid way to spend that wad of cash, but using your war chest to wage war seems like a pretty smart move to me.

 

This isn't to say that MSFT is going unchallenged in the mobile space, but their advantage is that they have no advantages.  Android can't react to WP7 until there's something to react to.  As for Apple, I seem to be hearing less and less about them.  Does anyone else find that?  People care less?  They announced 15bn apps downloaded and I felt uninspired.

 

Mobile is going to be a tough slog for a long while, but MSFT would be a great business even if they had no interest in mobile.  That said, I see them easily building a mobile business that's bigger and better than RIM at RIM's best.  So that could mean another 30-50bn in market cap.  We'll see.

 

I wouldn't be surprised if MSFT did better in mobile than it did so far, but it could also very well to turn out to be the second coming of the Zune. Year zero was 2007, and since then both Google and Apple have shown they can execute. I'm still waiting for MSFT to show that (getting good reviews isn't enough - I don't know a single person who would choose a windows phone over the alternatives).

 

But the fact remains that Google makes money from internet usage, whatever the device, while microsoft makes money from selling OSes and software applications. Google will make cash from Windows phones too, but if MSFT can't sell phones, they might still make nice money from patents, but they'll be irrelevant to consumers and developers, and eventually software can be rewritten around patents or patent reform for software can change the game.

[Guest valueInv]

Indeed, though not as much as Google (directly and indirectly).

 

We don't actually know if that's true.  Google hasn't reported any definitive profit/loss numbers on Android.

 

Indeed, I don't have any hard numbers. But I think I can still be approximately right..

 

The more internet-connected devices are out there, the better Google will do. They are very dominant in search on the two biggest platforms (iOS and Android), and devices with full browsers show people sites with google Adsense and Doubleclick ads. They have a terrific brand and even on devices that have other defaults, a large fraction of people will probably switch back to Google.

 

Better yes, but by how much is the question. I believe Android devices on Verizon have their default search engine as Bing. There are supposed to be Chinese variants of Android may end up competing with Google's version.

 

BTW, Google makes about $1B from mobile total:

 

http://www.appleinsider.com/articles/10/10/14/google_announces_1_billion_in_mobile_revenue.html

 

There is also another big question - does mobile cannibalize desktop for Google? i.e. how much of the mobile searches are performed in lieu of desktop searches? If the answer is a lot, the growth from mobile may not be that much.

 

I think the real number to look at is the amount of online adspending and Google's marketshare of it. That's what directly drives Google's numbers.

Android can grow 100% a year but if online ad spending grows at 20% a year and Google's marketshare does not change much, they are going to grow at 20%.

[Guest valueInv]

How do handset makers make money from the apps? The revenue goes to Google and the app maker, not the handset maker. And the last time I head, the amount Google paid out to Android app makers was paltry. About $200M if I remember correctly.

 

Your facts are incorrect:

 

http://en.wikipedia.org/wiki/Android_Market#Priced_applications

 

As for the size of the market, I don't have the latest numbers (not sure if they're released), but it's growing quite fast, with over 3 billions apps downloaded. Not at the level of Apple's store, but the trajectory is quite solid.

 

Am I missing something? I don't see app revenue being paid to handset makers like Motorola or Samsung in your link. They get paid for the device, not for the app.

 

Here are numbers on the Android app  market:

 

http://techcrunch.com/2011/02/21/861-5-percent-growth-android-puny/

 

I was wrong, the estimate for Android was $100 M, not $200 M  :)

 

[Guest VAL9000]

what a wildly optimistic vision of msft mobile opportunity

:D That's how I roll.

 

It doesn't seem too wild at $3bn/year.  I'm seeing about one billion smart phones being activated per year in 5 years' time.  If MSFT can capture 25% of that market, then they need to earn $12 per device.  If MSFT can't create $12 in value on a $250 purchase, then I'm going to be pretty concerned.  I use the $250 figure because I think the price of smart phones is going to drop through the floor between now and then.

 

BTW, Google makes about $1B from mobile total:

 

http://www.appleinsider.com/articles/10/10/14/google_announces_1_billion_in_mobile_revenue.html

 

There is also another big question - does mobile cannibalize desktop for Google? i.e. how much of the mobile searches are performed in lieu of desktop searches? If the answer is a lot, the growth from mobile may not be that much.

 

Good find.  That's $1bn revenue across all mobile platforms I'm guessing?  i.e. Android brings in < 50% of that revenue?

 

I'm starting to better understand Google's advertising effectiveness.  AdWords works really well in a desktop setting because research and your desktop go very well together.  Desks are where work gets done, and AdWords are used to sell to people who are actually looking for something relevant.  Enough so that they would sit at their computer to get it done.  This is an elegant combination: research function plus search tool plus keyword-based advertising.

 

Mobile, on the other hand, seems to be a lot more casual.  Desktop's natural function is work.  Mobile's natural function is ..  well you're out doing stuff.  That's why you're mobile.  Clicking on ads is fine if you're already at your desk, but if you're out and about it's probably not helping you any.  Instead, mobile tool providers need to find the right advertising form to pair with the right tool and the right function.  Google Wallet is, in my opinion, the next example of where this will really work.  Shopping function implies mobile use case - add the payment tool and coupon advertising and you're golden.  These things all work well together, they'll help the consumer, and they'll help Google's customers.

 

What I'm saying is that mobile ads today suck because they're not aligned with natural user behaviour in a mobile setting.  The best is yet to come for Google and possibly others, so I'm not getting too excited about mobile advertising revenues... yet.

 

[Liberty]

 

Am I missing something? I don't see app revenue being paid to handset makers like Motorola or Samsung in your link. They get paid for the device, not for the app.

 

You're right, I misread and thought you mean the carriers. My bad.

 

But you were wrong, the money goes to the app maker (70%) and the carrier + payment processors (30%).

 

Here are numbers on the Android app  market:

 

http://techcrunch.com/2011/02/21/861-5-percent-growth-android-puny/

 

I was wrong, the estimate for Android was $100 M, not $200 M  :)

 

 

I'm not sure I trust those numbers (guesstimates from research firms have a habit of turning out to be numbers pulled out of a hat), but there's no doubt that the Android app market is still much smaller than the Apple store. That's because Apple had first mover's advantage, and that headstart kept it much more profitable to publish apps there than anywhere else. But now that Android is selling more than iOS, more and more developers and either moving over or writing for both platforms, so that store should be quite healthy in the future.

[Liberty]

Better yes, but by how much is the question. I believe Android devices on Verizon have their default search engine as Bing. There are supposed to be Chinese variants of Android may end up competing with Google's version.

 

Time will tell, but in general having some control over what separates your customers from your products and encouraging an internet with open standards can only be good. And in the same way that search helped make ads more targeted, and thus more valuable, mobiel will make ads more geo-targeted and nicely profitable.

 

 

BTW, Google makes about $1B from mobile total:

 

http://www.appleinsider.com/articles/10/10/14/google_announces_1_billion_in_mobile_revenue.html

 

Depends how they broke it down. But what matters most is the speed at which that number is growing.

 

There is also another big question - does mobile cannibalize desktop for Google? i.e. how much of the mobile searches are performed in lieu of desktop searches? If the answer is a lot, the growth from mobile may not be that much.

 

They've shown their stats about this at I/O 2011, you can see it in a video on their site. Basically, people search at work when they're at their desk, and then they leave for lunch, and mobile searches spike, and then desktop searches spike again, and then in the evening mobile spikes again. Weekends also show a spike when desktop searches would normally be down. Seems to be very complementary.

 

I think the real number to look at is the amount of online adspending and Google's marketshare of it. That's what directly drives Google's numbers.

Android can grow 100% a year but if online ad spending grows at 20% a year and Google's marketshare does not change much, they are going to grow at 20%.

 

Totally, but by helping drive the mobile revolution (and having some control over how it's done), it'll pull a lot of ad dollars to mobile advertising. If the capability isn't there, the ad spending won't be. And once they have hundreds of millions of devices running Android, they can figure out new ways to monetize them more (Eric S. said so at the annual meeting). Right now they're more focused on marketshare than anything else in mobile.

[Liberty]

Forbes on the ancient art of patent trolling:

 

http://blogs.forbes.com/timothylee/2011/07/07/microsofts-android-shakedown/

 

And some discussion of the article at a site full of programmers (it's where I found the link):

 

http://news.ycombinator.com/item?id=2738628

[Guest valueInv]

 

They've shown their stats about this at I/O 2011, you can see it in a video on their site. Basically, people search at work when they're at their desk, and then they leave for lunch, and mobile searches spike, and then desktop searches spike again, and then in the evening mobile spikes again. Weekends also show a spike when desktop searches would normally be down. Seems to be very complementary.

 

That certainly seems to hint at cannibalization. Overall, total searches should be up, but just because a user now has  two devices - a laptop and a smartphone doesn't mean they are performing twice as many searches.

 

My point is that Google (like other companies) releases stats that paint them in a good light, like the number of Android activations.

The numbers to watch are the financials. They'll tell you everything. Despite 500K activations a day ( a number far higher than the iPhone), they are growing at almost the third the rate of Apple.

 

Those app revenues are very telling. Google does not take a cut but rather pays the operator. They also give them a cut of the search revenues. On the other hand, Apple actually takes a cut of the subscription revenues from the operator. Sounds like Google is buying market share. It would not be surprising that published metrics like activations or numbers of searches grow much faster than actual revenues or profits.

[Guest valueInv]

 

You're right, I misread and thought you mean the carriers. My bad.

 

But you were wrong, the money goes to the app maker (70%) and the carrier + payment processors (30%).

 

My point was that the handset maker makes no money from app sales.

 

Here are numbers on the Android app  market:

 

http://techcrunch.com/2011/02/21/861-5-percent-growth-android-puny/

 

I was wrong, the estimate for Android was $100 M, not $200 M  :)

 

 

I'm not sure I trust those numbers (guesstimates from research firms have a habit of turning out to be numbers pulled out of a hat), but there's no doubt that the Android app market is still much smaller than the Apple store. That's because Apple had first mover's advantage, and that headstart kept it much more profitable to publish apps there than anywhere else. But now that Android is selling more than iOS, more and more developers and either moving over or writing for both platforms, so that store should be quite healthy in the future.

 

Agreed that research firm can be wrong. But that is the only datapoint I have seen so far. Have you come across anything that says the numbers are wrong?

 

There are three reasons why those numbers are atleast on the right track:

- Google (unlike Apple) is not boasting about how much they paid out to developers. Don't you think if they were paying a lot, they would make loud public statements to convince developers that there is money to be made in the Android market? Clearly, Google makes no money out of it, so they don't have to keep it a secret.

- Apple tends to get higher end customers that also spend more on apps and other mobile services.

- Probably the biggest reason:

 

http://www.androidcentral.com/over-50-android-market-apps-are-free