There's a good joke about that, it goes like this:

A man is seated next to Bill Gates in the business class of an airplane. Mr. Gates, he asks, how come that with your name and brand recognition and your tremendous turnover as well as the locked-in nature of your customers that you still spend money on advertising.

Gates replies: Do you like the speed at which this aircraft is travelling ? How about we turn the engines off ?

I'm not overly convinced. A big reason why most major corporations advertise so heavily is just because it's something that big companies do, it can be tough to buck a trend especially when billions are on the line.

But aside from that, advertising is a business expense that is fully tax deductible. For many big businesses the net cost of advertising is zero.

If something is tax-deductible that does not mean that the net cost of doing it is zero.

For example:

We have a turnover of $100, a tax deductible cost of $40, our gross profits before taxes are $60, say we pay 50% tax the net is $30. If we had not made the $40 tax deductible expense the net would have been $50.

So the net cost of stuff that is tax deductible is not zero.

Let's say Cisco spends $1B on advertizing and ends up with an extra 800M in sales and $900M in profit after taxes. Was that a good idea?

PS: The actual numbers may look like this. By selling more units your price per unit usually drops. But, sometimes it's better to sell fewer things at a higher margin. For a company like Cisco maintains a specific brand image is worth a lot. They may sell cheap home networking equipment but they don't use the Cisco brand.

Obviously not, but the argument was made that because advertising is tax deductible that it was essentially free. Nobody talked about the effective result of the advertising on the bottom line because of the extra revenue that it might bring, or how bad it would be to advertise ineffectively.

Obviously not err my point was 1B in pretax money is generally worth significantly less than 900M in after tax money.

Clearly it's not free, but due to the tax break advertizing can have a lower ROI and still be a better investment.

That's an interesting hypothetical. However, in practice most billion dollar company's advertising budgets tend to be much less than their taxes.

I like the old John Wanamaker quote: "I know that half of my advertising budget is wasted, but I’m not sure which half"

It's a bit like buying lottery tickets.

That's true, but the author is looking at what's under the hood -- at the moment, ALL of those companies are heavily depending on Microsoft and/or Intel. In most cases, both.

Example -- IBM is still one of Intel's biggest server OEM's. And most of IBM's corporate environment runs in Windows. (For that matter, the same could be said for most of the bloated US Federal government.)

The author is also ignoring the fact that the Wintel duopoly has been making inroads in corporate markets, as well -- for years now Intel has pretty much owned the low and mid-range server markets, and is making inroads on higher end markets (in fact, the only thing that so far has been able to hurt Itanium meaingfully is... Xeon), and due largely to SQL Server, Microsoft has been making large inroads into those markets also.

Apple's growth in the PC market isn't harming Intel one bit -- quite the opposite in fact, because Apple's success is tied to Intel.

I don't think Intel's dominance is in any danger. Microsoft's is another story -- Intel will be able to gain a lot of mobile market share, because Intel has the best semiconductor manufacturing in the business.

That said, I think that ARM will be a tougher competitor than AMD, because ARM is already much, much bigger, and some the foundries making ARM processors for their partners are larger than Intel, even if they aren't quite as high-tech.

The declining margins in processors are probably why Intel's been going after the graphics market, the cluster-on-a-chip market (Larrabee), and doing the whole-system thing for the mobile market, rather than just the Atom chip by itself.