Microsoft Brings Back…The Comfy Chair

So! You think you are strong because you can survive the soft cushions. Well, we shall see. Biggles! Put her in… the Comfy Chair!

—Monty Python

I don’t know what’s worse—Steve Ballmer’s refusal to spring for iPods for his children and his insistence that they not use Google (see “Over-Share from Dr. Evil’s Hideaway,” April 18) or the recent announcement that Microsoft would restore free towel service in company showers and offer loyal staffers “dinners to go from Wolfgang Puck.”

I am not making that up. Here’s the story from MSNBC:

Microsoft said it would supply free towels in company showers, better food in staff canteens and on-site laundry service in an effort to boost employee morale as it battles for talent with Google and other recent start-ups.

The outbreak of the internet “perks war” is the latest sign of Microsoft’s attempt to keep some of the trappings of a fast-growing Silicon Valley start-up as it takes on more of the characteristics of other large, slower-growing blue chip companies.

No kidding.

If we learned anything from Microsoft’s bombshell announcement that spending was going to go up a lot more than Wall Street’s Finest ever dreamed, it’s that Microsoft’s business model is not what it used to be. The operating system monopoly that allowed 30 cents of every sales dollar to flow to net income is, in my view, no more.

This is due in no small part to Google and its spend-like-there’s-no-tomorrow mentality. Google keeps new products coming so quickly that Microsoft—chained like Frankenstein’s Monster to the dungeon wall that is Vista (the next generation Operating System Formerly Known As Longhorn and soon to be renamed Long Lost, Lost Horizon, or something more appropriate)—has no chance to out-innovate the kids in Mountain View.

A couple of weekends ago, however, Barron’s offered a very different take on Microsoft from Joe Rosenberg, the long-time ace investment strategist at Loew’s Corp—a man whose words I read and consider very carefully. (If you haven’t seen the interview, I’d advise you to study it, if for no other reason than Rosenberg’s contrary take on the bond and commodities markets.)

Rosenberg has this to say about the iPod-distaining Ballmer:

I think Steve Ballmer spends too much of his time on the operational side and not enough time on the financial side. He unfortunately shuts himself off from the financial community. He only meets with the financial community once a year.

Personally, as I have said before (see “Bill’s Hideaway” Parts I and II, from 2005), I think Ballmer’s boss, Bill Gates, should spend more time in a local Starbucks or college campus watching how people use the technology which Microsoft and Intel pioneered—and others have exploited.

And I think the last thing Ballmer needs to do—at least if Microsoft wants to become something more than a slowly-dying, high-margined software enterprise whose main goal is to return cash to shareholders—is spend time with Wall Street’s Finest.

As MSNBC points out:

Google has become the most visible exponent of Silicon Valley’s entitlement culture, using the free food in its highly rated cafeteria, along with the availability at its campus of services ranging from massages to automobile oil-changes, to help attract and retain workers. The tech companies defend the on-site perks as a way to reward employees who often work long hours and who would otherwise have to leave the premises, making them less efficient.

Simply put, the cost of being a technology leader has gone up.

As one of many who has migrated entirely away from Microsoft’s dreadful MSN product—email, calendar and all—in the last six months, and who looks forward to a full suite of online application products, for free, sometime in the near future, from the Mountain View crowd, I expect the cash flow available to fund that higher cost will dwindle more quickly than anybody in Redmond expects.

And that trend will not be reversed merely by changing the perks for the engineers working on finding the latest security flaw in an ancient operating system.

Towel service? Wolfgang Puck? The whole thing reminds me of a Monty Python routine.

Fetch…the comfy chair!

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.