Microsoft’s market dominance is extraordinary at a time when so much focus is on the immense power of Big Tech.
Facebook, Amazon, Google and Apple face legitimate concerns about big fines, more regulation or possibly even breakups.
Both Republicans like President Donald Trump and prominent Democrats such as Senator Elizabeth Warren have voiced their displeasure with the growing clout of those four firms. The Department of Justice and Federal Trade Commission are considering industrywide antitrust investigations.
But Microsoft (MSFT) has been left out of the antitrust conversation. Investors don’t appear to be nervous at all about antitrust concerns for Microsoft (MSFT) despite its growing clout in the cloud software market.
Microsoft is currently the most valuable company in the world, worth $1.06 trillion. The stock is up more than 35% this year.
Although tech investors are mostly shrugging their shoulders about regulation — Alphabet (GOOGL) is up 7% this year, Amazon (AMZN) and Apple have each soared more than 25%, and Facebook has skyrocketed nearly 50% — all four stocks have pulled back a bit in the past few months because of legal worries.
Microsoft, on the other hand, is the only Big Tech company still trading near an all-time high. It’s the best performer in the Dow.
Microsoft has already faced antitrust concerns
Microsoft may be more immune to any regulatory or legislative threats from the Trump administration and Congress this year than other tech companies, as well as from whomever is calling the shots in Washington after the 2020 elections.
Why is this the case? It’s partly because Microsoft already had its antitrust day of reckoning back in the 1990s and 2000s.
Microsoft paid big fines in the United States and European Union to settle various charges that it engaged in monopolistic practices related to its dominant position in the business software market through its ownership of Windows and the Internet Explorer web browser. But it avoided the worst-case scenario: being broken up.
In other words, Microsoft has been there and done that.
Microsoft also built up a gigantic hoard of cash to protect itself from litigation worries. And even after paying numerous fines, Microsoft still has $131.6 billion in cash now — more than enough to pay a healthy dividend, buy back stock and keep acquiring companies.
That’s a big reason why the company continued to thrive even as it fought with the government.
“Over the 10+ years of wrangling with the DOJ, the stock appreciated approximately 900%,” Jefferies analyst Brent Thill pointed out in a report this month. That, Thill noted, was a 23% compound annual return.
While Microsoft was engaged in its long legal battle over the course of a decade, competitors such as Apple (AAPL), Amazon, Google and Facebook (FB) emerged as competitive threats.
So Microsoft may no longer be in regulatory crosshairs because the government has newer — if not necessarily bigger — fish to fry.
Microsoft did not immediately respond to a request for comment for this report.
But Microsoft co-founder Bill Gates said in a speech at the DC Economic Club on Monday that “the government needs to get involved.” Gates, who retired from day-to-day work at Microsoft more than a decade ago and stepped down as chairman in 2014, added that “there will be more regulation of the tech sector, things like privacy.”
Gates also said he thinks that “the technology companies, partly because of the lesson of Microsoft” are now “very engaged” with regulators.
Focus on cloud has paid off — and then some
Microsoft has adeptly pivoted to a cloud-based model for its Office suite of software under CEO Satya Nadella, and it has launched Azure for cloud hosting. The company made a series of smart acquisitions to get even bigger in various parts of the enterprise software market too; buying Skype and LinkedIn, for example.
It also doesn’t hurt that Microsoft isn’t really much of a consumer tech company, which has tended to be a more fickle part of the market.
“Microsoft has been through this before. The spotlight is on all these other players. Plus, Microsoft is so centered on business customers while the rest are focused on consumers,” said Daniel Morgan, senior portfolio manager with Synovus Trust Company.
Microsoft is a leader in many markets but now has several big rivals
Microsoft has also avoided regulatory scrutiny because it isn’t as dominant in its many businesses as Amazon, Apple, Facebook and Google are in online retail, music and mobile apps, social networking and search.
Microsoft’s Azure faces tough competitive challenges from Amazon’s AWS cloud unit, as well as cloud offerings from rival firms Oracle (ORCL), IBM (IBM) and SAP (SAP).
“Bezos and AWS continue to clearly be a major force in the emerging cloud shift over the coming years,” said Wedbush analyst Daniel Ives in a report this month.
In gaming, Microsoft has to contend with both Sony (SNE) and Nintendo (NTDOF). And Microsoft’s Skype has numerous rivals, including Google’s Hangouts, Apple’s FaceTime and Facebook-owned WhatsApp.
And even Microsoft’s new Teams office collaboration tool is a bit of an underdog in the market, competing with newly public Slack.
Although Microsoft is a market leader in more markets than it was during the 1990s, it’s hard to make the case that Microsoft is the only dominant game in town like it was when consumers and businesses were largely held hostage by Windows and IE.
That’s why Microsoft may continue to avoid the glare of regulators, even as Trump and Congress target Facebook, Apple, Amazon and Google.