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Finesse vs. Brute Force

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.

  1. 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.
  2. 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.

Discussion

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  1. Large corporations create their own inertia. Take a team of 3 focussed people and they deliver something, add a 4th person who disagrees and you have a team of 2 with 2 people distracting them with their arguments.

    It gets worse with software, take a team of 100 excellent people in agreement and they can produce f***ing amazing things. Add 1 person who is out of his depth and that single person can break the whole team, because any weak link breaks all the code. A crash is a crash, and clever code in other places doesn’t mitigate the crash.

    My point is this, Microsoft has a lot of these crap people it got fram various aquisiations, but the maintenance and knowledge of their products DEPENDS on this B team. They can’t sack them, so they have to make products with them and there will always be a competitive disadvantage to these people.
    The answer is 2, they will always make bad products now and the quality of those products will decline over time as the crap people employ crapper people to make themselves look good.

    What was the last good IBM product you bought? Or the last Sony product that wow’d you?

    Posted by Wing wang | July 29, 2006, 3:23 PM
  2. What a difference 20 years makes. Back in the day, Microsoft denigraded the IBM approach to development, hiring lots of mediocre developers to code a project (rather than a handful of extraordinariy good and productive ones) as “masses of assess”

    http://books.google.com/books?vid=ISBN074321580X&id=7KAW-ToDnBAC&pg=PA174&lpg=PA174&dq=ibm+os/2+%22masses+of+asses%22&sig=iWVoDKYrUNH6a-c4I2Z2Fy4UL40&hl=en

    It now appears that the shoe is on the other foot.

    I’d bet on the small nimble team.

    Posted by Brian Horey | August 1, 2006, 2:13 PM
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