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Why I’ve learned to never count out Microsoft

Updated Jan 24th, 2014 1:03PM EST
Microsoft Q2 2014 Earnings Analysis

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I’ve taken my fair share of shots at Microsoft over the years but thankfully I’ve never been foolish enough to label the company “doomed.” If you need to understand why Microsoft is far from “doomed,” look no further than the quarterly earnings report it released on Thursday where it posted record revenue and very healthy margins that would be the envy of just about any other company in the world. And this is what I think people in the “Microsoft-is-doomed” crowd don’t quite understand: Microsoft is the tech world’s equivalent of the New York Yankees and it makes more than enough money to paper over its mistakes.

So yes, Windows 8 has been a flop in the consumer market, the first-generation Surface was a bomb and Windows Phone still faces an app gap with iOS and Android. These are all problems but in the big picture, it doesn’t matter because Microsoft’s enterprise software business is so insanely profitable. ZDNet’s Mary Jo Foley breaks down some of the numbers this morning and finds that Microsoft’s enterprise software profit machine is still firing on all cylinders and doesn’t look to be slowing down anytime soon.

“Ten of the company’s self-proclaimed 16 billion-dollar businesses were business-focused ones as of the last time Microsoft shared information on its billion-dollar business club,” Foley writes. “And five of the remaining six all had enterprise components. (The one exception is Xbox.)”

And unlike poor BlackBerry, Microsoft is so deeply interwoven in the business world that there’s no chance of it getting quickly disrupted there by outside competitors. This means that Microsoft can make mistakes that other companies simply can’t — recall how the company simply brushed off the $900 million write down it took for unsold Surface RT inventory while similarly massive write downs absolutely devastated BlackBerry last year.

In fact, I think Microsoft’s reaction to its initial failure in the tablet market has been one of brash defiance. I can’t turn on a football game or even watch my beloved Parks and Recreation anymore without being reminded — constantly — about Windows 8. Microsoft knows that it can’t just abandon the tablet market as it abandoned Zune and it’s going to use as much marketing cash as it needs to boost Surface sales.

So it’s fair to question Microsoft’s strategy for the consumer market and to call them out for missing out on some important consumer electronics trends. All the same, I’ve come to think of Microsoft as a lumbering elephant: It looks somewhat passive and seems content to spend most of its time casually gnawing away at the leaves and grass that are easily within its reach. But if it’s motivated to get something, it can get a head full of steam and charge right at you. And right now Microsoft is charging at the tablet market. I wouldn’t bet against its success.

Brad Reed
Brad Reed Staff Writer

Brad Reed has written about technology for over eight years at and Network World. Prior to that, he wrote freelance stories for political publications such as AlterNet and the American Prospect. He has a Master's Degree in Business and Economics Journalism from Boston University.