Paul Kedrosky highlights one slide presented by Craig Mundie at Microsoft Analyst Day that compares the cumulative R&D investment of Microsoft (MSFT) and Google (GOOG), among others.
Two ways to look at this.
- Google, Apple (AAPL), while highfliers, cannot have possibly built an insurmountable competitive advantage because of the relatively low investment they have made. Microsoft has huge latent value as the result of accumulated R&D spending. The asymmetry in the ability of these companies to invest is not appreciated.
- Microsoft has an exceptionally poor return on R&D when compared to peer companies and this slide illustrates that point perfectly. Microsoft’s decision to spend even MORE on R&D is the WRONG decision since they have not figured out how to spend R&D efficiently
This slide really amplifies market concerns that Microsoft’s plans to increase R&D are misguided. I didn’t hear Mundie speak, and the slide is out of context, but I don’t think it makes the argument investors want to hear.
Three Japanese Carriers were sunk by a handful of American fighters in the Battle of Midway and turned the tide of the Pacific war. The World Trade Center was destroyed by a handful of thugs.
Russia also repelled the Germans in 1944 by taking 20 million casualties.
Which way to go? I suppose you only pick the latter when you don’t know how to do the former. The market, or at least the market we are in now, rewards tactical brilliance more than human wave tactics.