“Microsoft is Doomed !!” –> Buy MSFT

Only Fortune magazine running a “Microsoft is Doomed !!” cover next week could make things any cheerier for Bill Gates and his Washington-based software company. After all, this week we have a contrarian two-fer, with both BusinessWeek (“I’m Outta Here!: Why Microsoft is Losing Key Talent”) and Forbes (“Microsoft’s Mid-life crisis”) running downbeat cover articles about the company.

As the market wisdom goes, however, you fade the consensus, especially when it hits extremes.  And the current consensus is awfully negative about Microsoft, despite the company heading, in 2006, into its busiest product cycle in recent memory.

Granted, Microsoft is long past its go-go days, and secular growth prospects in the PC software industry are low teens at best, but a cyclical upturn in the company’s fortunes next year seems unavoidable — except, of course, to the fine folks at Forbes and BusinessWeek.


  1. Yeah, and watch the hype that surrounds the new XBOX release…. Everybody will love MSFT as it runs up for that.

  2. Brad mentions, in the post you link to, all the cool products comming out in 2006, but fails to mention License 6.0 which locked customers into long term contracts that forced them to pay Microsoft money whether they upgraded or not. Even if companies upgrade to Vista and Office 12, en masse, many of them would have given Microsoft money, anyway.

  3. I am contratisn enough to think that being contrarian is not always the best course, but I will say that I view a spot in Fortune’s Most Admired Companies List as a sure sign of doom.

  4. Its much easier to use the Magazine Cover Indicator for broad trends than for individual companies.
    After all, Enron had a few negative magazine covers at the same time — anyone care to admit they bought on THAT signal?
    The specifics are here: http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html

  5. Barry — True enough, but as always Microsoft is a special case. When you see a company with a quasi-monopoly and $12-billion in a free cash flow being spit on as it heads into the upturn in a product cycle, it may be time to sit up and take notice.

  6. Marina Architect says:

    Fortune is no doubt infamous for having Cover’s that signal time to short what’s hot on the Cover. In this case though, from an equity perspective, Microsoft has a stable near-term future. The outlook for Microsoft will fracture though as Web 2.0 and Open Source eventually render Microsoft an O/S only company with all other applications inferior to Open Source. Microsoft however will continue to make money on inferior products based on the always dumb core audience. I always see fools in Santa Monica on Segways. Microsoft will always own the Segway crowd and the early adopter gadget crowd. The veneer of marketing gets a certain segement of the population no matter what. Microsoft will eventually become a hybrid marketing company in my view. Marketing to mask the veneer of inferior products. I posted another version of this with Fred Wilson. Cheers.

  7. Licensing 6.0 is past renewal for nearly all customers- they’ve had to decide to renew their agreements by now. The standard volume licensing agreements only last for three years, and the customers retain the rights to all of the software that they licensed during that period. Customers that didn’t want to renew to get Office 12 could simply terminate the agreement and retain the rights they paid for during the three year period.

  8. I agree. In fact, their effect of hurting the stock price, if any, will lead to a better bargain and perhaps a stronger slingshot effect when MSFT’s products are released next year. With Vista and Xbox 360 on the way, momentum may head back in for the stock later on this year in both anticipation and realization. I will definitely cover that in my trading blog.

  9. I don’t know about share price, but in terms of market dominance there is one word that is probably keeping Gates awake at night: Mactel. Even Windows users generally accept Mac OS as better, but the stumbling block for most people is that they can get a Dell for a couple of hundred bucks, whereas the cheapest Mac (the mac mini) still starts at $499. Given that it only costs Intel $40 to make a processor (according to recent estimates) the tie up between Apple and Intel should bring that price down dramatically. Suddenly the main reason holding Mac OS back as a platform has evapourated.