I predict Microsoft will have another layoff this year.
This is either a bold or stupid thing to say, much less write in a blog. Probably both. I’m no economist, financial guru (to which my last set of brokerage statements will attest), or business seer. Nonetheless, I have two eyes, and a brain that occasionally produces a worthwhile thought.
Microsoft faces serious challenges ahead, which I think will result in another round of layoffs.
The most significant will be that the economy simply won’t recover as quickly as the company expects it to. (For that matter, this is also true of many other companies, and our Federal Government.) I say we’ll surpass 10% unemployment. And the “recovery” will be shaped like an “L,” and not a “U” or “V”. The result will be a very challenging environment for revenue and profit targets, even if all their products were on otherwise firm footing.
Another challenge will be specific to the Windows product line. Windows 7 won’t bring in the hoped-for revenue, even without this economic clime, for three separate but connected reasons.
- Google’s Chome OS FUD, and Apple’s $29 Snow Leopard upgrade price, will exert downward price pressure on operating systems. (Note that Snow Leopard will be available for sale one month before Windows 7.) Potential customers will question the pricing, and delay purchases while they push back (actively or passively) on Microsoft. ($120 or $200 vs. $29? Eh…hello? Yes, I’ve read the rationale that Snow Leopard is more like a Service Pack. Only problem with that argument is that it’s false.)
- Even without the noise about Chrome OS or Snow Leopard pricing, Windows users would upgrade more slowly than the company hopes. The thinking of Windows Vista users will be, “I won’t get fooled again. I’ll wait a while and see how Windows 7 shakes out before deciding whether to upgrade.” Windows XP users will think, “I’m glad I didn’t upgrade to Vista. That decision worked out just fine. Why should I upgrade to Windows 7, at any price?”
- At least one driver snafu will trip-up the marketing juggernaut. The breadth of Windows’ ecosystem is simultaneously an assert and burden. Some video or storage device will have a problem, and fairly or not, the online commentary will pounce on it.
So, if I were a betting man, I’d bet that Microsoft will miss its internal revenue and profit targets. And then cut costs for both real prudence, and to court investors’ perceptions.
If I’m wrong, it wouldn’t be the first time. (It also wouldn’t be the first time if I’m right.)
Update @ 7/9/2009: Robert Reich also believes we won’t see a recovery anytime soon. In fact, he thinks we won’t ever return to the previous economy, period. He’s right. My calling for an L-shaped “recovery” referred to our bouncing around in a flat domain for months, possibly years, before starting to tick up. But I think Reich’s vision is more correct. Whatever the next economy is, it can’t ever be like the past 25 years, because it was inherently unsustainable. Call it a scaled down, scaled back, or more rational economy. All of which spells even more downward pressure on corporate profits, including Microsoft’s.