Microsoft's Biggest Opportunity Is Within Its Grasp

For this weekend's upcoming Motley Fool Money radio show, I interviewed Charles Ferguson, an Academy Award-nominated director, about his new documentary film Inside Job, which details the financial crisis of 2008. Part 1 of the interview can be found here. What follows is more of our conversation.

Chris Hill: You founded a software company in the 1990s that you sold to Microsoft (Nasdaq: MSFT  ) . It seems like after years of dominance, in some ways Microsoft is a little bit of an afterthought when it comes to companies like Google (Nasdaq: GOOG  ) and Apple (Nasdaq: AAPL  ) , albeit an enormous afterthought. I am just curious, as someone who has worked directly with Microsoft in the way that you have, what do you think of Microsoft and what do you think is the company's biggest opportunity right now?

Charles Ferguson: Well, the biggest opportunity that it has, I would say, is to reform itself.

Hill: How so?

Ferguson: Microsoft is in many ways reminiscent of General Motors five or 10 years ago or IBM (NYSE: IBM  ) in the 1980s.

Hill: Wow, I have got to tell you, as a Microsoft shareholder, I am just so sad that you are saying this.

Ferguson: Well, it seems increasingly evident, and it is a recurring pattern in American industrial history, and in other industries it is potentially a very troubling one. We saw what happened to the American automobile industry in the wake of the financial crisis because these firms had been very poorly managed for a very long time and were completely dependent on SUVs for their profitability.

We saw over earlier periods what happened to the American steel industry, the American consumer electronics industry when you had a small oligopoly of long-established, entrenched companies that dominated an American industry and had very poor management and they had entrenched boards of directors and so forth, and they became prisoners of their own earlier success and very isolated and ultimately vulnerable to changes in the environment. I think we are seeing the same thing with Microsoft.

There are occasions when companies do reform themselves. IBM went through a very serious crisis in the early 1990s. One period, I think it was 1993, IBM lost $30 billion and people, including myself, wondered whether it would ever recover, but in fact it was able to reform itself and it is now a very successful, dynamic company, even though it is quite large. So I think that Microsoft could do it, but the question is whether they will.

Hill: Time to wrap up with a round of buy, sell, or hold. Let's start with a company being mentioned as a big threat to Google. Buy, sell, or hold the future of Facebook.

Ferguson: I would say hold.

Hill: Why is that?

Ferguson: Well, clearly it's a very successful company, but I tend to suspect that it is going to be difficult for them to move out of their very big, very successful niche. The people who run Google and other companies with which they might find themselves competing, have a very, very deep technical and engineering culture, which I think is quite different from the way Facebook runs.

Hill: You did some consulting for Apple in the early '90s, so I think this qualifies you to weigh in on this one. Buy, sell, or hold the future of the iPhone?

Ferguson: Oh, I would say buy. I am an enthusiast. In fair disclosure, I am also a shareholder. I own a fair amount of Apple stock.

Hill: That is why you are doing this interview, right? It is not to promote your movie; it is just to pump Apple stock.

Ferguson: That's it! I am a believer that Apple has a very, very good run in front of it, I would say for at least five years, Apple is going to be very successful for two reasons. One is that its products are fantastic, and the second is that those products are undercutting the entrenched, dominant positions of the rest of the technology sector -- both the consumer technology sector, like BlackBerries, for example, and also the likes of Microsoft and Hewlett-Packard (NYSE: HPQ  ) in the personal computer industry. I think Apple is superbly positioned for at least another five years.

Hill: We were talking earlier about technology company CEOs, and this one is locked in a tight race. The likelihood that former eBay CEO Meg Whitman will be elected governor of California: buy, sell, or hold?

Ferguson: Oh, well everything is for sale these days, and I think that she has already spent $120 million of her own money, so I would say that her odds are pretty good, although I can't say that I think it is the best way to run a democracy.

Hill: Finally, we have seen this in everything from Avatar to Toy Story 3. It is all the rage these days. Buy, sell, or hold Inside Job in 3-D?

Ferguson: Oooh! I think we would make a great 3-D movie.

Hill: You think so?

Ferguson: I think it would be fantastic. Yes, those aerial shots of Manhattan? Oh yeah, yeah, I think that there is at least a half-hour of our movie that looks really, really cool, and I would love to see people wearing 3-D glasses.

Hill: I think Motley Fool gets a special thanks in the credits if that happens.

Ferguson: Absolutely.

The interview with Charles Ferguson airs this weekend on Motley Fool Money on radio stations across America and on iTunes. Chris Hill owns shares of Microsoft. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Apple and eBay are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on eBay. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, International Business Machines, and Microsoft. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 03, 2010, at 4:12 AM, cdtfuser wrote:

    It's interesting that Mr. Ferguson thinks that Apple's primary competition is RIM. Android phones are dominating the market now. The iPhone will continue to lead in sales for a specific device, but the iOS platform is falling way behind and that trend will continue. I expect the same thing to happen with tablets starting in 2011.

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