Microsoft vs. Infosys
I just discovered that [[http://finance.yahoo.com|Yahoo! Finance]] is one of the **best** resources on the web to get quick stats on any company — size, market cap, cash flow, share prices, financial history, analysis — you name it, they got it!
Anyways, so a few days back I was in a meeting when the growth rates of Indian companies such as Infosys and TCS was being discussed. Out of curiosity, I wanted to get a feel for how say Infosys stacked up against say Microsoft. So I went and dug up some numbers from Yahoo Finance.
Infosys (with around 36,000 employees) is //already// almost half the size of Microsoft, however, its market capitalization trail M$ by a factor of 7. The yearly revenue of Infosys is almost a 20th of Microsoft’s. On the other hand, Infosys is trying to grow to around 70,000 people in the next two years. I haven’t read of any such expansion plans from Microsoft.
To puts things in a little perspective, Google’s is around a 10th the size of Microsoft, while its market capitalization is already about half of M$. Google’s annual revenue is around a sixth of Microsoft’s.
But what do all these numbers mean? Honestly, I don’t really know. I hope some of my [[http://nakulmandan.blogspot.com|learned friends]] will be able to shed some more light on this. I just have some qualitative comments to make.
The first surprising thing to me was that Infosys was already so big (in number of employees). I mean, comparing it with M$, I’m actually amazed that they are able to sustain such a large working force. I guess thats one of the advantages of being based in India — a big company can save billions in salaries, employment benefits and taxes. Though I don’t know enough to make any claims, I feel slightly worried whether Infosys will be able to attain its target growth rate, unless its revenues and assets grow in proportion.
There was a news story in Time a couple of weeks back on how Ford Motors is struggling to get back into the US auto market. They mentioned that back in the 90s, Ford was //losing// around $250 per car manufactured (because of the employment benefits, health care etc that they had to provide), while Toyota was making more than a 1000 dollars on similar priced cars because they weren’t incurring these costs. Sounds somewhat similar to what Microsoft is/would be dealing with as companies like Infosys encroach its markets?
I was also a bit taken aback by Google’s figures. I mean sure Google’s been all over the news since like forever, but I had never actually taken a look at concrete numbers before. This is a crude way to look at it, but one way to visualize Google’s figures is to imagine it being roughly twice as productive as M$ on a yearly basis, and almost five times as valuable. Its truly remarkable. Google has also been growing at an almost alarming rate — almost a 100% growth rate in the past few months I believe (I think they were recruiting 100 new people every week at one point). I read somewhere that they will probably slow down their growth in this coming year, but its still quite remarkable.
Note that Infosys’s target growth rate is actually almost similar. I’m quite curious as to what kind of strategy Infosys is taking to achieve its goal. Its probably in Infosys’s favor that its not on the radar of newsmongers like Google is. IIUC, even HCL and TCS are on similar growth curves. I’ll try and read up a little more on their plans and post an update if I find something interesting.
My impression was that Infosys was more of a services company rather, whereas Microsoft is very much a products company with several monopolies or near monopolies. Service companies scale more or less linearly – you incur more expenses as you add people.
Minor correction – Infosys’ employee strength is 49,422 as of 31st Dec 05.
Comparison of Infosys and Microsoft is unfair. Infosys works on minor components of Microsoft’s products. The product and services are different ball game altogether. A better, not exactly fair, comparison would be IBM Global Services (Revenue $44B), EDS, and the likes.
Infosys, Wipro and TCS can sustain their current growth rates of 30% pa since they are still small players compared to Big Brother in the game. I believe they have capability to manage scale. The bigger problem they will face is quality workers. Already, all those who can spell “java” have got jobs.
At B-school they teach us to look at revenue per employee as a measure of corporate success, and moreover at that number (revenue per employee) over time as the company grows as a measure of management competence. Supposedly, good management will lead to increasing revenues at least as far as increasing manpower.
Since you’ve thrust upon me the hat of being your ‘learned friend’, I must say something (though am not going to get into any numbers).
Well, for one, it’s not fair to compare revenue or profits per employee between between a services and a products company, as mentioned by David.
If at all, you want to compare the two companies based on profitability, you should be looking at Return on Capital Employed (ROCE) rather than revenue per employee. It tells me if I invested 100 bucks in each company (mind you, in the company; am not talking of investing in shares) at the beginning of this year, which of them gives me a better return on those 100 bucks, irrespective of which company employs more people or operates in which region or produces what.
Market Capitalization is a better measure to compare companies ‘cos it gives an idea of the valuation of the company’s owners. The future projected growth rates are also taken into account in that valuation. IMO, a still better measure to compare companies (and not its owners) is Enterprize value which is arrived at by adding the market value of the company’s debt to the market capitalization.
*@all*: this really wasn’t meant to be an apples to apples comparison of the two companies. I was just curious about the stats I saw and am trying to make some sense of the numbers.
*@david*: thanks for that insight — is this a well known trend in economics?
*@shashikant*: yeah, I should have mentioned the figure along with the date it was acquired. I just picked up the numbers from Infosys profile page on Yahoo. But I’m still curious to know the reason behind your confidence in the sustained growth of these companies. I’m not doubting that they won’t grow, I just want to know how? Given that they are targeting to manage the same amount of human and infrastructural resources as Microsoft, they presumably will face similar challenges?
*@yoav*: I guess that particular metric will project a slightly more acceptable growth rate for Google :-)
*@nakul*: how does one invest in a company without investing in the shares? I guess investing in shares is *one* way of investing in the company? I’m just not clear on the distinction there. I looked at the enterprise values for both INFY and MSFT as well — they seem to track the market capitalization quite closely.
Okay. When I meant investing in the company and not the shares, I meant – Look at how much money (through equity/share markets or debt) has been been invested into the company to generate profits.
When we use the word ‘invest’ in the common parlance, we are talking of one person buying the share from another at the market price. That does not contribute to the capital employed in the business in any way. It is an investment for the person buying the share and not a new investment for the company. That usage of the word ‘invest’ was what I was warning you against.
Hope that clarifies.
Infosys earned $100 mn (sales) with 5000 employeess by end of 1999. Six years later they will be earning close to $2 bn with 50000 employees. This proves their ability to scale.
Infosys and Wipro have survived the departure of high-profile execs. Twice, in case of Wipro! They have also survived a market crash.
World’s software services market is in excess of $500 bn. (Top of the head number, may be off by $100 bn). India’s share is rediculously low. Ridiculous since we Indians like to market ourselves as world IT superpower. India’s pie can only increase.
TCS, Infosys and Wipro should be able to reach $10 bn (sales) mark by 2010.
can u do a more crappy writeup on comparison where you dont even have an idea of the growth rate – “100% i believe for google.. bcoz they r recruiting 100 ppl a week”, “infosys has similar targets” – of 100% vs. 30%..? where did u get all these asumptions from? yahoo! finance?
*@orgy*: I never said “Google is growing at 100% _because_ they are recruiting 100 people a week” — you made that connection yourself, and wrongly so. I made the remark about hiring 100 people a week just as anectodal evidence for Google’s really fast growth at that point in time. The fact that both number happened to be 100 (Google might as well have been hiring 80 or 120 person per week, with no change to my argument) was just a conincidence.
I already clarified in one of the comments above that this was not meant to be an apples to apples comparison. And yes, you can verify the growth rates (both in terms of revenue and size of the workforce) over the past 1 year from Yahoo Finance.
there can’t be any comparison between microsoft and infosys.since infosys is a kid or rather infant in front of microsoft’s global revenues. infosys stands no where to that figure. infosys is a major in providing services and comparison with microsoft(major product based company) is not appropriate. comparison should be made between infosys and TCS and you will see infosys has to do a lot to get at par with TCS. so stop talking big first go through the present status of infosys and then make a statement.
*@himanshu*: Relax dude, I never claimed I knew what I was talking about anyways. If you read the post carefully, you would have seen the following line:
“But what do all these numbers mean? Honestly, I don’t really know.”
I also don’t know what you mean by “stop talking big”. I’d appreciate if you’d be so kind as to elaborate a little more on that.
You also make it sound like you’re upset that I’m (wrongly) taking Infosys’s side. Thats just wrong on multiple levels man!
Microsoft and Infosys are almost of the same age. But the difference lies in that MS is into products for mass markets while Infosys is a services company to verticals like banking, retail, insurance etc. Services obviously is more labour intensive as a result of which Infosys has more employees. MS definitely had a greater advantage of pro-innovation environment in the initial days while the best that Indian cos at the time was to give cost advantage to the western clients. This is the reason why MS grew as a product company while Infosys could not. But all the Indian top IT cos have started product deveopment and I surmise that the financial muscle, brand equity and domain expertise they have built in the last 4 decades will help them in this venture.
Hey..
Idea matters not number of employees..Google is perfect example..
Its becuase infosys is an IT Company and Microsoft is a Software company.
many indians supporting indians and claims them as the top among the others in the world forgetting many things. this shows their unity and their clear strong defence. but fails to contribute creativity or development. as many supporters joins together they may win the argument.
a person who is a professional in that field only can tell what is what.
blind argument based on news or anything , any body(politicians) can be taken as their belief at that time, need not to have any value or knowledge.
It seem to be very funny:) lol. hw can, infosys be compared with microsoft. Microsoft should be compared only with oracle, google yahoo,apple etc
Atleast use ur brain b4 starting dis type of blogs