Editor’s note: Marc Leavy,CFP? is a regular financial columnist for Business Reform Magazine, the leading Christian business magazine with over 100,000 readers. Each issue features practical advice on operating successfully in business while glorifying God.
Netscape will go the way of Lotus 123, WordPerfect, and Harvard Graphics. Bill Gates will become enshrined alongside John D. Rockefeller, Henry Ford and Andrew Carnegie. It is the company people love to hate, but Microsoft (MSFT) exemplifies what is right and wrong with capitalism.
For my money, capitalism is biblical. In the Parable of the Talents, Jesus told a story of a master who entrusted his servants with money. The ones who earned a profit received an additional reward. The one who merely preserved his capital was chastised. The master even went so far as to take what little capital “the unprofitable steward” had and give it to the one who had the most money. Jesus was no socialist. Jesus taught individuals to give and to serve. He did not however embrace societal or governmental extortion.
Microsoft gained market dominance much the way Henry Ford did. Henry Ford did not develop the first or best car. But he did have a vision that everyone could drive an affordable car. He produced the Model T below the cost of his competitors. He rewarded his workers handsomely, thereby attracting the best and brightest in the workplace to Ford. Microsoft’s vision was that every PC could/should run Microsoft products. Microsoft practically gave away DOS and rewarded employees with good stock.
Both these companies achieved their vision through cost cutting, increasing productivity and determination – or if you prefer – ruthlessness. They also handsomely rewarded shareholders who put their own capital to work with them. Microsoft has averaged 25% over the last 10 years, which is 10% a year higher than the S&P 500. If you had invested $10,000 in the S&P 500 ten years ago, you would have a little over $27,000. $10,000 in MSFT would have netted over $118,000. Apple would have given you less than the S&P and if you invested $10,000 in Red Hat three years ago, you would have less than $1,000. You might prefer other technology but you wouldn’t buy the stock.
The essence of capitalism is mass production for the good of the masses. Microsoft serves its customers. Microsoft began by serving the customers of WordPerfect. I remember being able to get Microsoft Word for $100 (which was less than half the cost of the WordPerfect upgrade) with my WordPerfect manual title page. Microsoft developed their software to use WordPerfect commands, thereby assisting the transition. I could even give it that stupid blue screen with white letters.
Microsoft served by being less expensive and better. I know that no one in the computer industry would say Microsoft is better, but as a user, I found Word and Excel far easier to use than Lotus 123 and WordPerfect.
Has Microsoft used an “unfair advantage” because they were developing the operating system at the same time they were developing other software packages? Probably. Did they exert pressure on hardware suppliers not to use other OS’s? Probably. Did they lure competitors in for a look at their code and then steal their technology? Maybe. Intuit seems to have survived. You can blame MSFT for that. Remember, it was Bill Gates who worked one hundred hours a week to develop the first operating system and realized computers would be useless without a universal operating system. Other companies tried to fill the gap. IBM, the Microsoft of its day, had PC DOS. Then it made a disastrous attempt with OS2.
Like Henry Ford and Andrew Carnegie, Bill Gates will be maligned and hated. Still, all these men increased the standard of living for millions of people and created?not stole, created?millions of dollars for people.
Bill Gates and MSFT have triumphed in the marketplace because people voted with their dollars. People voted by buying Word over WordPerfect, MSDOS over PCDOS, Windows over OS2, Windows over Apple, Excel over Lotus 123. People bought an IBM clone running MSDOS instead of an Amiga or a Commodore. Most importantly, businesses voted to standardize on MSFT over Apple?save graphic artists. (That niche too may fall, as Adobe, Apple’s longtime cohort, will not release a MAC version of its latest video-editing software. Adobe made a strategic capitalistic decision. Steve Jobs must feel like Jerry McGuire: “Steve, that’s why they call it Show Business and not Show friends.”)
Recently Microsoft decided to pay its shareholders a dividend; a very nice benefit to a great stock. Of course MSFT is sitting on billions of cash. But those billions came from the masses that bought software and stock.
You are free to despise Microsoft. It’s a free country. Just remember, most of the people to whom you complain are profiting from owning the stock and consciously deciding to buy the software.
Marc Leavy, CFP? is a Certified Financial Planner. Principled Investing teaches Solomon’s principles of investing and offers wisdom regarding comprehensive financial planning for a fee. You may contact Marc at [email protected] or visit www.principledinvesting.org.
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