Friday, November 11, 2005

"Simple and Open" Always Wins

Google (GOOG) currently has a Price to Earnings ratio (P/E) of 86.30. Micrsoft's (MSFT) P/E is 23.00. Why does Wall Street value Google almost four times more than Microsoft? I think the answer is because Google is seen as innovative and disruptive.  Google isn't building a Yahoo!-like portal. Google isn't building a Microsoft Office-like suite. Google doesn't imitate.

Personally, I think it's terrific how Microsoft embraced XML and Web Services. I'm impressed by the initial reviews of Windows Live and Office Live. But, if Microsoft really wants to narrow the P/E gap between themselves and Google, then they need to get disruptive. My advice: wholeheartedly embrace a strategy based on simple and open. Avoid complex and proprietary.

Obviously, such a shift is risky. It will require substantial changes to Microsoft's business model. But, they're still strong and rich. Now is when they should be willing to gamble intelligently.

We've seen once great companies like Digital Equipment crash and burn. It looks like GM may be soon be facing bankruptcy. That's already happened at United and Delta. I have little doubt but that IBM teetered on the brink of disaster and only was saved by Gerstener's miraculous ability to teach that elephant to dance.

Microsoft's P/E ought to be above 80. The information revolution is still in its infancy. Microsft took a huge risk when it gambled on Windows. It did so again with Internet Explorer. Now is the time for Microsoft to bet the ranch on simple and open. Get disruptive. Don't imitate. Look at what you tried to do with Passport, and then do the exact opposite.


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