Microsoft has a problem: lack of demand for its AI products

I would think that if they actually spent the time and money fixing the core functionality of their core products (like Windows and Office) that they might have a much easier time promoting things like Copilot. Instead they leave their users wondering why they're so hell-bent on shoehorning AI into a Start menu that takes whole seconds longer to open than it should or into Windows Search that regularly fails to find installed programs or local files.

Because they so much want to be a service business than a software business. Microsoft execs are losing sleep over becoming the next IBM, not realizing they are already there and have been for a long time.

Their main problem is that they never really learned how to compete on merit, just on first-to-market and all kinds of legal (and illegal) tricks.

As long as companies, and consumers, still pick Windows and Office, then why spend the resources. Making Windows better won't move the sales number significantly, but removing the ads and the potential AI upsell is a direct hit to revenue.

The sad reality seems to be that Microsoft do not care about the majority of their products anymore. Only Azure, Microsoft 365 CoPilot, CoPilot and maybe CoPilot.

I will say that with enough group policy and sysinternals turning absolutely everything off, turning all of the settings to maximum performance lowest flashiness, no web results, killing Cortana with reckless abandon my Windows installation is actually what I would consider to be snappy. I was surprised.

It doesn't make it any better that Microsoft does this, but as a piece of practical advice, it seems like it can be done. There does still exist a core of Windows under all that garbage that is fast.

I'm not familiar with many "consumers" who still pick a Windows and Office, and in this generation, there are very few consumers picking xbox. Outside of enterprises, they seem to be losing market share everywhere, and at this rate they'll be akin to IBM or Oracle in a few years.

Office is part of the "Productivity and Business Processes" at Microsoft. That business unit had $120B of revenue in 2025.

Microsoft 365, which I believe includes Office, makes up $95B of that amount, which is split between Commercial (92%) and Consumer (8%)

From there you can see why they're focused on Enterprise.

Source: https://www.bamsec.com/filing/95017025100235?cik=789019 (page 39)

To be pedantic, IBM is a service company

Microsoft is a public company. That means their primary product is not products or services, it's their stock. Selling products & services can be an advertisement for their stock, but there are other methods of convincing people to buy their stock, too. Currently the stock market only wants stocks that have "AI" associated with them. It doesn't matter whether users like it or not, because having a viable business is not what the stock market is currently focused on. So, Microsoft is doing what they need to do to sell their primary product: shove AI into everything.

Maybe the stock market is not a good system to organize ones economy around then?

Exactly, even those of us that like Windows have a hard time talking about it when Microsoft treats it so badly, I really miss Balmer era in regards to Windows.

The only good thing that came out of Satya era has been the Windows Terminal and WSL.

That is not what stock market is. A company does not have to focus on stock price and stock price is not its primary product.

All that tinkering is getting you dangerously close to daily driving linux. And the advantage there is that the maker isnt actively trying to get in your way

It's basically the reason this bubble not only exists but has a chance not to pop : there is so much stock value in it that the big tech all want to keep feeding it, and they're sitting on so much cashflow they can afford to do it

It's absurd, but that's where it is. And a company like OpenAI basically hangs on it, because they have obligation almost ten time their revenue and the only way this does not deflate quickly is if others keep feeding it cash.

Or do things that actually work. Why, for example, can I not translate a PowerPoint using Copilot in Powerpoint? Why do I need to save it, then upload it into ChatGPT, translate it, then download it again, and open it in PowerPoint for further editing. But at the same time get all kind off nonsense I don't want pushed at me in Windows, like that MSN news clickbait crap.

This follows from the parents statement.

I've been thinking about this recently. The centrality of the stock market, while historically a great tool to allocate resources efficiently, might actually be a big weakness for the USA today. A capable adversary, like China, can kill entire strategic sectors in the US using the stock market. If they undercut the US companies and are willing to accept low returns on their investments, then the respective USA competition will be driven out of business by their investors, because there will be other sectors to invest in, with higher RoI. Do this at various points in strategic value chains, and over a decade or so it might kill entire verticals in strategic sectors, leaving the US economy vulnerable to any kinds of shocks.

That's fair, I should reframe. The incentive given to decision makers at Microsoft is company stock. That means the primary focus for everyone who makes decisions at Microsoft is the stock price, which in turn means the stock price is the primary product for the company itself.

The stock market weirdly enough ruins the idea of capitalism. Catering to shareholders hurts the idea that competition would create better and cheaper products.

Nobody gets a bonus and a new boat doing that.

Do you need the stock market to undercut industries though? I'm not sure it's necessary

that's not the idea of capitalism; the idea of capitalism is that you should be able to make money by virtue of owning stuff. it's an inherently rich-get-richer scheme, competition has little to do with it.

Are you saying they would rather double stock price than double revenue?

We’re already there when it comes to having the industrial base necessary to fight a protracted conventional war with china. Which leaves a large ? over the US dominance over the pacific.

As someone who is essentially financially illiterate, what does this mean, "allocate resources efficiently?" Nobody's investing in companies that promise to cure world hunger or alleviate childhood suffering. They're investing in technologies that can extract the most wealth from the population, regardless of externalities. Is that desirable?

Then again, I can't fathom what people would be doing with their money if the stock market weren't there. I imagine they might naturally wind up with some sort of...stock market.

Competition creating better products isn't an idea that defines capitalism though: the same would apply to cottage industry.

Capitalism is defined by having the capitalist, who provides capital, and without the ability to sell their share of stock it's difficult to see what the value would be. So you kind of require stock markets.

Edit: which is why it's odd to call China communist. They have 3 stock exchanges. They're really a capitalist single-party state.

Sure. Decision makers are paid in stock price, not revenue. They would rather do whatever increases the stock price the most, with the least effort/expense.

Yyes, and prefer it to doubling profit or cashflow etc.

I have not looked at MS in particular, but generally that is what the remuneration of the people at the top of most public companies is most strongly linked to.

That's the point.

Its not the stock market per se. The biggest problem is a lack of good regulation to ensure competition and the resulting drift of oligopolies.

The stockmarket enables that by making takeovers easier as you have a higher proportion of short termist shareholders who 1) fail to block value destroying acquisitions on one side and 2) jump at the chance to make a quick profit on the other.

I think its obvious the GP means free market capitalism, which is what almost everyone who favours capitalism thinks is the form it should take.

While not strictly necessary, it is a great power multiplier.

It helps as it is both a gauge of the success of the strategy, and also a lever where the process can be fine tuned, eg. slowly buying stock then strategically dumping in the right time, correlated with other external shocks can have wider effect to whole industries through controlling the public opinion on specific industries.

Y-yeah. HYPOTHETICALLY, this is something an adversary to the USA might attempt to do, and it would really kneecap the US if they were successful.

But would only happen if USA decided to totally financialize all sectors of its economy and make a small set of oligarchic corporations THE load-bearing element of its strategic capacity, leading us to chase market returns even if those returns totally kneecapped our ability to build anything at all of actual value.

Good thing we haven't done that!

I've got two laptop in my new job. They sent me a windows one, when I asked for a linux one. Had to set up the laptop to begin working.

Honestly, I had to do a lot of workarounds to get comfy. There's annoying stuff I cannot uninstall.

China uses Capitalism as a tool where the Party feels it would be beneficial (for the Party), and crushes it mercilessly when it gets in the way (other than this real estate problem they have right now).

In the U.S. we have mistaken Capitalism for a religion, and so it wags the dog, so to speak. Since our founding we have made some attempts at finding a balance between our use of the tools of Capitalism and socialism (in more the Democratic Socialism style, rather than the Communism style), and we had a good run in the decades after WWII. But starting with McCarthyism, and really picking up under Regan we have prided ourselves on adopting Capitalism as a religion, and it really shows up in both the income inequality as well as the increasing role of (and corrupting influence of) money in our politics/government.

I don't see how free market capitalism fixes that. I looked up a definition to make sure I wasn't missing something and as per investopedia:

"The term “free market capitalism” refers to an economy that puts no or minimal barriers in the way of privately owned businesses. Matters such as worker rights, environmental protection, and product safety will be addressed by businesses as the marketplace demands."

it's basically worship of owning the means of production and not being regulated in its use, e.g. if you own a company you get to dictate all sorts of unreasonable things to your employees, and any benefits gained from automation accrue to whoever can afford the up front money to own the machines.

If you're someone who owns Microsoft, what option would you prefer?

1. Stock price remains the same but revenue doubles.

2. Revenue stays the same, but stock price doubles.

Assuming all else equal, and recognizing that this is absolutely a simplification, but if these were the two choices then it seems a no brainer that you'd go with option 2. Revenue is a means of increasing stock price.

> while historically a great tool to allocate resources efficiently

Any empirical support for that?

And these people has audacity to proclaim that socialism is based on fantasy.

And IBM could have been AWS a decade earlier had they so chose.

That is a bad definition and I cannot find it on investopedia. it is essentially an extreme libertarian spin on the definition.

There are better definitions on both wikipedia and Britannica:

https://en.wikipedia.org/wiki/Free_market_capitalism

https://www.britannica.com/money/free-market

Especially this hit:

https://en.wikipedia.org/wiki/Free_market_capitalism#Concept...

Name a major U.S. public company in recent years that has consistently prioritized improving its product over boosting short term stock price or extracting maximum profits. If capitalism were truly a healthy system about building strong products to create healthy markets, this should be the norm (and enshitification shunned), not the exception.

What we actually see is a system of chartered extraction. Corporate executives are like Norman lords, granted their 'title' (CEO of instead of Earl of) by shareholders (rather than a king) in return for which both are/were expected to extract maximum value by any means necessary. Extractive tactics often at the expense of long-term product strength are behaviors shareholders expect if the CEO is to keep their bestowed 'title'.

Don't forget the progenitor joint stock company The East India Company, Capitalism in it's purest form without government restriction. Profit-maximizing, absentee extraction, with company executives serving as quasi-feudal lords over assets and people. Modern corporate capitalism is hard to distinguish, in its structure,history, behavior, and incentives, from the Norman extraction system, it's just dressed in a more politically palatable wrapper and forced to mellow out from it's desired East India Company style final form.

I’m actually somewhat stoked about generative AI from a “good enough” perspective, because at this inflection point where a lot of countries and organizations are looking for Microsoft alternatives (digital sovereignty, etc), this is the best time to be able to build and deploy alternatives with the productivity advantages (if any) AI might provide.

Big Tech thinks they have a moat, when it’s really diffuse power being made available via genAI to build software good enough to replace them.

> a great tool to allocate resources efficiently

Sorry but... WTF are you talking about?

It rewards self-destructive behavior in favor of short-term gains. Shareholders have *zero* commitment to the companies they buy shares from and will happily switch their entire portfolios on a whim. It's essentially people chasing the new shiny thing every single day.

Let's not forget it's a known fact that people with insider knowledge will profit over everyone else.

How is that efficient in any shape or form?

> If they undercut the US companies and are willing to accept low returns on their investments, then the respective USA competition will be driven out of business by their investors, because there will be other sectors to invest in, with higher RoI.

You're basically explaining one of the reasons stocks are a horrible idea for distributing resources.

It has nothing to do with whether or not it's central or distributed, it's merely the incentives they create. It's essentially Goodhart's law on steroids.

The free market abhors competition. It's much more profitable to be a monopoly - and profitable enough by far to squash any competitors in infancy.

Talk about utopia huh?

Free markets never existed, don't exist and never will. Markets are defined by laws and regulations in which they exist in. They can't ever be "free".

Capitalists abhor competition. Adam Smith (as in "invisible hand") pointed this out. That is a subversion of a free market.

Big tech's moat is mostly built up around perceived security (not actual security) and abuse of monopoly positions, AI is going to make it easier for them to maintain this because it serves as an addictive component for the users, or so they hope. In practice it only appeals to the lowest common denominator, which is exactly how they built their empires in the first place. AI allows non-experts to pretend they are experts with confidence, and to produce output they claim as their own to which they have no real title. As a democratizing principle that's great, but as a quality-of-service-provided item it could easily become a disaster and I think MS et-al are betting that they will be able to 'fake it until they make it' on the quality front to avert that disaster.

So far, I'm not seeing it. All I see is a massive leap forward in the first two years that still had some fundamental problems and a lot of fancy packaging of the same broken stuff since then. We're looking at band-aids here, not actual progress.

I agree. A free market requires regulation to ensure competition otherwise it ceases to be a free market.

Depends what you compare it with. I grew up in the post soviet union. That system allocated resources to various monopolies who were too big to fail. Turns out allocating capital based on who can make things that people want/need to buy, and do it with a profit, multiplies said capital way faster. From this point of view, over time your initial base grows into all kinds of industries etc. That's probably why the USA won the cold war.

> Microsoft is a public company. That means their primary product is not products or services, it's their stock.

Yeah that's a great business idea, ask Boeing how that's going

I assume the downvotes are because people do not know the difference between "free market" and "entirely unregualted market"?

Please get your definitions from someone reasonable (Adam Smith might be a good start) rather than Ayn Rand.

Current CEO:

> Boeing spent about $300,000 to help Ortberg move to Seattle. His decision comes more than two decades after Boeing leadership decided to move company headquarters out of Seattle. Ortberg received about $18 million for the months he was the CEO in 2024.

https://en.wikipedia.org/wiki/Robert_Ortberg

Previous CEO:

> In 2022, Calhoun received $22.5 million from Boeing. Most of his 2022 compensation was in the form of estimated value of stock and option awards. He received the same $1.4 million salary as in 2021. ... In February 2023, Boeing awarded Calhoun an incentive of about $5.29 million in restricted stock units to "induce him to stay throughout the company's recovery". In March 2023, Boeing announced Calhoun was being given shares worth $15 million that will vest in installments over three years.

https://en.wikipedia.org/wiki/Dave_Calhoun

Seems to be going all right?

The operating principle here being that prices are units of information, which in aggregate reveal some combination of market demand, present supply, production costs, etc. All else being equal, an investor who's looking to put an investment into a new business will try to find the best rate of return. The existence of a relatively higher profit margin for an industry suggests an unmet market need, and then directs the flow of capital into it (if you expect that for every $1 you invest into a roofing nail plant will return $1.25 over the next year vs a $2 return from a new insulin plant, more new cash will flow into the insulin plant, more insulin gets made, and if the investor guessed right about the demand for it, they turn a profit). In a sentence, money flows towards trying to give people what we think they want more of.

The theory posited above is that you could try to manipulate these signals as a sort of economic warfare. If you expect that every dollar you put into our aforementioned roofing nail factory will get you minuscule or negative return, nobody's going to want to invest in building/expanding nail factories, and they'll put their cash somewhere it can grow instead. This is all well and good so long as you've got happy trading relationships with people who can sell you nails, but if one day the nails stop coming--you've got a supply chain shock until you either open new factories or find someone else willing to sell nails to you. The theory here being that if you had a LOT of goods that became tied up in a single point of failure--someone forcing that failure could create a great deal of internal instability to be exploited for geopolitical ends.

That's what's meant by efficiency, it's allocating it to the place that has the highest return on investment.

As you point out, in practice what's efficient is what can capture the highest return, not necessarily the highest return per se. If say investing in education had high returns society wide but those returns couldn't be captured, that's not an efficient use of private capital.

I guess it depends on what kind of investor you are.

If you're holding MS stock long-term, and you plan to gradually shift away from equities as you near retirement and then gradually liquidate your holdings to fund your retirement, juicing the stock in the short term does nothing for you.

If you're holding short-term, then you also need to sell the stock after it gets juiced, so that you can move your capital to not-yet-juiced stocks.

As somebody doesn't consider himself a capitalist, wouldn't it be fair to say it is "the most efficient" in precisely one thing: capital reproducing itself?

And if so, why is that necessarily a good thing? Why should that be our goal as society as opposed to things like minimizing child mortality, increasing literacy rates, making sure we don't have a ton of our fellow humans living on the street in misery etc etc - things that make the lives of our fellow humans better? Why is capital growth the metric we have chosen to optimize for? Surely there's better things to optimize for?

Excuse the polemic, but infinite growth with no regard for anything else is the ideology of a cancer cell - and to me that is increasingly what it feels like when we are wasting all these resources on a dying planet just to make numbers go up.

> Name a major U.S. public company in recent years that has consistently prioritized improving its product over boosting short term stock price or extracting maximum profits.

Well in some perverse sense, I'd say Meta qualifies here. Zuck isn't beholden to other shareholders and is free to burn truckloads of money on worthless projects. The big asterisk is that for Meta, "improving its product" is effectively "creating the best digital cigarettes".

Relevant U.S. Constitution: https://constitution.congress.gov/constitution/article-1/#ar...

> “The Congress shall have Power… To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;”

Until your economy congeals into various monopolies who are too big to fail, and you lose the rematch because you're so busy counting beans you stop paying attention.

I'd argue the Cold War isn't over and the US is losing it right now with how their president grovels before the Russian one

Applies globally.

Optimizing for capital returns is a simplification of the real world, where it allows for comparing whether it makes more sense to put one's money into opportunity A or B.

There's a lot that's not captured by solely looking at dollars, like the examples that you bring up, such as quality of life, human welfare, and so on.

Ultimately that money is made by people choosing to spend their money on something, because it helps them, because they like it, because they need it for whatever reason (real or imagined). That's what grounds the financial markets: eventually someone is buying a thing because they want the thing, and all the rest of it is basically just figuring out who can make the thing, how many people want the thing and how badly, and whether the stuff used to make the thing could make a different thing that people want more. Financial markets can depart from that reality for a while, but mainly because of a collective belief in some falsehood about the above (everyone really badly wants AI, right?).

Number go up infinitely is due to inflation and that's basically just an incentive to not hoard cash indefinitely, and instead use it for something useful. But the only thing that uses up is numbers. Everything else is because people, on average, want more stuff and are willing and able to work hard to get it.

(Of course, this generally means that the markets chase the desires of those who have something valuable enough. People who don't will be marginalised by this mechanism, for sure. And of course there's lots of opportunity for people to steal or abuse powerful positions in the market to the detriment of others. Which is why a free market is not the be all and end all of organising a society, and other organisational structures exist to regulate it and to allocate resources in a less transactional manner)

But isn't that counter to the very article we're commenting on? Everyone is shoving half baked AI junk into everything because that's what makes number go up on the stock market, but I'm pretty sure that's not actually what most people would want those resources to be used for.

I'd posit that markets are completely detached from the real world and are more of a speculative/religious element than an indicator of any ground truths.

Edit: I just realized I missed a sentence of yours where you kinda spoke to this. I still believe that this is more of a rule than an exception - there is nothing inherently tying markets and reality together - they're mostly about people making bets on what the next big hype is; not on what is actually useful to anyone.