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Monday, September 06, 2004

The $7 Billion Question -Microsoft research budget via Om Malik

Several people ask the question,"what does Microsoft do with its $7 Billion research & development budget? Good question? What does the company really do with all that money?". Bill Gates recently said,"Our businesses have really been limited only by our creativity in terms of new ideas, and our ability to put together world-class teams to execute on those ideas. And the fact that new ideas keep going is very, very important.We have the dedicated Microsoft Research Group that we call MSR. MSR is where we have the things that are the most advanced. We don't have a schedule, we don't even know exactly what they'll come up with, but we have experts in all the different areas you'd expect: graphics, linguistics, security, databases…. now the Microsoft Research Group, we try to make sure that it's not separated from the product groups.” Mr. Gates had this to present to financial analysts recently on this topic. Bill Gates said that,It's interesting that throughout the history of the company, the use of capital has not been a limiting factor in our activities. That's not true of most businesses. Our businesses have really been limited only by our creativity in terms of new ideas, and our ability to put together world-class teams to execute on those ideas. And the fact that new ideas keep going is very, very important. One challenge in the software business model is that once you license a piece of software, it never wears out. And so if all you think of yourself as doing is basic word processing, or basic database, then at some point you saturate the customers out there, and you simply aren't charging forward, achieving new growth. In fact, your sales don't even maintain their current level because all you're getting is perhaps the maintenance from that base. Now, Microsoft has always thought very broadly about software, whether it's thinking about the Windows franchise as a platform that needs to get richer and richer, or the Office platform as a franchise that needs to take all the productivity needs people have and embrace those. We are branching out into new areas, driving value into the software. The pace at which we do that, the pace of the innovation, really is a key variable in the financial equation. I've been surprised that many software companies don't broaden out, don't think of what they're doing in a comprehensive enough way.Om Malik asks,"Imitation of hot-selling products is not such a bad idea, after all the only real scarce commodity on our planet is originality. The question is if you as a company are spending $7 billion on R&D, you must come-up with some original genre defining product. [Microsoft windows and Office don’t count, because that’s the bread and butter, which pays for everything else.]I understand that Microsoft has to spend billions on patching its operating system against all sorts of Internet attacks, including viruses and worms. I also discount that every year the company has to come up with neat tricks to enhance its core office and Windows products. But the question is – where is the knock your socks off originality, the innovation that says, “god darn it …that is brilliant.”" Microsoft bloggers present their perspective - but clear answers are missing. Most of research effort seems to be going towards improving windows and office product families, for a long time microsoft has not come out with a industry defining product like the Ipod or Tivo. Imitation and Improvement are not the only results that should be expected of research from the world's largest and most profitable software company. Some people are beginning to think of Microsoft as more of a good marketing company as against associating microsoft to be the leader of high tech industry.

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