News of a recession can conceal a multitude of sins. For example, was it really the economic downturn that prompted IBM to issue all of those pink slips to U.S. workers, or was that just part of an ongoing process of systematic outsourcing? And what about the layoffs at Microsoft -- were they the result of the financial crisis, or was it something else?
If you believe an alliance of "investor activists" calling itself the Crandrea Group, it isn't the economy that's dragging Microsoft down, and cutting its salary budget won't make much difference. According to the Crandrea Group, the bigger problem is the billions Microsoft squanders each year on fruitless R&D.
All right, stop. At this point I'd like to emphasize that I'm well aware that the demands of outspoken investors are almost always skewed toward short-term gain rather than sensible product strategy. Furthermore, I have no idea what this so-called Crandrea Group really is, who its members and supporters might really be, or whether it represents a fiscally significant portion of Microsoft shares. I suspect that it doesn't.
Be that as it may, the Crandrea Group's claims regarding Microsoft's R&D expenditures are worth discussing because they raise important questions. What is the appropriate rate of investment in research and development for software development companies in a bear market? And as budgets tighten across the software industry and beyond, how can we ensure that software remains one of the hotbeds of innovation in the global economy?
Microsoft R&D: Money down the drain?
So far as I am aware, no company spends more on software R&D than Microsoft, with the total tab ringing in excess of $7.5 billion per year. To me this seems only appropriate -- after all, few companies come close to matching Microsoft's software sales revenue.
The problem, according to the Crandrea Group, is that one doesn't follow the other. The purpose of R&D spending is to drive innovation, yet innovative products aren't what drive Microsoft's revenue. Instead, Microsoft owes the bulk of its fortune to a few cash cows, including Windows and Office.