Microsoft effectively defined the nature of modern computer communications in the 1990s and early 2000s, though it has since lost its crown to Google and Apple. Bill Gates and his colleagues didn't invent computers, the graphical interface or internet browsing. But they came to dominate most users' experience of all three in the 1990s and 2000s. As a result, for several years, Microsoft was the world's most valuable corporation, with a market capitalisation bigger than businesses five times its size by revenues. However, it was also the industry's most hated entity, juggling a string a lawsuits from smaller rivals it had elbowed into oblivion. More recently, peace has broken out at Microsoft. This partly because the company worked hard to rebuild bridges, using part of its huge cash stockpile to settle legal rows with rivals and forge strategic alliances. But just as important was the fact that its role as the big bad giant of the industry was to some extent transferred to Google. Microsoft has attempted to keep pace with its new arch-rival through acquisitions including internet advertising giant aQuantive and a strategic alliance with Facebook. In its biggest deal to-date it agreed to acquire online phone service Skype in 2011 for $8.5bn. But even after all the cash it has thrown at this comparatively minor part of its overall business, Microsoft still lags far behind the all-powerful Google in internet search and advertising sales. It lags its rival in mobile communications also, but opened a new battle front in 2013 with the acquisition of Nokia's mobile handset operations to strengthen its Windows Phone business.
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Adbrands Weekly Update 4th May 2017: Tech giants Microsoft and Apple had strong numbers for the latest quarter. Microsoft delivered solid growth across several segments, including cloud computing, in which it is the global #2 behind Amazon. Net income jumped 28%, but total revenues came in slightly below forecast as a result of weak sales of Surface tablet computers, which plunged by more than a quarter. Apple was similarly mixed. The company sold fewer iPhones in the quarter than expected, and fewer also than in the year ago quarter, but selling price per phone was up. Meanwhile iPad sales were down again sharply and so were revenues from China; but services revenues - App Store, music and Apple Pay - were up strongly and so were sales of Mac computers. Combined revenues rose almost 5% and so did profits. The latter was Apple's first increase in quarterly profits since 2015.
Adbrands Weekly Update 21st Jul 2016: A strong 4Q lifted Microsoft's results for the year ended June 2016, though the precise nature of the improvement or otherwise was obscured by a barrage of accounting adjustments and alternative versions, as well as Microsoft's opaque new reporting structure. In general terms, strong growth in cloud services partly offset a sharp decline in software revenues, largely prompted by the decision to offer the Windows 10 operating system for free. Just how sharp a decline was masked by the company's newly adopted structure, which groups together multiple different businesses under very broad categories. Revenues from the new "more personal computing" category, which houses Windows OS as well as Xbox, smartphones and all other non-professional services, declined by at least 6% for the year. But the group also deferred a significant part of those revenues relating to Windows 10 in a separate "corporate & other" category, suggesting an actual decline in the most recent year of as much as 22%. The separate "productivity & business processes" category (Office, server tools etc) was flat, but "intelligent cloud" rose 6%. Combined topline for the year slipped back by 9% to $85.32bn. Adding back deferred Windows 10 revenues would have resulted in a decline of only 2%. Lower costs and the absence of the previous year's Nokia impairment and restructuring charges powered a big jump in net profits, up soared 38% to $16.8bn. Yet that figure remains well below the $20bn-plus reported in 2013 and 2014. More transparency should be available when the group files full financial details with the SEC.
Adbrands Weekly Update 16th Jun 2016: Microsoft agreed to acquire online business network LinkedIn for $26.2bn to give additional support to Office and its other business software products. It also plans to incorporate the training videos marketed by LinkedIn's subsidiary Lynda.com within its own software. It's a welcome bailout for LinkedIn's shareholders. The offer of $196 per share represents a 50% premium above LinkedIn's most recent share price, but is still well below the levels at which that company was trading last year. LinkedIn's stock peaked in Feb 2015 at almost $270 before declining steadily over the course of that year. In Feb this year it plunged by another 40% to a low of $100 after the group forecast weak growth for the current year. LinkedIn is currently reporting sizeable net losses, partly as a result of the huge sums it pays to staff in the form of stock-based compensation. These contributed to a net loss of $166m last year on revenues just under $3bn. Microsoft investors will be hoping their luck holds too, and that the envisioned synergies between the two groups materialise. Unfortunately, though, Microsoft has a poor track record in this area. Its history has been marked by a series of ill-conceived acquisitions at inflated prices, not least Nokia, digital marketing group aQuantive and, arguably, Skype. The LinkedIn deal dwarfs those three in cost, so Microsoft CEO Satya Nadella better hope he's got it right this time.
Adbrands Weekly Update 19th May 2016: The Nokia mobile phone brand is destined to live on. Microsoft acquired the struggling Finnish mobile phone business two years ago, but has failed since then to weaken the iron grip on the market of Samsung and Apple. Though it will continue to market smartphones under the Lumia name, Microsoft is offloading its non-smart "feature phone" operations, which still carry the Nokia name, to a joint venture between FIH Mobile - a unit of Taiwan tech giant Foxconn - and a newly formed Finnish company HMD Global, run by former Nokia executive Jean-Francois Baril. The price tag was $350m. At the same time, Nokia Corp, now focused on network equipment, agreed to transfer the license for its name to be used on those devices. Nokia is still the leading brand in the shrinking but still sizeable global feature phone market. In 1Q, Microsoft sold 15.7m Nokia-branded non-smartphone devices, equivalent to around 13% global share.
Adbrands Weekly Update 29th Oct 2015: Google and Microsoft surprised investors with better than expected revenue and profit figures. For Microsoft, a key contributor was search engine Bing, whose revenues topped $1bn for the first time, and which delivered its first ever, long-awaited, profit. Meanwhile, Google's new parent company Alphabet pleased shareholders with the group's first ever share buyback, worth almost $5.1bn.
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Free for all users | see full profile for current activities: Microsoft was formed in 1975. Little more than 25 years before that, computers didn't even exist. The first all-electronic computer was built in 1946, weighing more than 30 tons and costing almost $500,000. It could add two numbers together. However by the mid-1970s, a new breed of microcomputers were not just more affordable but more practical, able to perform slightly more complex calculations and simple games. Inspired by Popular Electronics magazines, two computer nerds named Bill Gates and Paul Allen set out to write their own version of the programming language BASIC for Altair computers. They called their partnership Micro-Soft, and set up a business adapting the language for different computer manufacturers.
Micro-Soft's BASIC became an invaluable tool within the fast-expanding computer environment, and the partners were commissioned by IBM to develop a core operating system for the launch of the company's first "Personal Computer" or PC in 1981. Rather than write a new system from scratch, they paid another programmer $50,000 for his code, called QDOS ("Quick and Dirty Operating System") then adapted it to become version 1.0 of the Micro-Soft Disk Operating System, popularly known as MS-DOS. The same year they incorporated as a company, dropping the hyphen to become plain Microsoft. With admirable foresight, the pair had chosen not to sell but to license MS-DOS to IBM, and they were quickly bombarded with offers by rival PC manufacturers who wanted to use compatible software.
However IBM and all its clones faced increasingly serious competition from a start-up computer manufacturer called Apple, which had developed its own even more attractive operating system which used a graphical user interface (GUI), incorporating pictures and symbols to make the computing experience more intuitive and enjoyable. In 1983, Gates and Allen turned their attention to creating their own version. However, Allen was diagnosed with Hodgkin's disease and left the company the same year. Gates soldiered on, launching Microsoft's first GUI in 1985 as Windows. The product was hugely successful, and on the back of its success, Microsoft went public a year later in one of the most successful IPOs of the decade. By 1987 Bill Gates was a billionaire.
To a large extent, however, computers were still a niche product used by academics and businesses. Windows version 3.0, launched in 1990, did much to change this, making the GUI easier and more instinctive than ever before. In 1993, Microsoft turned their attentions to software developers and IT professionals, developing new software for large networks under the name Windows New Technology or NT. Two years later, Windows 95 became the world's best selling software, shipping over a million units in the first four days on-sale. Meanwhile, Office, the company's collection of database and spreadsheet applications had become the dominant software on every business user's desktop.
In the same year, Microsoft set out to conquer a new market. The proliferation of computers had led to the rapid expansion of the internet, a loose global network used mainly by academics and the government. Jumping comparatively late into a market then dominated by start-up software developers Netscape, Microsoft developed its own browser software, Internet Explorer (IE), which it progressively locked into the core Windows operating system. Rapidly, IE overtook Netscape as the most common browser. Also in 1995, the group launched its own portal, the Microsoft Network (later MSN), and online travel agent Expedia in an attempt to grab hold of users at every stage of their computing experience.
It was at this point that Microsoft began to hit inevitable obstacles caused by their size. The group's first antitrust investigation came in 1995 when an attempt to acquire personal finance software company Intuit was blocked on competitive grounds. Another concern for the industry was the aggression with which Microsoft targeted their competitors. For example, in 1995, Microsoft licensed the Java programming language developed by network computer manufacturer Sun. According to Sun, they then set out to develop their own competitive version in an attempt to outmanoeuvre the computer maker.
In 1998, the US government began antitrust proceedings against Microsoft on grounds that their integration of Internet Explorer into the Windows system prohibited browser competition. Principally, the company had used the Windows/IE combination to crush what was originally the main browser product, Netscape. In an attempt to appease the courts, Microsoft was restructured into separate divisions by customer groups rather than products. However this only encouraged a subsequent decision by a federal judge in 2000 that the company should be split into two separate businesses, with the Windows operating system in one company and all the other software applications in the other. Microsoft fiercely contested the ruling. After a year of deliberation, an appeal court overturned the separation order, although a decision on exactly what action would be enforced was postponed..
In reality however, Microsoft did indeed show signs of having reached its peak. Having leapt by an average of more than 30% every year for seven years, revenues slowed dramatically in 2000 and 2001, especially in the core Windows division, and the company lost many of its senior staff, either through retirement or a jump into the dot.com sector. With Windows now firmly established throughout the computerised world, the company needed a new frontier to conquer. Ignoring the original antitrust ruling, Bill Gates came up with his own alternative plan to transform the company. Under his Microsoft.NET strategy, the group begin taking steps to stop providing software sold in a box. In this vision the company would become a technology services provider, working with hardware manufacturers to incorporate Microsoft-designed operating systems into virtually any computer-operated device from computers to mobile phones, home appliances and more. At the same time, software will be licensed annually rather than acquired outright, generating a permanent revenue stream. Some Microsoft products, like Office, would even be altered so that they would live not on the user's PC, but on a server. Users would rent access to them on a subscription basis instead of buying them to own.
In late 2000, Microsoft gave a huge boost to its MSN with the launch of MSN Explorer, a new browser designed to help the network defeat AOL. The launch was backed with a global $150m advertising campaign, Microsoft's biggest since Windows 95. The group also began moves to create a broadband MSN delivery network through agreements with several US cable companies. Having already part-floated its online travel agent Expedia in 1999, Microsoft sold a 75% stake in Expedia to broadcast group USA Networks (now IAC) in 2001 for about $1.5bn, and sold its remaining stake in 2002. A new version of the core operating system, Windows XP, was launched in late 2001 with an even bigger splash - a global marketing spend of $250m from Microsoft, supported by a further $750m of advertising from computer and chip manufacturers hoping to boost their own sales on the back of the new code. An upgraded version of the server software NT designed for home use, the software faced a few challenges, not least low consumer confidence and falling sales throughout the IT sector. However it was the first mainstream version of Windows which entirely dispensed with MS-DOS. As a result, Microsoft promised greater reliability and functionality.
Meanwhile the company's three-year battle with the US courts appeared to be coming to an end. In a final deal with the Department of Justice, agreed in 2001, Microsoft was permitted to continue bundling its various pieces of application software along with the main Windows system. But the company was obliged to allow computer manufacturers to decide which items they wish to bundle or to supply rival software. In addition, Microsoft was forced to reveal additional technical information regarding its own software, and license parts of its software to other developers. Although this agreement ended the company's wrangle with the US Government, several of the 18 US States which had separately joined the lawsuit were less satisfied. Nine including California and Connecticut vowed to press on with the case in pursuit of tighter restrictions. Microsoft attempted to resolve these, as well as a number of private suits, with a deal to provide more than $1bn of computer hardware and software to the nation's poorest schools. The rogue nine States' proposals were eventually dismissed by court in late 2002, although they later lodged an appeal.
Meanwhile, in early 2002 AOL Time Warner reheated the court action against Microsoft with a new an antitrust suit claiming damages for the harm done to Netscape during the browser wars of the 1990s. The skirmish was finally settled in 2003 in a truce. Microsoft agreed to pay $750m in damages and the two sides agreed to abandon their differences and work together to broaden consumer access to digital content. But a new war began at the end of the year for control of online media content. Real Networks, whose software is the main rival to Microsoft's Media Player application, filed an antitrust lawsuit at the end of the year claiming Microsoft engaged in illegal business practices. The company also sought protection in an alliance with IBM to establish online stores that would sell TV and other video content to consumers over the internet, available only via Real Player.
Meanwhile, Microsoft's lawyers were also busy with legal challenges in Europe, where regulators threatened in 2002 that they would be even tougher than their US counterparts on monopoly reforms. The case rumbled on for almost two years before coming to a head in 2004. Despite last-minute attempts to resolve the case peacefully behind closed doors, the European Union finally made its ruling in March 2004. Microsoft was handed a record E497m fine, the highest penalty yet imposed to-date by the EU on a company, to punish the software giant for supposed abuse of its Windows monopoly. In addition the company was ordered to share more information about its systems with rivals in the server market and also allow computer manufacturers to bundle a version of Windows without the Media Player program. Microsoft appealed the ruling, but EU judges blocked attempts to delay implementation of the fine and sanctions. Microsoft eventually agreed to comply in early 2005, but took its time putting the ruling into practise. As a result, the company was eventually fined a further E280m in summer 2006, and warned that additional fines of E3m a day would be imposed if Microsoft had not complied with the 2004 ruling by the end of July. The case dragged on for three more years, until Microsoft eventually agreed to offer consumers the choice to install alternative browsers, as well as other concessions. The EU eventually dropped its case at the end of 2009 after a decade of legal skirmishing that cost Microsoft almost $2bn in fines.
In the meantime the company settled its long-running legal disputes over patents and competition with Sun Microsystems and InterTrust Technologies, paying out almost $2.5bn in fees and damages; and later made peace with Novell as well with a payment of $536m. In 2005, Microsoft agreed to pay $775m in cash (as well as a $75m in credit for software) to settle an antitrust charge brought against it by IBM, as well as $761m to settle its antitrust wrangle with Real Networks. A separate 2003 action from Lucent, alleging that Microsoft had infringed patents on MP3 technology, was eventually settled in 2007 when Microsoft was handed a $1.5bn fine.
In 2005, it was revealed that Microsoft was involved in talks with AOL to work out the framework for some sort of strategic alliance to combat the growing power of rival Google. Possibilities discussed range from a full merger of the AOL and MSN portals to partnerships in search results and advertising sales. The group also agreed an alliance with Yahoo to allow interaction between Yahoo's instant messaging service and MSN Messenger. Meanwhile, the group continued to face antitrust problems in international markets. At the end of 2005, South Korea's competition watchdog ordered the group to unbundle Messenger and Media Player from its Windows operating system, although it has already reached settlements of civil lawsuits brought by local competitors.
In January 2007, Microsoft launched a new incarnation of its Windows operating system under the name Vista, succeeding previous incarnation Windows XP (launched 2001). Initially billed as the company's most ambitious redesign to-date of the Windows environment, Vista appeared to offer a substantial overhaul of the concept of computer operating systems. However the new software got off to a disappointing start. Not only was it well behind schedule - it was originally set for release in 2005 - but the first version came with numerous bugs and compatibility issues. The result was that end-users, especially companies, were slow to upgrade from XP, despite the company's claim of 180m Vista licenses sold by July 2008. To appease PC manufacturers, Microsoft continued to offer the option of pre-installed XP for 18 months, finally suspending supply of that system in summer 2008. Nevertheless some manufacturers still supplied an option for users to "downgrade" from pre-installed Vista after that date for an additional cost. For several years, these problems provided Microsoft's rivals with ammunition with which to launch attacks on the Windows environment. See full profile for current activities
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