Jeff Matthews ran this insightful post recently summing up the business competition between Google and Microsoft:
Now, the last quarter I saw, Microsoft had 71,000 employees, whose efforts generated about $3.5 billion in operating income.
Meanwhile, Googleís ìrandomî collection of not quite 11,000 employees generated $1 billion in operating income in the same quarter.
Sharp-eyed readers will have already done the math, which is this: Microsoft generated only slightly more than three times the profit of Google despite having almost seven times as many employees as Googleís random collection of hipster do-good engineers.
That lack of productivity does not speak well of Ballmerís aging time-card-punchers who, you might recall, now require dinners-to-go from Wolfgang Puck to keep them from seeking greener pastures than Redmond. (See ìMicrosoft Brings BackÖThe Comfy Chairî from May 31, 2006.)
Yet Ballmer retains complete confidence in his demonstrably less productive crew’s ability to turn back the encroaching tideóor at least he expresses such confidenceódespite all evidence to the contrary . . .
Read the entire post. So, which horse are you betting on?
The employees-to-profit benchmark, while widely used, is pretty useless.
As in any business (and law firm), each of those two companies has some number of employees who generate the lion’s share of revenues and profits, while the remainder of employees work on projects that are generate somewhere in the range of little to no profit.
The two key questions to ask: can the profits being generated by the core group be grown and leveraged further, or has the group pretty much maxed itself out, and do the projects being worked on by the rest of the people have any potential of ever paying off for the company or are they, to put it charitably, a giant waste of time and money?
In Google’s case, pretty much all their profits come from paid search, and the remainder of their employees (how many I don’t know) produce nothing (yet) in profit. Maybe there is still a lot of growth from paid search, perhaps not, I’m thinking not so much. And maybe Google’s forays into other ventures will pay off, but gauging from how infrequently tech companies come up with second acts, my guess is probably not (and Eric Schmidt has notably failed to pull off an encore at any of his prior employers).
For Microsoft, they have a number of profit centers, a number of which definitely have growth remaining to be had. And unlike Google, which is pursuing ventures where I can’t even begin to fathom where the profit is going to come from (YouTube, for example), it’s very clear that, if Microsoft pulls off some of their endeavors (Xbox and online gaming), they will have tapped into some serious profits.
And yes, in case you wonder, I do own Microsoft and think Google is overvalued.