Devil's Advocate: Microsoft - time to hide the profits?

The software business is a funny one. The most successful companies get us to pay for virtually the same products again and again. Martin Brampton considers the most successful vendor of them all...

Owning software is a costly business. Despite that, some software companies have been struggling. Not Microsoft. It has posted a huge increase in its profits, some of it on the back of PC sales, some on the back of upgrades.

Perhaps one consolation in a world of accounting scandals is that if Microsoft were to ever fiddle the books, it would most likely be to conceal profits, not losses. It is a curious fact that even while it has looked totally dominant in lucrative software sectors, Microsoft has remained a paranoid company. Ever fearful of declining profits, its attempts to massage its accounts have been aimed at salting away money to counter any financial setback.

Software is a funny product. If you buy a house, you know that the elements will attack it, aided if you are particularly unlucky by insects and fungi. Over time, its construction materials will deteriorate and, if you fail to make repairs, the process will accelerate. Eventually, the house will become derelict, home only for the desperate or for the animals that find dilapidated buildings congenial.

Now software, you would think, would be immune from corruption by wind, rain and black watch beetle. Yet somehow, if you simply leave it alone, it goes to rack and ruin. Indeed owning software is rather worse than owning a house. Paying for maintenance seems to make sense in both cases, and for the house it is sufficient to keep it in a perfectly usable condition. But with software, it seems necessary to replace it frequently with a new version.

Well, I suppose the millennium was a rather tenuous excuse for upgrading every piece of software in sight. But what is to stop us sticking with the year 2000 version and stopping the constant upgrade cycle? That seems to be a thought that occurred to Microsoft too. The answer to this particular worry was to try to get everybody to embark on a continuous payment scheme before there was too much time to think about sticking at 2000.

That smacks of paranoia too. It is remarkably difficult to get off the upgrade treadmill. One factor is vendor support, which is inevitably withdrawn from older software. You might think that would not be a problem provided the software works, and there are plenty of old software products that are very stable. Yet it is a problem because other software vendors are inclined to say that their software is not viable if it is run in an environment depending on unsupported software.

This issue is particularly acute when new software is purchased. It is designed to run with the latest versions of everything else. Very few software vendors are willing to sell you an old version of their software, even if it would meet your needs perfectly. Usually, it is the newest or nothing. (Maybe they are missing an opportunity here - perhaps old versions could be sold at a premium price.)

Another factor forcing us to stay on the treadmill is peer pressure. Perhaps we can resist the lure of the Joneses shiny new software next door but it is deeply embarrassing not being able to understand their documents. Even minor changes in file formats for new versions create havoc and force us to consider upgrading, despite the pain caused by the oft-experienced lack of backwards compatibility.

Cynics say that in the current economic climate Microsoft could not possibly achieve a big hike in profits if the markets in which it operates were truly competitive. Could something like that really be true?

** Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk ), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He is a frequent contributor to silicon.com's Behind the Headlines TV programme and can be contacted at silicon@black-sheep-research.co.uk .