Wednesday, May 05, 2004

Microsoft and the concentration of wealth

Title: Is Microsoft A Slowpoke?
Source: Time magazine
Date: May 2, 2004

Here are four facts from the article:
  • Microsoft "is still by far the largest software maker in the world, with a healthy $56 billion in the bank and revenue conservatively expected to rise 5% next year, to about $38 billion."

  • "The next version of Windows, code-named Longhorn, has been delayed so much that it has acquired the nickname Long Wait. Gates recently warned that we would have to cool our heels until 2006 before we would see it — five years after the release of Windows XP — and even that date isn't certain."

  • "One reason for the delay is that Gates' "trustworthy computing" plan has pulled programmers off Longhorn to work on fixing Windows XP, patching the kinds of security holes that led to record-breaking viruses like the Blaster worm."

  • "The Longhorn delay is causing an industry logjam both in Redmond and down in Silicon Valley. Since 95% of the world's computers run on Windows, practically all software makers tie their development process to the life cycle of each new version. But nowhere is the long wait for Longhorn more damaging than at Microsoft. After all, you can't have the new Longhorn version of Microsoft Office until Longhorn ships."
One additional fact: If you look at Microsoft's financials, you can see that Microsoft earned $32 billion in 2003, made a gross profit of $26 billion and a net income of $10 billion.

Think about the remarkable concentration of wealth that Microsoft represents. There are approximately 100 million households in America. The $56 billion in cash that Microsoft is sitting on represents $560 per household. The $10 billion in net income Microsoft made last year represents $100 per household. Your household -- you -- paid Microsoft $100 of your hard-earned money last year. That is $100 that you could not spend on something you needed.

You might be thinking, "I don't even own a computer -- I didn't pay Microsoft a dime." That is incorrect. Every corporation that you buy products from is filled with PCs and servers running Microsoft's code. Those companies paid Microsoft, and then raised the prices of their products (toothpaste, soap, hamburgers, gasoline, automobiles, whatever) to cover the cost of the software. You did actually pay Microsoft $100 last year whether you wanted to or not. You have no choice in the matter.

Because Microsoft owns 95% of the market, an entire industry is now held hostage by Microsoft. As the article points out, companies tie their products to the release of code by Microsoft. They have no choice. But Microsoft is delaying the code for this reason: "One reason for the delay is that Gates' trustworthy computing plan has pulled programmers off Longhorn to work on fixing Windows XP."

Pulled programmers off???? Why not hire new programmers? Assume that an American programmer costs $100,000 per year. With $10 billion per year in net income, Microsoft could hire 100,000 new programmers. Microsoft only has 50,000 total employees now. So the company could triple in size without even touching the $56 billion in cash. If Microsoft tapped into the cash, it could support another 100,000 programmers for a minimum of five years -- more like 7 or 8 years when you consider interest earned by the money.

The concentration of wealth is a triple-edged sword here:
  • You, personally, are paying Microsoft $100 per year out of your pocket and you have no choice.
  • By concentrating wealth instead of hiring programmers, Microsoft holds an entire industry hostage. Innovation is stifled.
  • Other companies are unable to compete with Microsoft. When they do, Microsoft uses its money to reach out and crush them. Even if Microsoft gets sued for it, Microsoft has plenty of cash to pay the suit and move on.
This is how the concentration of wealth works against the best interests of an industry, and the nation. As the article points out, "Sam Palmisano, CEO of IBM, wants his company to be Windows-free by 2006. The governments of South Korea, China and Japan — usually not the greatest of allies — have teamed up to create their own flavor of Linux, which could well flood the Asian market." No wonder. Because of Microsoft, America will lose its strategic advantage in yet another industry.

How to solve this problem? As pointed out in Robotic Freedom, an extreme concentration of wealth like Microsoft's could be taxed. Instead of going to the government, the tax revenue would be returned to every American citizen through a central account. In this way, the $100 per year taken out of the pockets of every American household would simply be returned to every American household each year. Americans would spend the money. The economy would grow, instead of being stifled by the concentration of wealth. See Robotic Freedom for details.


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