Friday, January 25, 2008

Was Vista a disaster for Microsoft?

Recently Microsoft posted their profits for 2007. Despite Vista being one of the worst disasters to hit the computer systems markets since Windows ME, Microsoft seemed to come out way ahead... or did they?

Profits don't always tell the full story about how a company performs, and I'm not talking about Enron. The case in point is to be found in both K-mart and Disney Corporation. If your primary source of news is ABC, CNN, Reuters, Associated Press, NBC, CBS, or such, you may not have been aware that both K-mart and Disney corporation were under boycott from conservative groups led by the likes of Focus on the Family for years. In fact, if you listed to the liberal media, you probably thought that K-Mart's retail problems in past years were due to anything else other than a boycott.

However, the example I want to focus on is Disney Corporation. The reasons for boycotting Disney products were pretty numerous. Disney was behind bringing several of Kevin Smith's movies to product. Disney World and Disney Land were known for hosting "Gay Days" where uniformed employees on the clock were meeting and escorting gay couples around the parks. Disney was actively promoting itself in homosexual magazines. People like Dr. James Dobson decided that wasn't right. It was a destruction of the family values that Walt Disney had held dear, and a destruction of the legacy that was Disney.

As children, most of us had the ultimate dream of going to Disney Land... Can you imagine how a parent is going to explain to their 5 year old kid why two fat overweight balding guys are giving each other tongue out in the middle of an intersection at the park? Talk about a destruction of a dream.

So, Focus on the Family, AFA Journal, and other conservative organizations arranged a boycott. Big deal according to Michael Eisner. Disney continued to post record profits, and built a successful film franchise with Pixar.

Or... did they?

Under Michael Eisner, Disney Corporation was hamstrung. They boycott from conservative groups was hitting Disney Corporation harder than anybody could imagine. Resorts that were in the process of being built were canceled. Orders for more cruise ships were also canceled. The once epic 2D powerhouse that used to be Disney Animation was scrapped in favor of cutting deals with the likes of Pixar whose 3D movies were much cheaper to produce.

Consider the Disney Channel for a minute, and the Toon Disney channel. Years ago Disney was known as one of the premier houses of 2D animation. Easy examples of their work included cartoons like "Mighty Ducks" and "Gargoyles." However, check out Toon Disney today, where the best new animated cartoon is easily "Kim Possible" ... and lets be honest... it's not really holding a candle to the old "TaleSpin" cartoon series now... is it.

Then there was the Disney Channel itself. I used to watch "Jett Jackson" all the time. It was a great show. Now, compare the production values of "Jett" to something like the "Suite Life of Zack and Cody." Lets go back even further, say the series "SpellBinder." It's not even what you would call a competition. Current Disney Channel productions could have been shot on a hand camera. And in some cases with stuff like "That's So Raven," they probably were.

Okay, so what's the point then? It's not exactly a secret that current Disney Content is a poor shadow of what the company used to produce. Like or not, Disney's best material generally has come from Pixar.

The point is that there is a difference. Disney Channel saved itself on paper from the conservative boycott by slashing costs. Film productions that used to be done entirely in-house on Disney owned sound-stages were outsourced. Disney Corporation cut several distribution and production agreements with other movie vendors to try and remove their direct operating cost. TV and animation production quality went out the window as more experienced lighting technicians and directors were let go, in place of people who could get a job done, without breaking the bank.

On paper, Disney Corporation never suffered from any boycott. On paper Michael Eisner got up and laughed at the conservatives who dared try to lay siege to his media empire.

In reality, Disney Corporation was hamstrung. In reality Michael Eisner has been removed and his cadre ejected. In reality Disney Corporation has gone back to the family friendly principles that Walt Disney once held.

The point is that paper and profits are not the entire story.

I've already stated that I'm not buying the sales numbers reported for the Xbox 360. I've already stated that Microsoft dumped bungie. I've already posted a blog about what a CompUSA employee indicated about Vista return products...

So lets start adding up the non-paper factors for Microsoft's profits.

Fact is, while Vista has been a disaster for Microsoft, Xp has not. Xp has easily maintained a sales ratio of 3 to 1 or greater during the time since Vista's launch. Consider then that Xp prices were not slashed. They were not dropped. If you want Xp, you pay the same exact price today that you would have before Vista launched.

Fact is, Microsoft has been dropping dead-weight companies. After getting profits on Halo 3, Microsoft quickly cut Bungie loose to get the dead weight off of their books. So, Microsoft has a nice tidy profit in it's books for Halo 3, but instead of being invested back into a dead-weight developer, Microsoft said bai bai. So, that money looks good.

While Microsoft is cutting loose on dead weight developers and clearing out what passed for first party developers, Sony and Nintendo are both increasing the number of first party projects underway, which will show up on their tax records.

From what the CompUSA employee implied, Microsoft was not accepting returns on returned products. Basically Microsoft was refusing to refund a sale of Vista that had to be refunded. The CompUSA employee also implied that Microsoft was refusing to refund purchasing costs on unsold copies of Vista.

Let me lay that part out because it has a great bearing on how Microsoft seemed to perform.

If I understand the Microsoft ordering policy correctly, OEM's and Vendors must pre-order licenses from Microsoft. All of the licenses must be paid in full up front. The OEM's and Vendors then mark the products up to retail, and that is the price that you end up paying.

The actual cost is probably revealed when you go to Microsoft's site to register another license key alongside one you have already purchase. The secondary license key is likely the OEM and Vendor cost.

The result of this business model is that a product that fails at the hands of the Vendors and OEM's, doesn't actually hurt Microsoft. Microsoft is already paid, in full, under this business model.

As I posted back in 2006 in an article title The problems with Reliance on Microsoft, many vendors and OEM's were anxiously awaiting Vista to jump start a lagging PC economy. Vendors and OEM's were so excited that Vista was going to give people a reason to upgrade, a reason to buy a new computer, a reason to buy new hardware... and so on.

That didn't happen. Vista didn't move the industry at all. However, the industry itself... prepared to push Vista out like it was cotton candy at a fair.

What people have to understand is that while Bill Gates is not a developer, he is an extremely charismatic and intelligent business man. Microsoft has managed to get themselves into the right place where major product disasters don't affect the bottom line on profits. Microsoft has managed to shed dead weight that it doesn't have to invest money in. What was investment money and money tagged for expenses... is now profit.

Fact is, while Microsoft looks like it did great on paper... the external factors tell a story of a company that is getting hamstrung on all sides.

The collective disaster of Vista on retail has sent all major OEM's scrambling to get non-Microsoft solutions for their computer systems on the market... and that failure is going to show for the likes of Dell, HP, Gateway, Asus, Averatec, and many others.

The question remains... how many of the OEM's and Vendors are going to lay their problems at the feet of Microsoft where the problems belong...
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