When Microsoft Becomes ‘The Real Thing’

We are on the edge of a new epoch. The moment that will usher in this brave new world will not be as dramatic as, say, dinosaurs disappearing in a great, cataclysmic convulsion as fireballs pelt the earth. It will be slightly more mundane: Microsoft will overtake Coke as the world’s most valuable brand name. That’s when we will know for sure the Internet has won the revolution.

Microsoft up, Coke down

A recent survey conducted by Interbrand, a New York consulting company, showed that Coca Cola’s (NYSE: KO) brand name is worth $72.5 billion (US$), ahead of Microsoft’s (Nasdaq: MSFT) brand name value of $70.2 billion. Microsoft’s value increased almost 24 percent over last year’s while Coke’s fell nearly 13 percent.

The survey’s rankings, released Monday, arrived at that figure using a complicated “performance indicator” formula involving, among other things, estimates of future earnings and the impact of the brand name’s “risk profile” on those earnings. “Risk profile” is one of those business world euphemisms. In the real world, it means: “PR disasters.”

Microsoft’s High ‘Risk Profile’

You might expect Microsoft to be the high-tech world’s risk profile leader. The company, which dominates the global, computer operating system business — and has recently been accused of trying to monopolize the Internet with its .Net initiative — was found guilty earlier this year of violating U.S. antitrust laws.

A federal judge ordered several harsh “remedies,” including breaking the company in two and forcing it to change its business practices, which were loudly and publicly lambasted by government lawyers in the high profile trial. And Bill Gates lost about $40 billion on paper.

CFO Paints Bright Future

As one of the biggest companies in the world, Microsoft has always faced its critics, but the barrage of slings and arrows seems to have intensified of late. Also, the company’s progress has slowed due to sluggish business PC sales and delays across virtually its entire product spectrum.

Windows 2000 sales have been lagging, company officials finally admitted, and fourth-quarter earnings indicated slow growth for Microsoft’s two biggest money-makers: Windows and Office. Despite the glum news, Microsoft CFO John Connors told reporters and analysts listening in on the earnings conference call: “We feel very, very good entering fiscal 2001.”

Public Whippings

Microsoft might be getting a very public whipping, but Coke has been trying to keep its head up. First, there was the contamination scare in Europe that forced the company to recall millions of cans and bottles. It was a PR nightmare.

Then, in June, Coke finally settled a bitter, racial discrimination lawsuit that had dragged on for more than a year. On the day the case was settled, the company was hit with another racial discrimination suit — this one for $1.5 billion.

The suit accuses Coke of racially discriminatory hiring practices and of having a hostile work environment for minorities. One PR nightmare hot on the heels of another.

Defies Low Expectations

But then Coke announced its second quarter earnings, which — although two percent off from the same period last year — still beat expectations. Analysts say the showing is the result of improving economies in Asia, coupled with Coke’s own restructuring and marketing efforts.

The only problem for Coke is that its rivals were helped by the same global economic factors. PepsiCo, Inc. (NYSE: PEP), for example, posted a 21 percent increase in second quarter earnings.

The Real Thing?

The survey’s findings run contrary to fears about a high-tech, financial meltdown, and may help boost sagging investor confidence in the sector.

Computer giant IBM, chip maker Intel Corp. (Nasdaq: INTC) and cell phone provider Nokia (NYSE: NOK) rounded out the top five in brand name value and high-tech companies also had — by far — the highest value growth rates. Yahoo!’s (Nasdaq: YHOO) brand name value shot up a whopping 258 percent and Amazon.com (Nasdaq: AMZN) rose 233 percent.

The survey suggests that as e-commerce continues to spread and the digital divide narrows, people may be less inclined to think of “Amazon” as just a river. In fact, if the predictions come true, residents of the farthest reaches of the globe will be more likely to register name recognition for “Microsoft” than for “Coke.” And no one will remember when the concept of cyberspace seemed out of this world.

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