I love numbers.  I think they’re the quickest path to truth.  But numbers can be misleading if used that way and I think that’s what Microsoft’s Corporate VP of Communications is doing in his post entitled Microsoft By The Numbers.

This isn’t a full refutation of his points and I even skip over a few for time but this should at least tell you that his overall theme is misleading.  He’s using numbers out of context to make Microsoft look a lot stronger than it actually is. 

Getting Started…

150,000,000
Number of Windows 7 licenses sold, making Windows 7 by far the fastest growing operating system in history.

Yes, but Vista sales were lack luster by Microsoft’s own admission and people need to upgrade after 9 years (XP original release date was 2001).  So what Windows 7 sales indicate is that (a) there was pent-up demand for a decent OS and (b) Windows still doesn’t have any viable competitors (if you don’t want to deal with Apple).  Neither of those facts are Microsoft specific strengths.

7.1 million
Projected iPad sales for 2010.

58 million
Projected netbook sales in 2010.

355 million
Projected PC sales in 2010.

Again the PC number is related to the above point.  But it should be pointed out that he used “Projected” sales from IDC.  What he doesn’t say is that IDC initially projected a 5.6% increase in IT spending for 2009 but that IT spending actually fell by 4.5% (which isn’t a criticism of IDC whose predictions were in-line with all the other firms).  So projections don’t mean much.

On the Netbook issue he fails to mention that the growth of netbooks has been at the expense of Notebook PCs.  Notebook revenue was down 7% in 2009 and that’s bad for Microsoft (who wants to sell full versions of Windows 7 not the starter version loaded on netbooks).  Also his iPad source is from April 2nd and doesn’t take into account the products explosive initial sales.

<10
Percentage of US netbooks running Windows in 2008.

96
Percentage of US netbooks running Windows in 2009.

This is a somewhat fair point but netbook sales were only 11.4 million in 2008 so it was really a niche market.  The bigger point is again that Microsoft is making 1/4th of the profit off netbooks as it would off a full scale PC or Notebook

0
Number of paying customers running on Windows Azure in November 2009.

10,000
Number of paying customers running on Windows Azure in June 2010.^[source]

700,000
Number of students, teachers and staff using Microsoft’s cloud productivity tools in Kentucky public schools, the largest cloud deployment in the US.^[source]

Well Azure wasn’t a product in 2009 and we don’t know what a “paying customer” is so the first two points don’t mean much.  I tested Azure a few weeks back just to get a feel for how it works which would make me a paying customer but not an ongoing one (or one who paid more than $20 thus far)

As for the third number I notice there’s not a point for  “2 Million” Zoho customers or “25 million” Google Apps Users.

9,000,000
Number of customer downloads of the Office 2010 beta prior to launch, the largest Microsoft beta program in history.

Office has a lot of users.  That’s not news.  The fact that the Office 2010 beta program was big only reflects that Microsoft allowed it to be that big.

21.4 million
Number of new Bing search users in one year. [Comscore report – requires subscription]

Again “Users” is a meaningless statistic.  I try Bing every time they announce something new so I’m likely counted in that number but I use Google primarily.  If anything this number is low because it means most of the billion users going to Google aren’t even giving Bing a chance.

24%
Linux Server market share in 2005.

33%
Predicted Linux Server market share for 2007 (made in 2005).

21.2%
Actual Linux Server market share, Q4 2009.

Again this is a meaningless number.  If you look at the source it’s based on an IDC report on server hardware revenue.  But anyone who understands basic computing knows that more expensive hardware is cheaper per user.  On that note the majority of the $799 small business servers are running Windows while the majority of the $50,000 web servers are running Linux.   So hardware revenue share does not equate to usage share

8.8 million
Global iPhone sales in Q1 2010.

21.5 million
Nokia smartphone sales in Q1 2010.

55 million
Total smartphone sales globally in Q1 2010.

439 million
Projected global smartphone sales in 2014.

Yes but Microsoft’s platform isn’t even in the market yet and when it gets there it will find itself facing a superior platform (Android) that’s cheaper than Microsoft’s offerings.  There’s a lot of potential in smartphone growth but Microsoft isn’t poised to take advantage of it right now.

$5.7 Billion
Apple Net income for fiscal year ending  Sep 2009.

$6.5 Billion
Google Net income for fiscal year ending Dec 2009.

$14.5 Billion
Microsoft Net Income for fiscal year ending June 2009.

But these are companies of vastly different size and comparing revenue without looking at size is misleading.  Let’s look at the numbers with size taken into consideration.

Number of Employees

Microsoft: 93,000

Google: 20,621

Apple: 35,000

Net Income per Employee

Microsoft: $155,913

Google: $315,212

Apple: $162,857

So Google and Apple are much smaller companies making much more money per employee. 

$23.0 billion
Total Microsoft revenue, FY2000.

$58.4 billion
Total Microsoft revenue, FY2009.

Yes but Microsoft has acquired at least 85 sizable companies since 2001 so the question is what was the combined revenue of all those companies vs. Microsoft’s revenue today?

Brad Burnham of Union Squared Ventures puts forth an interesting theory.  He basically lays out the idea that platform companies like Apple and Facebook are like governments…

A lot of people have begun using the term ecosystem to describe these big platforms. That captures their decentralized, emergent character, but ecosystems do not have a central point of control. Apple decided to eliminate third party analytics between one release and the next. That doesn't happen in an ecosystem. The right analogy is a government.

Facebook is a government. Facebook's users are citizens, and Facebook's applications developers are the private companies that drive much of the economy. Apple. Twitter, Myspace, Craigslist, Foursquare, Tumblr and every other large network of engaged users (including some services of Google) plays a similar role.

He then suggests we view these companies through that lense in the future…

So as you watch the large web services evolve, think about how they are balancing the relationship between the state and the private sector? What does Facebook's introduction of Facebook Credits say about its monetary policy? What is Apples foreign policy? Do they act unilaterally promoting their own proprietary standards or do they act multilaterally embracing international standards? What is Twitter's industrial policy? Do they invest in state owned services or encourage decentralized economic development? The choices these platforms make reveal a lot about who they are, and ultimately how well they serve the companies operating in their economies and the citizens who live there.

The implied point here being that companies like Facebook, Apple, et al. should be mindful of this comparison and start to act like responsible governments would and not like dictators.  I don’t agree with this. 

Mr. Burnham’s analysis certainly has some truth to it.  But in my opinion that makes it more dangerous than helpful and I want to explain why.  To do that let me make two points…

All Successful Companies are Dictators…at first.

When I was a kid there was a company named 3Dfx (or 3dfx depending on when you ask).  They had a graphics chip called Voodoo and a proprietary API for that chip called Glide. 

They also had the coolest logo ever….

…but that is beside the point.

Almost every developer hated 3Dfx’s creation of Glide.  The argument was always that their time would be better spent helping along abstraction layers such as OpenGL which wouldn’t force developers to write programs specifically to 3Dfx hardware. 

Eventually that’s exactly what 3Dfx did.  They stuck with their proprietary solution as long as they could but when companies like nVidia became able to compete at the same hardware level 3Dfx abandon their proprietary API and embraced a more open solution. 

This is a cycle that plays itself out over and over again in the technology industry and it’s a successful one.  Because it allows companies to make a bunch of money by being proprietary and then to use that money to stay successful once they can’t maintain that anymore.  Microsoft is alive today because they made a bunch of money during their proprietary phase and are living off it now. 

In the case of 3dfx they had so much money that they were able to buy a video card company called STB and start manufacturing not just the chips but their own video cards.  A move that could have allowed them to dominate the entire video card industry and it’s a move they could only afford because of the money they made during their proprietary days.

(What actually ended up happening is the move distracted them from making better graphics chips which allowed nVidia to leap frog them at which point their company died)

Edit: Kindle Review has a great post on this that points out how companies are entitled to this advantage because of all the effort it takes to build a platform.  Read it here: http://ireaderreview.com/2010/06/12/do-users-own-the-company-whose-products-they-use/ 

Companies Come and Go but Governments are for ev…much longer.

The reason dictatorial governments aren’t acceptable is because the residents of a country can’t choose another government.  At least not without leaving their entire identities behind.

A dominant company can look like a government at the height of its dominance because you don’t seem to have a choice to leave it.  Everyone’s on Facebook right?  So how can a user really leave? 

But that ignores the fact that no company stays dominant for very long.  Who could be more dominant than Microsoft was in the 90s?  Yet even they could only hold on to that dominance for a little over a decade.  Less than 15 years after Windows ‘95 they’re struggling to enter new markets because they see their primary business eroding. 

Compare that to the longevity of countries where even the most backwards government (I’m looking at you North Korea) can easily survive half a century.  That longevity is what makes a dictatorial country so horrifying.   

Conclusion

As I said from the outset there is definitely some truth to Mr. Burnham’s analysis.  But insight is only helpful if it provides you with a prescription for successful future behavior.  This advice does the opposite.  It tells you to abandon a successful strategy based on a flawed analogy.  It suggests you abandon the very strategy that has worked time and time again in the business world. 

Addendum: I write this blog with one central value in mind and that value is truth.  I tell the truth as I see it and while it means I get some very nasty emails and I’ll never be as popular as Scoble that’s the line in the sand I’ve chosen to draw.  Which of course makes me look like a jerk much of the time and I accept that.

But occasionally I chicken out and this is one of those occasions.  So please pretend this paragraph was in the first point above (where I initially deleted it from)…

[Cut Paragraph Begins] 

What about the users?  

As much as I hate to say it the users don’t matter in the very limited scope of this discussion. If you’re dominant enough to be having this discussion than the users don’t really have a choice to leave you just yet. 

Moreover users don’t really care about openness.  They’ll scream about it but in the end they’ll pick the product with the best features not the open one.  Your users might think you’re a jerk but as millions of Apple fans have proven they’ll stick with you if you continue to create a great product. 

Deciding when to open up is completely dependent on your competition.  When they mature enough to start drawing away early adopters that’s when you open up.  At which point your users will accuse you of bending to competition and they’ll be right but if you still have a better product they won’t abandon you and if you open up enough they'll eventually forget you were closed in the first place (does anyone remember how proprietary Netscape was back in the day?) 

[Cut Paragraph Ends] 

In the world of economics the G20 has reversed positions and is now advocating Governments cut spending in order to save themselves from bankruptcy.  This makes Paul Krugman of the New York Times very unhappy…

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.

The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.

Now I’m not saying Mr. Krugman is wrong because the political issue itself is not my concern.  My issue here is the fact that he doesn’t seem to have been exposed to the most basic counter arguments (that Government Spending doesn’t create revenue or help unemployment) so his opinion isn’t worth much (and that’s why people aren’t willing to pay for it)

Follow me here: creating insight via the written word requires you address all sides of an argument.  Because even if you make a persuasive argument for your own side people reading your piece will have doubts if they go somewhere else and read an equally persuasive argument from someone who disagrees with you.  Only through addressing those competing arguments and giving your reader an answer to those doubts can you effectively convince that reader you are right. 

So when Mr. Krugman writes something like this he’s failing his readers because he’s not addressing the most basic counter point which is that stimulus funds didn’t manage to create jobs.  As shown by the famous graphic below (updated to May 2010 by the good folks at innocentbystanders.net)…

Now again my intent isn’t to take sides here.  It’s more than possible that the recession was just deeper than anyone expected and if that’s true than it could be argued that the Government Stimulus did in fact create jobs. 

The issue here is that Krugman didn’t even bother to address this.

If Mr. Krugman had simply skimmed memeorandum.com on Friday he’d have been exposed to this argument and would have at least known enough not to write a piece that treats “Government Spending = Jobs” as a given.  The fact that he didn’t address that point places him under most liberal bloggers in terms of insights IMHO (because most liberal bloggers read conservative blogs and argue against them rather than living in a bubble)

Which again supports my point about the paywall.

Arguments against a paywall on news sites like the New York Times are built around the assumption that the content being produced by those papers is high quality.  Hence people blame the paywall because it is keeping people away from high quality content that they'd normally read.  

But if the quality isn't high than the whole argument falls apart because it isn’t the paywall that’s preventing people from paying it’s the shoddy quality of the content.  That is my argument here.

Mr. Krugman is not good enough at making his points to be of value to anyone who doesn’t already agree with him and those that already agree with him might read him for validation but probably aren’t willing to pay for simple validation. 

Addendum: Please pardon the dip into politics here but I just want to address one political issue so I don’t get a bunch of angry e-mails saying…

“How could government spending not create jobs if it’s literally the Government hiring people for new jobs?  You’re an idiot”

The argument against government spending is that it worries business people and investors.  So while the Government might in fact create new jobs they’ll be doing so with money they don’t have which will make business people and investors worry about the future of the economy.  Those civilians than cut jobs or hold off on hiring people because of that worry which in turn negates the job growth created by government hiring. 

Please note my intent here is not to argue either side of this political issue.  Just to expose everyone to both sides to prove Krugman is a dope.

Boy Genius Report has it from “highly placed sources” that Verizon is currently testing the Apple iPad on their network and predictably bloggers are going crazy about the imminent release of a Verizon iPad. 

But there’s no reason to believe that’s the case and I’ll tell you why.

Follow my logic: If Apple only had a GSM version of the iPhone than they’d be completely at AT&T’s mercy in the U.S.  (they certainly aren’t going to take it to 4th string T-Mobile). 

So they’d be fools not to have a CDMA version of both the iPhone and iPad locked and ready to go. 

Beyond that Steve Jobs has admitted (by refusal to comment) that he’s been in talks with Verizon.  Which brings us to Verizon’s self interest.  There’s no way they enter talks with Apple unless they know a  product actually exists and will work with their network.  Meaning they’d have to test it themselves.

So all this rumor proves is that “Apple has talked to Verizon” which everyone and their brother already knew.  Mr. Jobs' even admits he went to Verizon before he went to AT&T so the talks have more than likely been on-going since the iPhone first debuted.  I’m not saying there couldn’t be a Verizon iPad soon but this is clearly a story of two companies whose differences are keeping them from doing business together and this rumor doesn't say anything about what those differences are or whether they're any closer to being resolved.