Microsoft Corporation develops, licenses, and supports software products, services, and devices worldwide. The company's Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, including Office, Exchange, SharePoint, Skype for Business, and related Client Access Licenses (CALs); Office 365 consumer services, such as Skype, Outlook.com, and OneDrive; Dynamics business solutions, such as financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations, and divisions of enterprises; and LinkedIn online professional network. Its Intelligent Cloud segment licenses server products and cloud services, such as Microsoft SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform with computing, networking, storage, database, and management services; and enterprise services, such as Premier Support and Microsoft Consulting that assist in developing, deploying, and managing Microsoft server and desktop solutions, as well as provide training and certification to developers and IT professionals on Microsoft products. The company's More Personal Computing segment comprises Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, MSN display advertising, and Windows Phone licensing system; devices, including Microsoft Surface, phones, and PC accessories; and search advertising, including Bing and Bing Ads. This segment also provides gaming platforms, including Xbox hardware, Xbox Live, video games, and third-party video games. The company markets and distributes its products through original equipment manufacturers, distributors, and resellers, as well as through online and Microsoft retail stores. The company was founded in 1975 and is headquartered in Redmond, Washington.
Business Analysis of Microsoft
The Technology Sector is witnessing a major shakeup, new age business models in the industry are transforming both customers and businesses. Faced with this uncertainity, companies are investing resources to transform their business. An in-depth business analysis is a valuable resource to identify and articulate the need for a business model change. At R&P Research we believe, the starting point for a business analysis is Benchmarking. Business benchmarking can be done at various levels: 1) Industry Benchmarking 2) Peer Benchmarking 3) Disruptors Benchmarking. In this report, we share the snapshot of how Microsoft compares against the industry on the major performance indicators. This analysis, along with peer group/disruptors benchmarking and revenue model understanding can help identify growth and cost optimization opportunities to maximize the value delivered by Microsoft to its stakeholders. R&P Research Industry Intelligence Platform provides historical data for last 15 years with an easy to use benchmarking interface for an in-depth comparative business analysis.
Here is the performance snapshot of Microsoft with an interactive chart.
- Revenue Growth: Microsoft reported a revenue growth of -8.8% year-on-year during 2016. Software Industry grew at 0.9% in the same period
- COGS share of Revenues: As a percentage of revenue, Microsoft spent 38.4% of its total revenues on COGS. Software industry average (COGS share of revenue) in the same period was 34.0%
- R&D share of Revenues: As a percentage of revenue, Microsoft spent 14.1% of its total revenues on R&D. Software industry average R&D spending in the same period was 14.8%
- SG&A share of Revenues: As a percentage of revenue, Microsoft spent 22.6% of its total revenues on Sales, Marketing, and General Administration (SG&A). Software industry average SG&A spending in the same period was 30.8%
- Inventory share of Revenues: As a percentage of revenue, Microsoft spent 2.6% of its total revenues on Inventories. Software industry average Inventory spending in the same period was 1.9%
- Accounts Payable share of Revenues: As a percentage of revenue, Microsoft invested 8.4% of its total revenues on Accounts Payable (A/P) Software industry average Accounts Payable investment in the same period was 6.2%
- Accounts Receivable share of Revenues: As a percentage of revenue, Microsoft invested 21.4% of its total revenues on Accounts Receivable (A/R). Software industry average Accounts Receivable investment in the same period was 19.4%
- PP&E share of Revenues: As a percentage of revenue, Microsoft invested 21.5% of its total revenues on Property, Plants, and Equipments (PP&E). Software industry average PPE investment in the same period was 15.8%
- Intangibles share of Revenues: As a percentage of revenue, Microsoft invested 25.3% of its total revenues on Intangibles. Software industry average Intangibles investment in the same period was 62.4%
- Net Margins: Microsoft Net Margins in the year 2016 were 19.7%. Software industry average Net Margins in the same period were 13.6%
Sector and Industry Association of Microsoft
For the purpose of performance benchmarking of a company with a sector or industry average, R&P Research associates every company with one sector and one industry. An industry consists of companies with related/similar business models. A sector comprises of a group of related/similar industries.
Microsoft is associated with Technology Sector and Software Industry.
Technology sector is comprised of the following industries: Computers Systems and Peripherals; Software; Semiconductor; IT Consulting and Outsourcing Services; Networking Equipment and Services; Internet; Other. The definitions for each of the industries is as follows:
- Computers Systems and Peripherals industry includes companies primarily engaged in manufacturing of personal computers, servers, mainframes, workstations, and other computer accessories and peripherals such as storage drives, mice, keyboards and printers. It also includes manufacturers of mobile phones and tablets.
- Software industry includes businesses providing software products such as operating systems, productivity suites, enterprise software, data and analysis software, advertising and marketing software, engineering and manufacturing software, networking software, and IT management software. It also includes companies providing industry-specific software focused on different sectors such as Financials, Automotive, Telecom, Utilities, Travel, Real Estate, Media, and Publishing.
- Semiconductor industry includes companies primarily engaged in manufacturing and distribution of semiconductor products such as microprocessors, chipsets, motherboards, flash memory, and wired and wireless connectivity products. It also includes companies that provide semiconductor equipment and services to the semiconductor industry.
- IT Consulting and Outsourcing Services industry includes companies primarily engaged in providing information technology consulting and outsourcing services to other businesses. The services include IT consulting, systems integration, application development and management, IT infrastructure management, and network operations management.
- Networking Equipment and Services industry includes companies primarily engaged in manufacturing and distribution of networking and communications equipment for transporting data, voice, and video traffic across intranets, extranets, and the Internet. The key products include routers and switches for local and wide-area networks, cable modems, teleconferencing equipment, and wireless access points.
- Internet industry includes Internet-based businesses providing products and services such as search engines, social networking, web hosting, email, domain name registration, and eCommerce. It also includes industry information/services portals focused on different sectors such as Financials, Automotive, Travel, Health, Real Estate, Media, and Publishing.
- Other industry includes companies providing products such as photocopiers, fax machines, point of sale machines, audio/video technologies, and video games. It also includes technology companies that are not part of other six technology industries.
Industry Ranking of Microsoft
With $85.3 billion revenues, Microsoft ranked number 1 of all the companies in the US Software industry. There were a total of 140 public companies in the US Software industry that had revenues greater than $50 million during 2016.
The top-10 companies in the US Software industry by revenues during 2016 were:
Business Model Analysis (BMA) Framework
We use the following framework to assess the business model of a company. Business Model Analysis framework can be used by organizations to articulate growth strategies and identify cost optimization opportunities. Technology and consulting companies can use this framework to identify the value drivers and pain points of their targeted customers. Entrepreneurs can use this framework to understand the language of business and identify promising business opportunities. This framework can be used by any professional aspiring to take up a leadership role to better understand the businesses challenges, articulate growth strategy, and monitor the business improvement requirements for the organization.