Dueling Fools: Microsoft Bear Rebuttal

"First, both the long-awaited Vista operating system and Office 12 will soon be released, starting another round of must-have purchases."

-- Chuck Saletta, five minutes ago

Soon? As in, what, 2007? Chuck may be OK with the Vista delay, but you shouldn't be. Microsoft (Nasdaq: MSFT  ) isn't the same company that it once was. It's bigger, slower, and no longer drawing the industry's best talent. Mistakes simply cost more than they used to.

Google is not Netscape
Want proof? OK, but first let's rewind a bit. Back in 1995, Bill Gates energized employees with a memo entitled "The Internet Tidal Wave." In it, he elucidated the threat the company faced from the Web and the emergence of Netscape and its Navigator web browser. The results were devastating. Internet Explorer came to dominate the browsing business and, by 1998, Netscape was in such poor shape that it had to be acquired by AOL. (Which later touched off a string of lawsuits over monopoly power that impedes Mr. Softy's progress to this day.)

Fast-forward to now. Microsoft is facing similar threats, but there are more of them. Topping the list, of course, is Google (Nasdaq: GOOG  ) . So, last October, Gates fired off another memo calling on employees to get behind the push toward Web-driven services and online advertising. The initial results are available now in the form of Windows Live, but it's done exactly nothing to slow Google's momentum. The lesson? Google isn't Netscape. It won't go quietly into the night.

Would you please get Mr. Softy some bug spray?
Chuck also asserts that Microsoft software is "stable enough" and "automatically patched."

Bwahahahahahaha!

Sure, I'm a biased, cat-loving, tree-hugging, eats-his-Grape-Nuts-daily Mac user, but there are plenty out there who believe, as I do, that Microsoft's software has more holes than your average block of Swiss cheese. Even the infamous "blue screen of death" has a tribute page at Wikipedia.

Don't spring this value trap
The dark side of value investing is the dreaded value trap, in which a cheap valuation accurately describes meaningful and long-lasting problems. Microsoft fits the mold perfectly. ("Luke, this is your software.") Here's why: Every problem Microsoft faces -- from delays in core products to software quality issues to an exodus of top talent -- is structural in nature. And by structural I mean deep. Ingrained. Addressing them will require much more than the kind of surface-level corporate makeover the firm announced last week. Till that reality sinks in, investors shouldn't expect anything more than average results. But even that may be wishful thinking.

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Think you're done with the Duel? You're not! Go back and read the other three arguments, and thenvote for a winner.

Fool contributorTim Beyersis one of the few who thinks Microsoft makes pretty decent software for the Mac. Tim owns shares of Oracle. You can find out what else is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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