Contemporary Business

Microsoft Corporation, the world largest software maker by revenue and formerly named
as Micro- Soft was founded by Bill Gates and Paul Allen in 1975 selling BASIC
programming language, and first PC to MITS computer. The total revenue of the company
was $16,000 in 1975 and now jumped to $69.9billion in 2011. Microsoft Corporation is engaged
in developing, manufacturing, licensing and supporting a range of software products and services for
different types of computing devices. In 1981, the company was incorporated in 1981. In 1995,

Windows 95 was introduced, which sold one million copies in the first four days following its
release. Windows 98 and Windows 2000 were launched in 1998 and 2000 respectively. The
latter provided a plethora of better features. In 2001, Office XP and Windows XP were
launched.

In 2002, Microsoft and its partners launched tablet PC.

In 2006, Microsoft adCenter was introduced, presenting pay-per-click advertisements.

In 2007, Windows Vista and the 2007

Microsoft Office System were introduced to

consumers worldwide. Also in the same year,

Microsoft signed a five-year contract with

Viacom to apply content sharing and advertisement. Also, Microsoft Corporation diversified
to wireless, telecommunication, and gaming industries. In 2010, Microsoft formed alliance
with Yahoo to improve the search engine to compete with Google search engine. Steve
Ballmer, Microsoft CEO said We're going to bet on our long term. We don't do things for the
short term. And if we don't at first succeed, we keep trying," he says. "If we don't get what the
customers really want, we keep going. It took us three attempts to get Windows right and if
we had given up after attempt one or attempt two, Microsoft wouldn't look anything like" it
does today. "Leaders have to set the tone that says, 'We'll be patient
Google founders, Larry page and Sergey Bring met in Stanford University to work on a
search engine program called BackRub in 1995. 1n 1997, both funders decided to change the
name of the company to Google. Googles core business is advertising which brings in over
$10 billion a year. Whilst Microsofts core business is for Windows, office, Bing, Xbox and

TV, Windows phone, windows server, Business users, SQL servers. Google has grown with a
very fast speed in past few years. It has achieved the position in years which Microsoft took
years to achieve in terms of revenues. Googles leadership style of Eric Schmidt has made it
possible to achieve this growth with new innovations in the field of ads and technology.
Microsoft found it hard for new innovations as it is not easy to turn ideas into commercially
viable products and services. Study of different ratios of Google and Microsoft reveals that
Microsoft is doing well in terms of profits and managing its debt to assets but Googles P/E
ratio is showing potential to grow in Google as P/E ratio of Google is 22.25 which is much
more higher than that of Microsoft. Microsoft has launched BING search engine in
competition to Google. Profitability ratios reveals that the Microsoft is better amongst the
both as it is having high Return on Equity and high return on Assets as compared to Google
as on its position on 31st December, 2010. Google was also chosen as best employer in
America in a survey of employees satisfaction but it was not able to rank in top 50 in next
survey. Primary financial based guidelines before investing are to study cash flows,
profitability ratios and debt outstanding with the company.
Google Core Business
Google is an advertising company. It started in search, but search, maps, blogs, and
everything else is secondary to ads, which bring in over $10 billion a year. For most of the
Internet, Google is advertising. Googles protean appearance is not a reflection of its core
business. Rather, it stems from the vast number of complements to its core business.
Complements are, to put it simply, any products or services that tend be consumed together.
Think hot dogs and mustard, or houses and mortgages. For Google, literally everything that
happens on the Internet is a complement to its main business. The more things that people
and companies do online, the more ads they see and the more money Google makes.

While it may sometimes feel like Google is focused on everything but its core
businesses, nothing could be further from the truth. In fact, some might argue that Google is
increasingly tweaking its search and advertising businesses so much that it could be viewed
an anti-competitive. The rise of competitors means that Google cant afford to become stale
in anything it does, including search. It not only needs to keep pushing the limits of the
technologies that its in today but also needs to keep pushing the limits of the Web itself.
Microsoft Core Business
Actually, Microsoft has eight core focus areas, General Manager of Investor Relations
Bill Koefoed, told the Wall Street analysts
The eight, according to Koefoed:

Xbox and TV

Bing

Office

Windows Server

Windows Phone

Windows

Business users

SQL Server
Google Leading Products & Services
This list of Google products includes all major desktop, mobile and online products
released or acquired by Google Inc. They are either a gold release, or in beta development.
This list also includes prior products that have been merged, discarded or renamed. Features
within products, such as web search features, are not listed.
The Top 15 Google Products for the people who build Websites

1. Google Chrome Developer tools

2. Webmaster Tools
3. Google Web Toolkit
4. Google Code Search
5. Page Speed
6. Browser Size
7. Google Ajax Libraries API
8. Google website Optimizer
9. Sites
10. Speed Tracer
11. Project Hosting
12. Google App Engine
13. Google Chart Tools
14. Closure Tools
15. Google Analytics
Microsoft Leading Products & Services
Here are my picks for the Top 5 free Microsoft software products:1.

Windows Live Writer

2. Photosynth
3. World Wide Telescope
4. Windows Live Skydrive
5. Bing

Google Leadership Style

The leadership style of Eric Schmidt at Google can be summarized in the following key
points:1.
2.
3.
4.
5.

Get to know your followers.

Create new ways to promote your followers.
Let your followers own the problems you want them to solve.
Allow people to function outside the company hierarchy.
Review your teams results by someone they respect.

This leadership style primarily provides benefits on the "Vision-Direction"dimension. It

helps Eric formulate a vision, his followers are more likely to accept and be motivated by his
style of leadership.
Microsoft Leadership Style
1.
2.
3.
4.
5.

Leaders Must Continuously Adapt

Competing Against New Business Models
Why Innovation and Agility Matter
Breaking with the Past to Compete in the Future
Attracting, Retaining Talent

Innovation at Microsoft:Microsoft has used innovations to grow. But there are plenty of internal reasons why
Microsoft's record of innovation is so monotonous. Bill Gates's researchers have placed a
bunch of expensive bets on technologies that haven't panned out
Innovation is hard.
Turning ideas into commercially viable products and services is as much about luck
and timing as it is about brilliance. Its like "sperm trying to fertilize an egg," observes Gary
Hamel, chairman of consulting firm Strategies and an adviser on innovation strategy.
"Increasing the number of really strong swimmers doesn't increase your success rate. That's
not how biology works. Only one [sperm] gets to fertilize the egg." No surprise that
Microsoft has had plenty of R&D duds.
Bigger isn't better.
It's simply tougher for a large company to sustain rapid growth through innovation
than it is for a smaller rival. Good ideas are scarce, much less ideas that will generate big
sales. Google's revolutionary search technology, created with a relatively modest R&D
investment of $233 million over five years, produced a company with $37.9 billion in
revenue in 2011. Even if Microsoft had matched Google's efforts (it hasn't), that business
would add just 4% to its top line.

Defence is easier.
And for now, it's more profitable. Harvard Business School's Clayton Christensen
coined the expression the "innovator's dilemma" to describe what happens when entrenched
companies confront new technologies. Good managers instinctively direct people and
investment toward "sustaining innovations" that protect established businesses -- and away
from new ideas that threaten current profitability. That's why Microsoft spends a lot on Office
and Windows.
Innovation at Google:Everybody knows that Google Inc.'s (GOOG) innovations in search technology made
it the No. 1 search engine. But Google didn't make money until it started auctioning ads that
appear alongside the search results. Advertising today accounts for 99% of the revenue of a
company whose market capitalization now tops $100 billion. Innovations have helped Google
very much to grow at much faster speed than Microsoft.

Investment Decision using Financial Ratio

Current Ratio
Current ratio is the comparison of current assets to current liabilities; it indicates a
company ability to satisfy its current liabilities with its assets. This is calculated by
subtracting inventory from asset and divides it by current liabilities. The current ratio is another
test of a company's financial strength. It calculates how many dollars in assets are likely to be
converted to cash within one year in order to pay debts that come due during the same year. Generally
speaking, the more liquid the current assets, the smaller the current ratio can be without cause for
concern. Companies that have ratios around or below 1 should only be those which have inventories
that can immediately be converted into cash. If this is not the case and a company's number is low,

you should be seriously concerned. Google has 5.9 current ratio is better than Microsoft current

ratio of 2.9. Google is able to endure a major recession as return on its equity and assets are
quite good and also its fixed turnover ratio is almost double from Microsoft.
Fixed asset turnover ratio
Fixed asset turnover ratio is another important financial consideration that investor
must consider before make a decision. This ratio is a rough measure of the productivity of a
company's fixed assets (property, plant and equipment or PP&E) with respect to generating
sales. For most companies, their investment in fixed assets represents the single largest
component of their total assets. This annual turnover ratio is designed to reflect a company's
efficiency in managing these significant assets (Investopedia). Simply put, the higher the
yearly turnover rate, the better. It is better to invest in Microsoft on the basis of these
profitability ratios as Microsoft is showing better results. If a company has a high fixed asset
turnover ratio, it shows that the company is efficient at managing its fixed assets. A declining
trend in fixed asset turnover may mean that the company is over investing in the property,
plant and equipment. In manufacturing industry, the total asset turnover is always low
compare to software service companies like Google and Microsoft. Google fixed asset
turnover ratio is 4.4 compare to Microsoft 9.1. It is better to invest in Microsoft if the
consideration is based on fixed asset turnover ratio.
Dividends Payout Ratio
The average number for Microsoft dividends payout ratio is 23 which are better than
Google which is currently showing 0% for the year 2011. Dividends is when a company
makes a profit it can use the profit in any one of three ways. The company can reinvest it and
grow the business or it can use the money to reduce its debt, or it can pay the profit to the
shareholders of the company. The payment to shareholders is known as a dividend. The
dividend payout ratio is a formula which is used by analysts to determine where the company

is heading in the future. Most dividends are paid four times a year. So when a company
announces a dividend of say $1 per share, this means that the investor will receive 25 cents
once a quarter. Some companies however pay dividends annually. The dividend payout ratio
is calculated by dividing the amount of dividends paid by the total net profit of the company.
Overall, it is worthwhile investing in Microsoft. Though, Microsoft debt ratio is
0.11 which is higher than Google 0.05. Microsoft higher debt ratio may be a problem in the
time of recession, but the company is stable enough to support his current liabilities.

References:
http://www.advfn.com/p.php?pid=financials&btn=s_ok&mode=&symbol=NASDAQ%3AGOOG

http://www.advfn.com/p.php?pid=financials&symbol=N^MSFT
http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=MSFT:US
http://www.investopedia.com/university/ratios/operatingperformance/ratio1.asp#axzz1opupqRE9

Ballmer S. (2007) Steve Ballmer Speaks Passionately about Microsoft, Leadership ... and
Passion

http://knowledge.wharton.upenn.edu/article.cfm?articleid=1628