Why? Standards, plain and simple. The chief information officers of the world don't have time to toy around with the uncertainty of Linux. No way. They need pre-release software specifications and final release schedules -- in a word, they need structure. Microsoft doesn't just impose this sort of structure. Standards give Microsoft's customers confidence in future technology and allow them to plan ahead and budget appropriately for upcoming products.
Windows 2000 is going to be an enormous source of profits for Microsoft. Redmond pulled out all the stops to make this operating system great. Undoubtedly, Windows 2000 will be the de facto standard across the business world. The same is true of Microsoft's other new BackOffice products, which are tightly integrated with the new features in Windows.
For the vast majority of corporations and consumers, software is not at all becoming a commodity, nor is it a mature industry. Microsoft's brand, look and feel, and customer support are highly valued by both corporations and consumers. The proliferation of information, the availability of cheap bandwidth, and the ever-increasing horsepower of microprocessors guarantee that software has many product cycles of strong growth yet to come.
Even if Bill Gates didn't spot the Internet's significance right away, rest assured that as soon as he did have his epiphany in 1995, he scrapped existing plans and totally realigned every aspect of the organization to capitalize upon the Internet's opportunity. We're only now beginning to see the fruits of Microsoft's vision. Windows 2000 was built specifically to offer the reliability, scalability, and manageability for Internet commerce. And in the next few months, we'll find out what Microsoft has up its sleeve with its Next-Generation Windows Services, which will be a fundamentally new approach to programming on the Web.
Looking out farther, Microsoft's opportunity is vast. The company is actively seeking to create software standards for other devices, such as tablet PCs, auto PCs, television set-top box devices, and IP (Internet Protocol) enabled phones. In Microsoft, I see tremendous long-term growth opportunities, a management team that has a crystal understanding of profit-centric business design, and a balance sheet laden with cash to fund the growth.
The only roadblock to having this reality reflected in Microsoft's stock price is the ongoing antitrust trial. I have no legal expertise whatsoever, but I do understand and agree with Microsoft's fight for the right to continuously integrate new features into its products. As software evolves from a product to a service, this right will be essential. My hope is that, as the trial drags through the appeals process, our courts will come to realize that future software cannot be thought of as a static product but rather as a dynamic, constantly updated and enhanced service. For the courts to limit the ability to enhance software would be to kill the software altogether.
The uncertainty of the court's future ruling has caused Wall Street to bail ship. The Wise shun such risk. But risk opens the door to great opportunity. Among the most highly valued U.S. corporations, Microsoft is downright cheap on a price-to-free cash flow basis (based on Monday's closing prices):
Company Price-to-FCF General Electric 112.6 Cisco Systems 99.3 Intel 56.4 Microsoft 31.8Based on Microsoft's first-class economic model, its near- and long-term growth prospects, and its management's business savvy, the shares look very attractive to this Fool.
This Week's Duel
Related Links