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I'm still wrestling with this one personally.
Sometimes you see CEOs that roll into a company, drive it completely into the dirt, but in a way where all the board members get filthy rich. Weird structured mergers that saddle the brand with insane amounts of debt, and then it declares bankruptcy and then the board makes a killing selling it piecemeal. There is a suspicion this is what Intel's board/CEO are planning on doing. Just rip the company to shreds and make themselves filthy rich selling the x86 license, the fabs, the business to business contracts to the highest bidder.
You see this constantly with Indian CEOs and their ruthless value extraction. Every year, Microsoft for example, gets exponentially worse. Every year they shitcan more Americans, hire more H1Bs, treat customers more adversarial while offering a worse product. But profits go up, share holders are happy, so every year it continues. At least on paper. It's almost impossible for me to reckon that this can continue forever. That they aren't eating their seed corn in some fundamental way. That at some point the tech debt they continually accumulate won't cause the Microsoft ecosystem to be such a risk to run, that there is an institutional push to abandon it.
But I suppose the phrase "There is a lot of ruin in a nation" goes for trillion dollar companies too. There is a lot of value left to extract, and a lot of enshittification yet to pursue with a trillion dollar market cap. But I'm sure they'll find some way to convert all $1,000,000,000,000 into H1B Visas.
The hard part, though, is that if that is true, if you know for certain that they are eating their seed corn, then my friend you have tremendous alpha and should put all your money betting on Microsoft going belly up.
These risks are not separate from the valuation, they are priced in. And while I also really, really dislike the direction Microsoft has taken, they are making a killing on cloud licenses, especially Office 365. Pretty much every company I work with and for has to pay a monthly per employee tax to Microsoft.
Surely even if this is true, predicting when this will happen is still incredibly difficult?
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I don’t think that’s true, or at least not necessarily true. Microsoft has a huge advantage in “lock in”, meaning that you run into a lot of problems if a company decides to go with other software platforms. The files they depend on to run their business are made in Microsoft products and thus in many cases, unless the company had the foresight to enforce a rule that ensures that they didn’t all save all their stuff in formats that only Microsoft can use, switching to something else imposes a burden. That’s before considering the learning curve for switching to a new company. It’s enough of a PITA that most don’t switch unless the software is really bad.
This is more or less my sticking point. It's almost unimaginable that Microsoft products could get so terrible, companies change their entire workflow to avoid them.
But only almost. Like, surely if it were regularly eating their data, or causing massive lawsuits against them, they'd change infrastructure, right?
Or does Microsoft start bringing other companies down with them? And only after that do new companies just avoid them from the start to fill the gaps? Does the next trillion dollar company that hasn't been founded yet avoid Microsoft and all their products entirely?
And I mean, if that's the case we're looking at what, a 40 year timeline? I might be dead by then?
I think there is a tipping point where the cost of migration and training and related expenses would be worth it just to get a better production environment. But the cost of switching is high so the cost of continuing to work in the Microsoft environment has to be high than that.
It’s the stupid recall equation from fight club. The probability of a failure from using the product times the projected loss from that failure < cost of replacing the product = we don’t replace it.
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If there were an open ended mechanism to short a stock that didn't require exquisite timing, I'd think about it. But the market can remain irrational longer than you can remain solvent.
Yep, and this mechanism should be "I'll call up my bank and take Microsoft out of my personal index." Sadly, while this does exist, it's not really percolated down to a consumer product yet.
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