Where do Microsoft's profits come from?

It's hard to fathom how much money a company such as Microsoft makes a year. In 2009, Microsoft's net income was 14.569 billion dollars. It is the most profitable software company on planet Earth. But where does all of their money come from?

Microsoft is involved in many different areas of consumer life. They make operating systems, gaming systems, games, productivity suites, and even hardware. The breakdown of Microsoft's profits may surprise some, but in general, it's much of what you'd expect from a company whose success stems from Windows and the fact that 91% of the world's computers accessing the Internet use it.

Below is a chart from Business Insider showing Microsoft's operating profits by division. You'll notice that only recently has Microsoft's entertainment and devices division begun turning higher profits. Xbox 360 was released back in November 2005, yet, nearly a year later, you can see Microsoft still losing money from it. It's also interesting to see how Microsoft's online services operate at a loss. This is probably a result of Microsoft's need to stay competitive with Google and other free, online, cloud based services. Microsoft can probably expect further losses in this area once Web Apps are released (unless they plan on supporting it through ads). As expected, Office and Windows seem to be the core of Microsoft profits.

Microsoft Operating Profit by Divison

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Is MSFT's E&D also making stuff like mouse, keyboard, and Webcam? it sounds low-tech, but by licensing MSFT's name out on these small things, MSFT actually makes a lot out of it with stable cash flow. XBOX probably has never take any green in yet.

joysleeper said,
Is MSFT's E&D also making stuff like mouse, keyboard, and Webcam? it sounds low-tech, but by licensing MSFT's name out on these small things, MSFT actually makes a lot out of it with stable cash flow. XBOX probably has never take any green in yet.

We don't know what the initial R&D costs for the 360 were, so to say it's not making money for them yet, we don't know that. At this point I don't think they're making a loss on the hardware anymore, and game sales have been solid from the get go. We just don't know all the information so we can only guess.

Edited by George P, Feb 14 2010, 8:41pm :

joysleeper said,
Is MSFT's E&D also making stuff like mouse, keyboard, and Webcam? it sounds low-tech, but by licensing MSFT's name out on these small things, MSFT actually makes a lot out of it with stable cash flow. XBOX probably has never take any green in yet.

Not to mention the Build quality on most of the Microsoft branded keyboard and Mice is usually pretty good.

Xbox controllers are also pretty durable.

Northgrove said,
Damn, it really shows how harshly LAMP is competing with the Windows Server technologies.
Yes, LAMP is a strong competitor to Microsoft on the server side. Yet, Microsoft is holding very strong and even expanding a bit into customers formerly held by Unix (Linux, of course, finds Unix to be easy "low-lying fruit", but Microsoft is still doing fairly well there)

Northgrove said,
Damn, it really shows how harshly LAMP is competing with the Windows Server technologies.

I wouldn't say 'competing', especially if you are basing this on LAMP. It would be more accurate to say that in the Web Markets 'Apache' is holding strong against Microsoft. The additionaly trick to this variable is that most trackers only check the HTTP server, and Apache running on Windows counts towards Apache's numbers.

You also have to see the bigger picture, as Microsoft themselves have been putting support and money into Apache and PHP over the past 1-2 years, as well as making Windows Server a more accepting home for Apache server.

In the business 'server' world, Microsoft has not only held strong, but has started to gain back some bits of share that was lost in the mid 00s to LAMP as organizations often find they cannot meet the overall management or simplicity of a Windows Server infrastructure and Automation compared to LAMP. And this is just the start of movement to Windows7 and R2 of Server 2008 which adds a whole new level of integration and features for business environments.

thenetavenger said,

I wouldn't say 'competing', especially if you are basing this on LAMP. It would be more accurate to say that in the Web Markets 'Apache' is holding strong against Microsoft. The additionaly trick to this variable is that most trackers only check the HTTP server, and Apache running on Windows counts towards Apache's numbers.

Do you seriously think that the server type cannot be trivially determined?

Commodore Max said,
I'd be more interested in knowing how Twitter or Facebook are making a profit.
haha, same! :D

Commodore Max said,
I'd be more interested in knowing how Twitter or Facebook are making a profit.

I doubt Twitter has made anything so far. Facebook on the other hand makes a load of cash through their advertising. Because it is one of the most visited websites now, advertisers are willing to pay a lot also. They don't depend on Google or Microsoft or anyone else for their advertisements, so everything goes into their pockets.

Edited by Jebadiah, Feb 14 2010, 11:44pm :

master2k27 said,
they should start spending more money on on line services

They've already spent more money on them than the GDP of some small third world countries.

I wonder if the Bing cash back is part of their online services dept. I just wonder how they give so much back...

Tpiom said,
Too bad M$.

All of your services are under heavy attack. I don't see any product you have with a certain future within the next few years.

I don't see why Office is so popular, just get OpenOffice.


maybe because open office sucks?

Tpiom said,
All of your services are under heavy attack. I don't see any product you have with a certain future within the next few years.

OMGLOL YOU'RE RIGHT!!!11!!1one!
Windows is under heavy attack from Linu... oh, wait. Office is under heavy attack from Open... oh, wait.
Even during the dreaded Vista years the Windows division made huge profits and with the release of 7, well look at the graph. Go waste your time drooling over OSS and leave.

The problem with OpenOffice is that although it does the basics its far from offering what MSOffice does. Sure the writing program is fine for a bit of homework but in business its hardly enough and nothing like Word. The same with Calc in comparison to Excel etc.

Edited by lt8480, Feb 14 2010, 10:38pm :

fsX said,
Even during the dreaded Vista years the Windows division made huge profits and with the release of 7, well look at the graph. Go waste your time drooling over OSS and leave.

Do you work for MS? I don't know why you're so overjoyed that MS is able to profit from selling a piece of garbage like Vista. Oh, sorry, not selling, PRELOADING. Remember when MS yanked XP off the market to force Vista on everyone? Yeah, that's some profit, sort of like the IRS makes.

Tpiom said,
Too bad M$...

If you even had something interesting to say (and you didn't) then you would have been ignored by most people by starting with that stupidity...

The key to their future is NOT the profitability by division. There is no other company in the industry that has a presence on the 3 screens - computer, living room and mobile phone. Nor will any of their competition even come close to matching this - unless Sony and Apple merge (unthinkable).

Historically Microsoft have never led from the front - they let other pioneer, take the arrows in their backs, and then muscle in to take away their market share. Look at GUI - Mac introduced in 1984, Windows effectively unworkable until 1997 and now MS has 96% global market share to Apple's 2%.

MSFT already have substantial market share in the living room (X-Box) and they will over the next few years demolish Apple in mobile devices just like they did with computers (globally, not just in USA).

Having a small operating loss in home systems is definitely a price worth paying for some very serious future dominance.

The most important thing in this chart is that people realize Microsoft is not scared of Apple, and they are not scared of Linux. Microsoft makes several times more in a month than Apple does in a Quarter.

Also to note is that Microsoft shoves a lot of money into R&D and platform/development technologies that they don't see a direct return of investment on.

Microsoft can 'afford' to compete with Apple if needed, but can also go, wow, nice product Apple, and move on without having to own every aspect of the technology market. Especially when Mac users are some of MS's best customers, they don't mind selling copies of Office to Mac users (and many of them even pick up copies of Windows for BootCamp). So why kill off the Mac market or even try to hurt it?

Microsoft is still big enough that they are plenty of billion dollar company crumbs running around for everyone else.

This is also why it is crazy that when people see Apple or another company do well in a segment of the market, everyone shouts that Microsoft is losing a war and their time is over. Microsoft could lock up shop for a few years and still be a force in the industry, and right now they are just bouncing back into some of the markets with a good reception of Windows7 and Windows 2008 R2 server and getting some momentum behind the Zune/Live services/marketplace. So let the iPhone or iPad even be a great success, MS will just release Office or some other set of technologies for the platform if it does grow to a high level of success and share in the wealth like everyone else is doing on competing and successful platforms.

Microsoft business is Windows, everything they do is nothing but supporting the Windows ecosystem, Office, Servers, Tools, Services, Entertainment... literary everything. So it is a big mistake to split they profit like this, it is an information which tells us nothing.

Without the other stuff Windows wouldn't be so successful, the value of Windows is not in the OS itself, but in the unprecedented software ecosystem around it, and Microsoft build a significant part of that ecosystem, that is the catalyst and the rest of the software industry does the remaining job (all the Windows software out there).

Windows and Office won't go anywhere... not today, not tomorrow not in the next 10 years. Get used to it, it will make Microsoft more and more money. The opportunities in the world of software are bigger not smaller, and Yes Microsoft will lose control... it will be less significant then it was in the past but not because it will fail but because others will also succeed... something like the US vs. the world, it is not that the US is falling back, it is that the rest of the world is rising up.

The future will be a place with enormous opportunities but very little control (or no control at all).

Get used to it too.

Their profit comes from overpriced software. They have even lost court cases over selling over-priced software.

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