One of the interesting corollaries to the fact that Microsoft is making far less money from Windows than it used to – largely thanks to the popularity of netbooks – is that it must depend on other sectors of its portfolio that are still making money to keep the company ticking along. Here are some interesting figures, which – if correct – throw light on what's really making the chairs fly at Redmond Towers:
Microsoft’s ‘heart’ is business related software, which it uses to cross subsidise its consumer products. But it can’t continue to do this indefinitely. Its core Office franchise remains incredibly profitable, with an enviable 75% operating margin, and this has been bankrolling most everything else. Microsoft’s business applications division lost money for years but is now returning margins of 65%. Windows infrastructure software generates 37% margins and has formed a virtuous circle with Office.
But netbooks are driving down the Windows price point and boosting the use of Linux. I don’t think Microsoft has ever really made money on X-boxes, and its online services division is losing over $1b p.a.
What this means is that Microsoft is only making big money on its Office suite, for whose luxurious margins it must therefore fight tooth and nail. Which, judging by its behaviour at the ISO, and some more recent stories, is exactly what it is doing in the face of growing pressure from open ODF-based alternatives like OpenOffice.org.