On Microsoft

Microsoft is a difficult situation for me to evaluate. I think the company still has a lot of growth ahead in some areas. But, that depends on where management wants to take it.

There are three core businesses that are already well developed: Windows, Office, and Servers.

The moat in the first two are wide. The Windows moat is huge.

The business model in operating systems is great. You keep upgrading every few years; the hardware needn't progress for you to find thin...

Microsoft is a difficult situation for me to evaluate. I think the company still has a lot of growth ahead in some areas. But, that depends on where management wants to take it.

There are three core businesses that are already well developed: Windows, Office, and Servers.

The moat in the first two are wide. The Windows moat is huge.

The business model in operating systems is great. You keep upgrading every few years; the hardware needn't progress for you to find things to tweak and get people to buy the next step up. It's insanely profitable.

I think the new launch (Vista) will be bigger than people expect (eventually) in how it allows for cross selling other Microsoft products (but we'll see about that). I expect the press to be very negative at least until well after the launch, because there will always be some bugs and delays.

Games

Eventually, video games will be a big business for Microsoft. I hate the economics of the console business, but love the economics of the publishing (and development) side of things.

I'm sorry to see that Microsoft didn't use its cash pile to buy up an established business here (publishers were cheap in the market a few years ago; an all cash deal would have worked well. Now, everyone thinks video games will be the next big thing).

The console wars are going well for Microsoft. The two keys to establishing a dominant console are launching first and getting good games on your platform. We'll see how Sony (SNE) does this round, but I expect them to be the big loser.

Nintendo may surprise here. I think the Xbox 360 and Nintendo's new console (Wii) will do very well. It'll be interesting to see the breakdown of the consoles in both the domestic and foreign markets. I think Sony may still be strong overseas, but could be in a much poorer position at the end of this round than they were with the PS2.

Search

Long-term I am optimistic about search. I think Google's position is much weaker than most people think. I don't think Microsoft will be the only one to benefit here.

Search is a very natural cross sell with Windows. That's the direction everything seems to be headed in (combining online and desktop search). For future growth in terms of market share I think Microsoft is in a better position than either Yahoo (YHOO) or Google (GOOG).

I also think we might see a couple other (largely unknown) search engines gain some share.

I think Google's strength is its brand. Its dominance helps with advertisers more than users. I don't think it has a lock on users. Also, I think Google has been poorly positioned for doing much of anything outside of keyword search.

I expect to see a lot more in the way of intelligent, social search inspired stuff. Years from now, much of search will have to be helping you find what you didn't know you wanted to find.

Google is dominant in a different business: helping you find what you know you want to find (but don't know the name / location). The two types of search are very different. Both will be important, but the growth in other forms of search will be coming off a smaller base and will likely integrate with keyword search. Google has the most to lose here.

Other Devices

Microsoft wants to perform well on mobile devices and on your TV. Compared to competitors it is very strong in these respects.

The strategy seems to be the one I would favor - to control the point of initial contact wherever software is used and then to only venture into the actual application or content side of the business where it is highly profitable to do so. In video games it will be highly profitable. In other areas it is less likely to be very profitable.

I expect to see more generic, web-based applications. These will be less profitable for everyone. Office should hold up well, but not as well as Windows. Basically, Microsoft needs to take what it has in PCs and import that to TVs, Handheld Devices, Consoles, and the Web.

That should be the strategy. I think that is the strategy. These aren't unrelated businesses that need to be broken up to unlock creativity (as some have suggested). Rather, the profit potential for each is greatly enhanced by being part of Microsoft. If you take these pieces apart they are worth very little. There would only be the three businesses I started off talking about and the console / games business.

Internationally, there is going to be natural growth for Microsoft's dominant businesses. It won't be a tremendous growth rate, but it will be strong and will require virtually no additional investment to secure.

Obsolescence Issues

Overall, I like the future for software a lot more than hardware, because the marginal gains in the quality of hardware will slow greatly in the years ahead.

The question isn't what can be done mathematically in terms of increasing specs; it's what that translates to for the user. We are reaching a point where the individual user will not directly see the benefits of increased hardware performance as clearly as he did in the past.

Much of the research that goes in to this area will only serve to bring down prices and benefit memory intensive businesses - it will not provide as much of a "wow" factor for the user anymore.

This is especially true in games. The situation in desktop applications is already such that improving the software design is where most gains will come from.

Computing power is simply not a scarce resource for most individuals sitting at home or in a cubicle. Advances will benefit some users a lot and will trickle down to the end user (often via the web) through fast responses and cheap services. But, that's a barely noticeable change.

You'll see something here akin to the kind of thing you see in the brokerage business. It won't be obvious, because price competition will never be as great in software.

Generally, you'll just see the prices for doing anything electronically come down. That's very different from what we've seen over the last few decades, where you also had advancements that attracted new users, because they allowed developers to do something differently, not just more cheaply.

This is a very long-term trend I'm worried about. It could weigh heavily on a business like Dell (DELL), because PCs are actually quite durable; once the rate of obsolescence slows, sales will have to slow as the cycle lengthens.

Management

I think Microsoft's management is absolutely the best in the business. In fact, I think it's one of the best in any business.

It would be hard for me to find more than a handful of people I'd rather have managing a business I was part owner of. I also think the current arrangement is a good one.

There is enough of a line between current operations and future investments in the Chairman / CEO split that investors will probably get the greatest benefit from the brilliance of the Chairman this way.

Everyone underestimates Bill Gates. It's easy, because his great triumph came some time ago now. But, he's interested in building something lasting. I trust him more than anyone in tech without a question. He always impresses me whether he's talking about his own industry or some other topic. He has exactly the right kind of mind for someone running a business where the long-run is such a concern.

Qualitatively, I think Microsoft scores close to perfectly. I could cite the profitability stats, but I won't, because you know they're better than almost any other business on the planet – and that's with a huge siphoning off of resources to investments in the future that aren't required to maintain the cash cow, wide-moat Windows franchise.

Valuation

Valuation is a bit more troubling. Microsoft is not at the point on an EV/EBIT basis where I'd be buying the stock if there was a risk of no extraordinarily profitable growth in the future. In other words, at the current price, it clearly makes for a bad bond.

The key is earnings growth. I think you have to believe MSFT will have a real future in search, games, and non-PC devices that will fuel future, highly profitable growth.

I think that future is there. As far as a truly large cap stock (say $10 billion or more) it's about as attractive as anything on the planet right now - and certainly it's the most attractive stock of any very large U.S. business. Even though Intel (INTC) and Dell are cheap looking, I don't like them nearly as much. Dell is an interesting situation, but I don't understand the business well enough.

I have a better idea of where MSFT is headed – and I like it.

Conclusion

I don't own shares of MSFT. I won't be buying any either. I don't normally own such large stocks. I prefer much smaller businesses, because the mispricings tend to get more out of whack. You aren't going to see MSFT trade at an EV/EBIT of 7.5 or something like that, but you do sometimes get those chances in small (high quality) businesses.

There are a lot of chances to find wild mispricings without much of the future being a concern. Those are the situations I prefer to invest in, because businesses like MSFT have an awfully large anchor with the amount of capital they've got – plus, they tend to be less likely to be wildly mispriced.

However, if I had to own one business with a market cap of more than $10 billion and hold it for a lifetime I would buy Microsoft here without hesitation.

How to Find What You Want with Google

Did you know you can make Google find what you're looking for even more accurately than it normally would? Learn how to pinpoint exactly what you're searching for on Google - quickly and easily.
Most people who search on the internet have a favorite search engine. In fact, the majority of internet users choose Google.



Do you fall into this category? If so, are you taking advantage of everything Google offers?



If an internet search means you go to www.google.com and simply type 2 or 3 words into the search box, hoping to find what you're looking for, you aren't even scratching the surface.



How Can You Get Better Results?



Google is the number one search engine for good reason - their results are generally the most accurate. Even so, there are ways to pinpoint what you're looking for even more effectively.



You have two options when it comes to fine-tuning your searches - you can use the Google Advanced Search screen or you can use "modifiers" in the main Google search.



Option 1: Google Advanced Search



When you go to www.google.com, there is a little "Advanced Search" link to the right of the main search box. If you click on that, you'll get the much more detailed Google search, where you can make very specific requests.



The first four sections, highlighted in blue, are some of the most important. Here you can specify any of the following:

1. All of the words - this will give you results with all of your search words, but not in any particular order. They can also be anywhere on the page.
2. The exact phrase - this will give you results with exactly the phrase you enter. The phrase must appear on the page exactly the way you enter it.
3. At least one of the words - this will show results with any one or more of your search words on the page.
4. Without the words - this will give you results that don't include your search terms at all.

These four sections can be used independently or combined to work together.



For example, you could search for the exact phrase 'free virus software' without the words 'trial' or 'tryout' if you're looking for free virus software but don't want trial versions that will expire after a short time.



As another example, you could use option #3 (at least one of the words) if you're looking for something but don't know exactly how to spell it. Put a few possible spellings in and it will find pages with any one or more of those spellings.



The rest of the sections on the Advanced Search page are pretty self-explanatory. One that I will point out is the Domain option. You can specify a website and either search for something only on that site, or anywhere but that site.



If you've found an interesting website that doesn't have a search function of its own, you can use this to limit Google to searching that site for whatever you're looking for. In fact, the Google search is often better even if the site does have its own search function.



You can also use it to find other references to something you might have read on a particular website. If you search for it and exclude the site you saw it on, you'll find other references to it that you can cross-check.



Option 2: Using Modifiers



Modifiers will let you use all the advanced features without having to go to the Advanced Search page every time. These modifiers can just be entered in the standard Google search box to get the same results as the advanced options.



There are quite a few different modifiers that can be used, but some of the most useful are as follows:



Putting "" around a phrase will search for the exact phrase. Searching for free antivirus software will show you pages with those three words anywhere on the page. Searching for "free antivirus software" shows you pages that contain that exact phrase.



Putting a - before a word is the same as the advanced option "without the words." So, to use the example used earlier, searching for "free virus software" -trial -tryout will show pages with that exact phrase, not including the other two words.



Using site: followed by the domain name of the website you want to search will only return results from that particular website. For example, searching for "virus protection" site:computer-help-squad.com will only return results from the www.computer-help-squad.com website.



Again, these can be combined so -site: will return results from any site except the one you specify.



How to Figure Out the Modifiers



The easiest way to see how to use modifiers in your searches is to try some searches with the Advanced Search page and see how Google formats them.



Using our example again, if you enter 'free antivirus software' in the "with the exact phrase" box and the words 'trial' and 'tryout' in the "without the words" box, the search that Google runs looks like this:



"free virus software" -trial -tryout



If you play around a bit with the advanced searches, you'll see how Google formats them for you. Next time, you can just enter them yourself in the standard search box instead of going to the Advanced Search page.



Once you get the hang of these options in Google, you'll find that your searches get even more accurate because you can filter out the stuff you don't want.

Gmail is Still Beta for a Reason

I think it was the threat of a Gmail revolution that prompted Yahoo to increase the storage space parceled to its free email accounts last year. Who remembers rummaging through our Yahoo email accounts deleting emails only weeks, if not days, old?

I think it was the threat of a Gmail revolution that prompted Yahoo to increase the storage space parceled to its free email accounts last year.  (Yahoo’s paid email at the time, of course, gave storage to spare.  It’s an example of how the whiff of corporate competition can benefit end users or consumers.)  Who remembers rummaging through our Yahoo email accounts deleting emails only weeks, if not days, old?  I think Yahoo copied their color coded warning system of diminishing storage space from the easy-to-comprehend terror levels issued by the federal government.  Gmail’s arrival, though, changed this – we were ready for something better.  Its search-based organization, something we like to see at ConductSearch.com, figured to be a natural step for email world to take.

I believe that something better came, too.  But, something that I’m unlikely to avail myself to because I, like most, am not ready to forego the free, web-based email I am comfortable with for Gmail’s blessings. 

Gmail, like Google, was marketed beautifully from the outset.  How did they manufacture buzz?  By attaching a sense of exclusivity to a Gmail address, that’s how.  That’s no small feat considering that Gmail doesn’t cost anything.  But, they used the invite system and people, exercising the herd mentality as we’re wont to do, were all over it.  Web geeks were all over Gmail and invites for an address even made it to eBay.  I have no doubt Google’s marketing department loved that; they might have even put them up for auction themselves. 

When the hubbub died down a bit I got mine from a friend who works at Google.  I admit to all (and to Mike) that I felt sheer gratitude for the address.  The marketing worked.  That’s about when the magic ended for me.  For starters, it seemed as if Google couldn’t let some standard features be, like…freakin’ folders!

I had a chat with ConductSearch.com’s IT director who, like me, had and disregarded his Gmail account, as did others around the office.  The latest numbers show that Gmail accounts handle less than 4% of email volume and I believe this number is generous.  The number one reason for discontinuance was forgetting passwords.  In other words, there was nothing compelling enough to get a Gmail account and keep it. 

I also learned that others, too, didn’t like the way Gmail “revolutionized” email.  Perhaps this progress was a little forced.  Granted, you can go on any techie board and read how people love Gmail, how effective its spam filters are (might have more to do with that Gmail < 4% penetration), how the flow works, etc.  Ah, rubbish. 

For starters, email is, to me, about communication.  And it’s a slower form of communication than IM, so I don’t need it to be cutting edge, just convenient.  I want my email ordered.  Before computers, when we were waist high in paperwork (I still am, amazingly) we needed folders and labels.  Naturally, as email evolved an organizational system of folders and labels by subject or sender was produced.  And, hey, look what else developed – trash cans, just like in real life.  Love throwing away that clutter.

Well, Gmail trashed the perfectly good email format where trash cans and folders ease the burdens of Inboxes.  Gmail even makes it tough to delete useless email, too.  Google intimates that deletion of email is a non-priority because users are given so much storage space.  Baloney.  It’s an irksome element and on some level I think it has something to do with the fact that I’m served text ads in my own inbox.  People shouldn’t wonder why Gmail is still ‘Beta’, though some joke that Google forgot to take down that label. 

It’s not a coincidence; Google took a shot at revamping email as we know it and it didn’t work – yet.  Unfortunately for Gmail, Instant Messaging has stolen much of their potential thunder and as convergence continues between voice, text, and video – revolutions within a confined space, like email, will not be forthcoming.  I do believe, though, that Google has a longer-term plan for Gmail.  All the applications that Google develops (admittedly, almost none of it is original or innovative – Google calendar, picture sharing, the free word processing download, to name a few) leads me to believe that Google is trying to integrate an all-involved interactive experience for the web user.  I’m pretty sure that Gmail will someday be seamlessly integrated with instant messaging and document sharing within a Google-server based operating system that will free users from any web-borne virus or malicious hacking.  Would be an impressive corporate application, would it not?  It explains, to me at least, Google’s giant server complex being built on the Columbia River that’s been the source of so much speculation.


Jeff Conduct
Director of Marketing
ConductSearch.com
http://www.conductsearch.com
t: 1.888.99CS.NYC
e: marketing@conductsearch.com