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Thursday, December 05, 2002 |
"United Learns Size Isn't Everything", WSJ December 5 2002.
[Categories: Airlines, Costs, Demand, Game Theory (Commitment)]
P.S. Commitment piece is at the end, about United having little cash perhaps as a bargaining tactic to induce unions to accept less pay.
1:44:20 PM 
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Tuesday, November 19, 2002 |
I'd like to thank Adam Kornick for this funny clip of Steve Ballmer eloquently emphasizing the importance of developers to the Microsoft OS.
4:12:49 PM
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Microsoft's Margins. Check out Microsoft's margins broken down by business segment: see Note 9 on their most recent 10Q SEC filing. (In case you experience problems linking directly to the 10Q report, go to SEC Edgar search engines and type in Microsoft and click on their most recent 10Q dated 2002-11-14, then click on file d10q.htm.)
I've cut-and-pasted the most relevant bit here.
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Three Months Ended Sept. 30
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Revenue
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Operating Income/(Loss)
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2001 |
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Client |
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$ |
2,076 |
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$1,708 |
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Server Platforms |
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1,330 |
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350 |
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Information Worker |
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1,932 |
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1,476 |
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Business Solutions |
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74 |
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(39 |
) |
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MSN |
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431 |
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(199 |
) |
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CE/Mobility |
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14 |
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(48 |
) |
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Home and Entertainment |
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236 |
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(68 |
) |
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Reconciling Amounts |
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33 |
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(283 |
) |
| |
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Consolidated |
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$ |
6,126 |
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$2,897 |
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2002 |
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Client |
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$ |
2,892 |
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$2,482 |
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Server Platforms |
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1,523 |
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519 |
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Information Worker |
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2,385 |
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1,879 |
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Business Solutions |
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107 |
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(68 |
) |
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MSN |
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531 |
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(97 |
) |
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CE/Mobility |
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17 |
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(33 |
) |
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Home and Entertainment |
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505 |
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(177 |
) |
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Reconciling Amounts |
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(214 |
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(455 |
) |
| |
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Consolidated |
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$ |
7,746 |
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$4,050 |
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The Client segment includes revenue and operating expenses associated with Windows XP Professional and Home, Windows 2000 Professional, Windows NT Workstation, Windows Me, Windows 98, and embedded systems. Server Platforms segment consists of server software licenses and client access licenses (CALs) for Windows Server, SQL Server, Exchange Server, Systems Management Server, Windows Terminal Server, and Small Business Server. It also includes BackOffice/Core CALs, developer tools, training, certification, Microsoft Press, Premier product support services, and Microsoft consulting services. Information Worker segment includes revenue from Microsoft Office, Microsoft Project, Visio, other standalone information worker applications, SharePoint Portal Server and CALs, and professional product support services. Business Solutions includes Microsoft Great Plains; bCentral; and the newly-acquired Navision. MSN includes MSN Subscription and MSN Network services. CE/Mobility includes Pocket PC, Handheld PC, other Mobility, and CE operating systems. Home and Entertainment includes Xbox video game system; PC games; consumer software and hardware; and TV platform.
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Margins, then, calculated as in class (p-MC)/p corresponds roughly to (REV-COST)/REV:
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SEGMENT |
2001 MARGIN |
2002 MARGIN |
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Client |
82.27% |
85.82% |
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Server Platforms |
26.32% |
34.08% |
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Information Worker |
76.40% |
78.78% |
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Business Solutions |
-52.70% |
-63.55% |
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MSN |
-46.17% |
-18.27% |
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CE/Mobility |
-342.86% |
-194.12% |
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Home and Entertainment |
-28.81% |
-35.05% |
According to our discussion in class, we expect Microsoft to reap high sustainable profits in markets where they dominate the market and enjoy a strong network externality do to developers' incentives to write software for the dominant platform. So it's no surprise profits are high in Windows and Office. On the other hand, is it any surprise that profits are lowest in PDAs, where Palm provided a potentially viable threat to the Windows programming platform? I'm less knowledgeable about MSN, servers, business solutions, and home & entertainment. But to the extent that network externalities are strong in these segments and monopoly power with high barriers to entry is a real prospect, it makes sense for them to endure losses today in these segments. (Some of the media coverage seems to suggest that Microsoft would not be a viable business without being able to exercise their monopoly power -- "they can't make money in any other business than Office and Windows!" -- but this ignores the fact that Microsoft may be losing money in these businesses for the express purpose of maintaining / extending that market power.)
[Categories: Demand (Network Externalities), Microsoft, Other]
4:01:47 PM
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Tuesday, November 12, 2002 |
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Friday, November 08, 2002 |
"The $199.86 Solution: Microtel's bargain-basement PC is OK for basic computing, but face it -- the Lindows O/S is a major trade-off", BusinessWeek November 11, 2002.
[Categories: Demand (network externality in O/S), Market Definition, Microsoft]
3:55:06 PM
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"Airbus is Set to Give Final Nod for Superjumbo Jet", WSJ December 19, 2000.
"Airbus Comes of Age with A-380 Super-Jumbo Jet Challenges Boeing's Last Monopoly", USA Today June 21, 2001.
"Boeing Weighing Speed and Efficiency in Deciding Newest Plane", Associated Press November 7, 2002.
Summary: Airbus' super-jumbo has received numerous orders. Boeing appears to have backed off from competing directly against Airbus' super-jumbo, instead favoring a smaller plane that will greater distances. According to Boeing, this plane may also be much faster (as in the Sonic Cruiser idea) or just super-fuel efficient. (See most recent AP article.)
[Categories: Airlines, Demand, Game Theory (first-mover, threats & commitments), Market Definition]
3:52:25 PM
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"Air Canada Rides Out Stormy Weather", WSJ October 28, 2002.
"Air Canada this summer started four niche airlines: Tango (a low-cost, low-fare national carrier), Zip (a low-fare carrier in Western Canada) ... [and is considering niches focused on] cargo service and business travel." (See also Air Canada Vacations and Jetz -- the new business travel-oriented subbrand.) What do you make of this "subbrand strategy"?
Demand issues: Is flying Tango substantially different than flying on a standard flight with a cheap, restricted ticket? What about flying Jetz vs. on a standard flight in business class?
Cost issues: Are cost advantages to segment-specialization great enough that we can ever expect airlines to totally specialize in this way (for all of their flights)? In particular: who is more vulnerable to entry, an airline that carries several types of passengers on several flights or one that carries only a single type of passenger on each flight?
Price Discrimination Issues: Does Tango need to require advance purchase and a Saturday night stay to segment the market of business travellers from leisure travellers? (One can argue this both ways: What facts could we learn to decide the issue?)
[Categories: Airlines, Demand, Market Definition, Price Discrimination]
3:16:28 PM
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"Fast-Food Chain makes a Move Out of the 'Box'", WSJ October 29, 2002.
Jack in the Box plans to open 100 to 150 convenience stores that will be co-located with their restaurants.
[Categories: Costs (Economies of Scope), Demand, Other (Bundling)]
2:58:03 PM
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Tuesday, November 05, 2002 |
"Google's Next Runaway Success: AdWords Select kicks in a network effect for online advertising", Business 2.0 Magazine, November 2002. See also Google's description of the AdWords service.
Google charges by the link and displays most prominently those ads which have the highest click-through rate. (Holding click-through rate fixed, it also boosts those who pay higher price per click-through.) Why don't other sites that raise revenues through advertising do the same thing? Most other sites charge on the basis of "eyeballs" and display prominence depends only on negotiated terms with advertiser. How does Google's policy strengthen the network effects associated with building up (i) the network of paying advertisers and (ii) the network of consumers who pay attention to the ads?
[Categories: Demand (Network externality)]
3:24:41 PM
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Tuesday, October 01, 2002 |
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Thursday, September 26, 2002 |
"Microsoft Unveils Media Software", WSJ September 5, 2002.
"The [media] software is a `strategic entry point' for Microsoft into the more traditional markets":
--1-- "Technologies that are showing up in this product first could easily end up in other offerings."
--2-- "Microsoft has an advantage since it can bundle its digital-media offerings with its other, often-dominant software."
[Categories: Costs (Economies of scope), Demand (Network externalities), Microsoft, Price Discrimination (Bundling)]
2:30:50 PM
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© Copyright 2002 David McAdams.
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