When I started this blog I promised to explore the negatives in my stock positions at least in part because it forced me to think clearly. We have a small position in Microsoft - and there is news today which lays out precisely how crushed a company Mr Softee has become. That news comes from - of all places - Verizon.
The new hot mobile phone operating system is linux-based with overlay system developed by Google called Android. It is open source and phone makers (HTC, Samsung and even Motorola) can take this system and incorporate it in their phone and not pay a penny. At first glance it is hard to see how Google makes a dime out of this operating systems.
At second glance it is not. The way people (especially the young and especially in developing countries) are interacting to the internet is through their phone. There are plenty of opportunities. With an Android system it is likely that will be with the Googleplex. Google - if you haven't noticed - is making plenty of revenue opportunities - and Android is part of the key to catching them.
Bill Gurley nailed it with possibly the best blog post I have read in the past year on any topic - where he described Google's business model as the "less than free" model - where Google will pay people to use their operating system provided they link the end-customer into the Googleplex.
Of course since anyone can modify the Android system anyone can compete with Google by modifying android and linking into their cloud services. We could have the Yahoo mobile phone that links you to Yahoo search and Yahoo maps and Yahoo mail. Or for that matter we could even have the Microsoft Android phone.
No wait - we do have the Microsoft Android phone - courtesy of Verizon. Verizon has just launched a very-high-powered Samsung phone that runs Android. Google has been disabled - and everything is linked to Microsoft. To quote Gizmodo:
Verizon, unfortunately, is also what ruins the phone. Or, rather, what it's forced Samsung to do to the phone, which you could sum up in a word: Bing. Bing is the default—and only—search engine on the Fascinate. A Google Android phone. In the search widget, in the browser, when you press the search button. Bing. No, you can't change it. There's no setting for it, and the Google Search widget that you can snag from the Market is blocked (or at least very carefully hidden). Being unwittingly forced into Verizon and Bing's conjugal relationship is infuriating on its own, but the implementation also feels like the sloppy hack that it is. The co-branded Bing/Verizon portal that an in-browser search takes you to is ripped from the circa-2005 dumbphone-approved "internet," while the Bing Maps app that it pushes you toward is vastly inferior to Google Maps (no multitouch, Latitude, etc.). To be clear, Bing itself is fine. This implementation of it is not.
Now presumably Microsoft paid Verizon handsomely for this. And that lays reveals precisely how bare the Microsoft business model has become. Microsoft is in the business of selling operating systems. Almost all other businesses are extras or adjacencies. They were once thought to have a "monopoly" on operating systems and were taken to task by the Justice Department.
Well Justice was wrong. Flat wrong. Microsoft is now paying telephone companies to use somebody else's operating system - a total business inversion - and one that lays out just how much BS was in Justice's argument. Ouch.
But worse - Gizmodo argues that Microsoft ruined this phone. So now Microsoft is paying phone companies to use other people's operating systems and even then they can't get the customers to like them.
Microsoft is darn cheap - even breathtakingly cheap. But boy is this a dramatically weakened business.