Name a computer company. Go ahead.

When I was a kid the computer company you named when asked that question would be IBM. Full stop. That seemed like the only computer company you could name, really. But is there any company these days that isn’t in some way shape or form a ‘computer’ company – at least by the standards of yesterday? These days, if it’s electronic, you can communicate with it. And shoot, my dishwasher now has more computing power than the Apollo module.

Delay start by two hours and sanitize? You betcha.

Fifteen years ago, the number of “computer companies” you might have been able to name would be longer, but odds are high that the first company you would have thought of would have been Microsoft. It’s not at all clear to me, though, that when my kids are grown they’ll even remember Microsoft.

A recent Vanity Fair piece (yes, really) highlighted some of the reasons for Microsoft’s lost decade. Here’s one fact from the article: “Today, a single Apple product – the iPhone – generates more revenue than all of Microsoft’s wares combined.” Kind of ironic that Apple was essentially written off and left for dead not too long ago, eh?

But Apple aside – and throwing out “the economy”, “the tech bubble” and “changes in the tech market” as shallow excuses – how exactly did Microsoft let the world slip through its fingers? I’ve got plenty of my own opinions, but said article makes a pretty good case that, plain and simple, it was management’s fault. From Vanity Fair:

Ed McCahill, who worked at Microsoft as a marketing manager for 16 years, says, “You look at the Windows Phone and you can’t help but wonder, how did Microsoft squander the lead they had with the Windows CE devices? They had a great lead, they were years ahead. And they completely blew it. And they completely blew it because of the bureaucracy.”

A good company (and investment) is more than the sum of financial and economic parts. It’s much more about how it combines and leverages those parts. Can management turn the assets of the company into better than average earnings power? If yes, can they sustain it? If not, well, that’s okay, actually…most businesses do not have moats…but management better be world-beaters when it comes to the efficiencies inside that shop, or else history will not be kind.

Anyone can extrapolate current earnings and economic factors into share price projections. I’m sure there are a few dozen places online today you can do it for free. But history has shown that fat profit margins can hide mediocre management. And to try to avoid being fooled, I believe you also have to look at the corporate culture of a potential investment – and that’s often much harder. Are these guys truly the smartest guys in the room? If so, are they arrogant about it, or humble? Are they flexible? Innovative? What’s driving their earnings, really? And how can it be that a massive cash cow run by the Mensa members of Microsoft completely punted on creating a viable, competitive and early alternative to the iPad. Or iPhone. Or Facebook. Or Twitter. Paging Clayton Christensen…

Much more in the Vanity Fair piece. It’s a good case study and you can find it here.