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The Problem with Microsoft Corporation (MSFT)

Microsoft Corporation (MSFT)

To say that the last decade has been uninspiring for Microsoft Corporation (NASDAQ:MSFT) investors may be an understatement. Shareholders in the company have basically seen their stock moving sideways over the past 10 years, while other tech titans like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) delivered amazing returns.

The problem with Microsoft Corporation (NASDAQ:MSFT) is not about products or technologies; the issue is its management team and an outdated approach to innovation.

Money and Innovation

The main reason behind this huge gap in stock performance is clearly innovation. While Apple, Google and Amazon have launched revolutionary products and technologies that disrupted the technology industry in the last decade, Microsoft has missed the most exciting trends in the business like mobile, search, social networks and ecommerce, among many others.

The company started the decade in a position of unrivaled strength: owning the operating system inside the huge majority of the computers in the world, and complementing that strategic position with a gigantic bank account, providing abundant resources for research and development expenditures as well as acquisitions.

It´s not because of lack of spending that Microsoft Corporation (NASDAQ:MSFT) has lagged the competition; the company devotes more money as a percentage of sales in R&D than any of the other big tech players. But Google, for one, has obtained remarkably better returns for its money. Among other amazing achievements, Google has built the most popular mobile operating system in the world and is giving life to almost unbelievable products like the self-driving car and augmented reality glasses.

Apple follows a more focused and concentrated approach to R&D spending than Google, and the company has managed to disrupt several industries with a comparatively low investment in R&D. It’s important to note that the table includes figures for the last 12 months — back in 2003 Apple was spending 7.6% of sales in research and development. As the company has gotten much bigger, and sales exploded, the ratio has come done in a material way over the years.

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