Microsoft 1, Google 0
It was no accident that Microsoft’s (NASDAQ: MSFT) earnings were good and Google’s bad (NASDAQ: GOOG). The assumption that search is one of the best businesses in the world has proved inaccurate. The notion that paid operating software and hardware sales are bad businesses has turned out to be wrong. The tide of tech has turned in Redmond’s favor.
Microsoft’s sales in the past quarter did not improve much — from $20 billion to $20.9 billion. Earnings were down very slightly to $6.6 billion. But the world’s largest software company is nearing the end of its Windows 7 product cycle, and Windows 8 is on the horizon. The strength of its earnings were in its Servers & Tools division and Business division. These signal the health of corporate and enterprise IT spending. Google has tried to enter this field with its apps products and failed. Microsoft’s products have the appeal of completeness and are fully finished. The power of its numbers in these areas was confirmed by IBM’s (NYSE: IBM) strength in the same sector
Google’s earnings were impressive on their face. Sales rose 25% to $10.6 billion. Earnings were up very modestly from $2.54 billion to $2.71 billion. The margins were unimpressive. Wall St. reacted by dropping shares by 10%. The strangest thing about the company’s numbers was that the employee count at Google rose from 31,353 at the end of September to 32,467. This happened as Google dropped out of a number of is faltering businesses. It would seem the size of its workforce ought to decline. Google has decided to invest in a future that may be severely limited.
Google’s figures were hurt by the movement of search to mobile devices from the PC. Yield per click on its text ads dropped 8% from the same period a year ago. Some analysts believe that click activity on mobile devices is poor. Google may be the leader by far in mobile search. The victory appears to have caused damage to its margins.
Google’s other major push into mobile is its Android operating system. Its adoption has been extraordinary. Android growth has outpaced the increase in the use of Apple’s (NASDAQ: AAPL) OS, and Microsoft barely has as foothold in the market. Google has not found a way to make money on Android, and the software is under patent attacks, mostly from Microsoft. An open source operating system that was supposed to be free has turned out to be expensive for its adopters. Most have agreed to pay license fees to Microsoft for its intellectual property. Microsoft may have found the mobile OS business more profitable than Google, even though Windows mobile OS growth has been nonexistent.