Kenny - Microsoft

3 weeks have passed since I've posted and I'm glad to be writing again. October 22nd is just around the corner and that means Windows 7 is going to be available to the general public real soon. I'm pretty excited about this as well as the prospects of Microsoft. This post, similar to my previous one, will be somewhat anecdotal/common sensical. I did receive a bit of feedback about how my posts don't have raw numbers for facts but personally, I prefer to invest in my own common sense. Again, I'll talk a bit about investing philosophy and then focus on the reasons why I like Microsoft.

Top-down vs bottom-up. This is one strategy which I picked up from Jim Rogers (who apparently claimed that things aren't too bad in the US just last week). If you read both of his 'around-the-world' books, one thing you noticed was that he chooses his investments based on what he sees at ground level. He doesn't look at the country's GDP or the rate of unemployment (well perhaps he does but it isn't as important as his opinion from ground level). Instead, he looks at how corrupt the officials are or how hardworking its people are (it is hard to go wrong in life if you're a hard worker but that's another philosophical issue altogether). I will attempt to analyze Microsoft from the bottom-up perspective as well and I hope that this will give you new insight into this company.

So, what about Windows 7? It may not be released to the general public but this is where studying in a US top 15 college pays off (I won't be surprised if all other colleges have this benefit but w/e). Our computer science department is somehow able to distribute copies of Windows 7 to students (for free) and a couple of friends are running Windows 7 on their computers. One major breakthrough - boot time. Windows Vista had just terrible boot times and in this day and age, where everything happens instantly (or at least we hope they do), waiting 30 seconds to 1 minute to start up your computer is just simply annoying. I'll bet that the folks at Microsoft realised that and just cleaned up their code so that the boot sequence as well as their interface runs a lot more efficiently.

We know the product is good but not all good products succeed in this world. Now, we'll look at Windows 7 from a commercial perspective. First, we need to answer the question of what operating system large companies and educational institutions are running on their computers. Is it Windows Vista? I would say that is highly unlikely. Microsoft continued providing support to XP users even a few years after the release of Windows Vista. Did companies have the incentive to switch to Windows Vista then? Not really. Why spend more money when the current OS works just fine? What about now? Microsoft will only provide paid support to XP users and chances are they will not be releasing many more (security) updates for Windows XP. Now, there's some incentive to switch to Windows 7. The global company I worked at during Summer will probably switch and so will the many computers here at Northwestern University. So, we have a good product and a fairly positive environment. I believe Windows 7 will be a hit and we'll see it in Microsoft's 4Q results early 2010.

Another key area of interest for Microsoft is the search engine field. When Bing was first released, you may have heard that it was chipping away at google's market share. Within its first two weeks of release, Microsoft gained about 2% of the searches to get up to 11% of the searche engine traffic. Let's see where it is at right now. http://www.comscore.com/Press_Events/Press_releases/2009/9/comScore_Releases_August_2009_U.S._Search_Engine_Rankings says that Bing's and Yahoo's search engine traffic is at 9.3% and 20% respectively (Yes, Microsoft did close that deal with Yahoo). So, the Microsoft, Yahoo combination has less than half of the search engine traffic that Google has. Am I surprised? Not really. Look at Bing's and Yahoo's interface. Pretty buttons, some (useless) information on the right sidebar as well as the left sidebar. Google, on the other hand, has simple buttons with minimal junk data. The difference here is precious search time, analogous to the boot time in the case of Windows Vista.

While I am not able to prove this next fact completely, Bing's search algorithm seems to be no more superior than that of Google's. Jin will probably have a lot to say about that. A simple search on 'bing vs google' will give you numerous links to all sites comparing the two search engines. Another thing people must note here is the Matthew Effect, which essentially means that the strong get stronger and the weak get weaker. Even if Bing has a comparable search engine, it will be insufficient to take a larger part of Google's search engine share since Google has been the dominant force in search engine technology. Hence, Bing needs to come up with a far superior search algorithm to start chipping away at Google's lead. And at the moment, that is just not happening. That's why I'll be sticking with Google.

Thumbs up to Windows 7, thumbs down to Bing. Let's see how they do in this quarter.