You gotta' love the software business.

JEFF PLATSKY Money Matters

The companies that write the code that makes every computer do wonders, spend oodles of money in product development. Then, if successful, just pump out the same program over and over again with a comparatively minor amount spent on production and distribution.

Tucked in a recent story on Microsoft's plan to update its wildly popular and industry standard Office suite were revenues and profitability figures for the unit responsible for the product. The numbers were just so stunning that many readers had to take a second look to make sure they weren't mistaken.

But there it was in black and white. The unit responsible for Microsoft Office produced revenues of $11 billion for the Seattle-based software giant and operating profits of $8 billion for the fiscal year ended June 2005. You read it right: $8 billion operating profit on $11 billion in revenues.

That means Microsoft pockets, on average, 72 cents on every dollar it collects on the sale of Office and related products. It's the kind of margins that industrial companies can only dream about, and it's the kind of performance that has long made Microsoft the darling of Wall Street.

The margins Microsoft produce are downright astounding, but fairly typical in the software field. During his regular quarterly conference calls, former IBM finance chief Jerry York used to marvel at the 80 percent margins that his company's software unit regularly produced. They were the kind of numbers that made the bean counters downright giddy.

Overall, software companies don't produce those kinds of margins on all their products, but some of the more popular programs are expected to throw off bank vaults full of cash.

Microsoft operating margins were 41.8 percent in the fiscal year ended in June. Oracle's were 38.1; Adobe, 36.2; and SAP, 26.9, according to Yahoo Finance.

Not all software companies are raking in that kind of dough, just the ones with successful products.

This is noteworthy in light of some of the bashing aimed at the oil industry. I don't know if the companies are gouging at the pump with the recent runup in oil prices, but there are plenty of people who are accusing the industry of the vile practice with little hard evidence except a gut feeling. I'd rather reserve judgment until the evidence proves guilt or innocence.

But if we take a look at the operating margins at some of the nation's largest oil companies, they pale in comparison to the software companies.

Exxon Mobil's operating margins are 15 percent; BP, 9 percent; Chevron, 11 percent; Valero, 5.9 percent; and Amerada Hess, 8.1 percent.

On its face, Exxon's $13 billion second-quarter profit would be unseemly. But that must be measured against the quarter's revenues of $88.6 billion. Judge those results against Microsoft's Office unit, which reported $8 billion in profits on $11 billion in sales.

Look at the ratio. Which company is taking advantage of its market power?

In another key gauge, return on equity, Exxon Mobil trumps Microsoft -- 30 percent versus 20 percent.

People will argue oil is critical to American life. People need it to get to work. They need it to heat their homes.

But Microsoft Office is just as critical for business as oil is for the typical American family. It's the standard, and any company without Microsoft Office is at a competitive disadvantage.

Yet, despite the startling high profit margins at these software companies, there's no hue about price gouging. Oil company critics aren't making Microsoft or Bill Gates Public Enemy No. 1. Some celebrate his riches.

Reason: You're emotionally attached to your car and the freedom it provides. While there's some attachment to your computer, it's nothing like the great American love affair with the car.

JEFF PLATSKY is business editor of the Press & Sun-Bulletin.

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