Stop or I'll shoot… myself

Microsoft’s latest competitive brainstorm is to give away Office, its flagship product, in online form.  This recalls an old comedy scene, in which a thief, cornered by police, points his gun at his own head and says, “Let me go or I’ll shoot!”

The media inexplicably painted this as a countermove against Google.  But, ah, how is dropping your own price to zero an offensive maneuver?

Microsoft still has momentum, but two big things changed in July 2009.

  1. For the first time, a competitor with vast engineering resources pledged to release a free alternative operating system.  It will run on netbooks, the fastest-growing computer segment, and where Microsoft is weakest due to performance problems.
  2. For the first time, Microsoft pledged to give away a version of Office.

Most of Microsoft’s profit comes from those two products, and ever-increasing price pressure is now nearly certain.  I had purchased MSFT very cheaply last November at about 20, on the stock market swoon, and was only too happy to dump it at a 20% profit last month.

One risks later embarrassment by mentioning specific trades, and that may well happen here.  I prefer to hold for years, so this runs against style.  Moreover, I still think MSFT could have years of stability ahead.  But I’m less sure of it than before.  Selling now offered over 30% CAGR pretax.  A very pretty bird in the hand.

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