Halo 3 A Big Hit for Microsoft but Where's the Money?

Halo 3 has racked up nearly $300 Million in sales in its first week and is a huge hit for Microsoft.  But the success has hardly moved Microsoft's stock.  Over the last five years, the company's stock has been flat.  Video games aren't going to help a company.  Instead, it needs to focus on the challenges to Windows and its Microsoft Office family of products.  That's where the cash is and it's where Microsoft has been slowly losing ground.

Those of you who follow Microsoft will know that its stock has done very little over the last seven years, as shown by the chart.  What was once an exploding growth company has become a plodding dodder that tries to milk its Microsoft Windows cash cow.  In addition, its attempts to get into alternative businesses have yielded very little results. 

The Zune has not been the sales success MIcrosoft hoped it would be, it's online advertising forays have gone nowhere - It's Live search engine has actually lost market share over the last two years.  And  even when Microsoft is successful, this success is clouded by its immense size elsewhere.  For example, Halo 3 recently launched and has sold over $300,000,000 in its first week of sales.  That's pretty good but Microsoft stock has hardly budged.  Why?  Most likely because Halo3 is in the intensely competitive and arbitrary video game market.  Hits are great but they aren't assured.  In addition, unlike with Windows, competition is nipping at the XBox's heels.  There is no customer lock-in like with Windows, no monopoly power, and thus no outsized profits.  Reports state that Microsoft has lost $7 billion dollars launching and promoting the XBox.

Maybe this wouldn't be such a bitter pill to swallow is Microsoft's core monopoly was doing okay.  But Windows seems to be in trouble.  Visa launched months late and missed the Holiday shopping season.  Its launch also seems to be largely a yawn.  I don't many people going out to buy Vista.  It doesn't have any must-have features and thus it's adoption will simply mirror the replacement rate of PCs.  I'm writing this article using a Windows XP machine and see no need whatsoever to upgrade.

Of course, in the past, Microsoft forced us to upgrade by rolling out new software that only ran on the latest operating system.  But that stick has also been greatly shortened.  I'm writing this article directly into a Web-based editor that has all of the features I need.  My Firefox browser even provides spell-check.  If I wanted a more powerful online word processor, I could use Google-docs.  Adobe just announced the purchase of a company called Virtual Ubiquity that has built a slick new online word processor called buzzword that mirros almost all of Word's most important features and then some.  The trend  to online-based apps has been growing.

But where's Microsoft in all of this?  Nowhere.  While they have been concentrating on their Xboxs, and Zunes, and Live, the rest of the world is attacking their core product line. 

Ten years ago when the Internet burst forth, many predicted the challenge ahead for Microsoft.  Someday, the Web would become the operating system, replacing Windows.  Today, that challenge is starting to become a reality, and MIcrosoft seems dazed - probably from paying too many video games, listening to too much music, and spending too much time searching the Web. 



Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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  • Maarten Kooiker

    October 05, 2007

    A very nice article! Of course Microsoft stimulates publication on how much of a success their products are, which will stimulate their success, but of course they need the success in order to cover their expenses in the first place. Maybe they should start listening to their customers, after all it's them that bring in the money. Vista is (at the least) not a success and is opening the doors to linux, if they do not take the measures Linux might grow scaringly fast!
    Maarten Kooiker

  • Usman

    October 26, 2007

    A ver short sighted article. Go see microsoft's price today! Its a big $200+ billion market cap company. The stock price takes some time to bake in the earnings.

  • DracMonster

    October 27, 2007

    I'd like to personally thank the poster for this piece of FUD. It kept people away from MSFT and kept the shares cheap while I was loading up. Well done!

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