Taking on Microsoft
There's no question that Microsoft was a major force through which technology became commonplace. For a long time, it was a great stock to own. Bill Gates is the envy of many an entrepreneur, and a household name to boot. But I can't help but take the bear stance on Microsoft (and it's not just because I've been a lifelong user of Apple's
History of a giant
Formed in 1975, Microsoft went on to greatness, burying many a competitor. The most famous example was Apple, which spearheaded the WYSIWYG (what you see is what you get) computer interface with the Macintosh line. Microsoft conquered the budding PC revolution in both corporate and consumer computing with its Windows operating system. And with its Office suite, it squished many other competitors with competing tools, such as WordPerfect and LotusNotes.
These events didn't come without a downside: antitrust issues, a possible breakup at one point, legal settlements, and the public perception of Microsoft as a bully at best and a monopolist at worst -- in other words, not an innovator.
Microsoft may be huge and powerful, but you could argue it's also becoming slow and cumbersome, running the risk of being easily outmaneuvered by rivals. Some consider Microsoft shares a value at the moment. For example, last fall Philip Durrell recommended it as a pick for Motley Fool Inside Value. However, while it may be a bargain, there's the other side of the coin -- is it cheap for a good reason?
Take a look at a five-year chart of Microsoft's stock, and you can see a prolonged malaise. While increasing, Microsoft's rate of revenue growth has slowed over the last five years. Although it's a very profitable company that does generate lots of cash, pays a dividend, and has no debt, many people are likely expecting a lot of innovation to come from the halls of Redmond to provide more catalysts for growth.
The almost-ran syndrome
Microsoft has a reputation for being great at capitalizing off others' ideas -- creating its own versions and then surpassing the originator's. However, one might argue that Microsoft is losing its touch. The technology landscape has greatly changed over the last 30 years.
On the Internet, consider upstart Google's
Even Microsoft's popular Xbox gaming console faces Sony's
As for the operating system business, open source may be going through a quiet period at the moment, but some governments and even big companies have begun eyeing Linux. And let's not forget Apple -- the popularity of the iPod may still foster increasing interest in Macs by computer users.
Last but not least, hackers and virus writers still mostly target Microsoft products. Security concerns -- and occasional complaints that Microsoft's too slow in fixing vulnerabilities -- add to the idea that increasingly sophisticated users might look elsewhere.
Yes, Microsoft has history on its side. However, I argue that as technology and the Internet continue to evolve, patterns Microsoft established long ago -- and the ways the technological landscape has changed -- have eroded some of its competitive advantages and avenues for growth.
Wait! You're not done. This is just a quarter of the Duel! Don't miss the Bull opening argument and the Bull and Bear rebuttals. Even when you're done, you're still not done. You can vote and let us know who you think won this Duel.