The Apple Tax

Over the last few months Microsoft has been dialing up the rhetoric around the “Apple Tax”. Timing is everything and it is no different in advertising. When people were not worried about losing their jobs or paying the bills spending a few hundred bucks more on a Mac didn’t seem to be a problem. But times are changing and this economy sure helps. Steve Ballmer, who told a Business Week-sponsored forum last month that Mac customers were paying an extra $500 to get the Apple logo on what is essentially the same hardware.

Microsoft launch an advertising campaign called Laptop Hunters where they give people a set amount of money to find a laptop to meet their needs. If they get it for less they keep the cash. The recent commercial has a kid and his mom shopping for a new laptop.

This marketing campaign does get enough credit for being smart and effective. Microsoft’s response to Apple’s commercials has been direct and bold. Given the current economic environment, people are much more focused on making every dollar count. And these commercials hit and the heart of Apple’s premium pricing which has helped them amass a war chest of cash. Now that premium pricing will be under pressure.

Microsoft Misses Earnings and Cuts 5,000 Jobs

The economy must really be going down the tubes. Microsoft announced today it missed its revenue and earnings targets and plans to cut 5,000 jobs.  Amid slow PC sales, revenue for the quarter came in at $16.6 billion for the second quarter, up just 2 percent from a year ago. Microsoft’s revenue was $900 million less than the company projected.

For Wall Street, this was a big surprise given IBM and Apple had strong quarters. People were expecting Microsoft to perform well given its diversified business. I think Microsoft performance is a result of a broader economic downturn that could become much worst before  it gets better. And a growing problem with the effect of netbooks and losing share to Apple. With the economy in more of a reset mode than a recession I think we are in for a long downturn and IT spending will be impacted broadly.

 With this news Steve Ballmer announced that Microsoft would cut 5,000 jobs and reduce other costs across the company. You can read his whole email below. Read more

Facebook Loses $14 Billion In Value

Facebook has lost $14 billion in value in less than a year. With a 140 million users and growing Mark Zuckerberg’s social network company has gotten a reality check.The value of Facebook has been a hotly debated topic.

Last October Microsoft solidified Facebook’s value to the world, $15 billion. Microsoft got a paltry 1.6% stake in the company for $240 million.  Some thought that Steve Ballmer had lost his mind. But what people didn’t realize is how smart he really was. To Microsoft, $240 million is a rounding error, so if they were really crazy they would have bought more of Facebook at an insane valuation. What was brilliant about this move was it established a public valuation for Facebook that was so high and unjustified no one on the planet would touch them. Unless you are Li Ka-shing the Chinese billionarie that put up $60 million at that valuation. Essentially it was a poison pill for anyone that would try to acquire them. (hint, hint, Google)

Even Facebook internally didn’t believe the $15 billion valuation. According to inside sources they were offering employees options at $10 billion and some employees got options at $5 billion. Mark Zuckerberg recently canceled a employee stock buying program when no company would agree that Facebook was worth $4 billion. So what is it worth now? Valleywag was reporting rumors of of people willing to sell their stock at $2.50-4.00, that would put Facebook’s valuation at $1.3 billion. If you look at the numbers Facebook is worth much less.  Read more

Qi Lu is Microsoft’s Chosen One

Microsoft announced today that Qi Lu will join the company as the President of Online Services Group. Steve Ballmer tapped Lu to oversee all efforts in search, advertising, and online information and communcations.  Qi comes to Microsoft after 10 years at Yahoo, where he most recently served as executive vice president of engineering for all Yahoo’s search and advertising development efforts. He has a dotorate in computer science from Carnegie Mellon and holds over 20 U.S. patents.

There was a lot of speculation on who Microsoft would hire for this top position. Lu is an interesting choice because he has fundmentally been an R&D guy. About coming to Microsoft, Lu says “I am genuinely excited about the opportunities ahead for Microsoft to make an enormous impact on the online industry.”  Here is the email Ballmer sent to employees following the announcement. Read more