Microsoft is an American company, founded in 1975 by Bill Gates and Paul Allen. Microsoft develops and manufactures a wide selection of products primarily within the computing industry through its three Business Units. It is these three Units which we shall be focusing on in this report. In order to undertake an effective strategic analysis of Microsoft, it is essential that we apply the STP Process to each Business Unit.
An STP Process highlights the importance of three key organizational activities – segmentation, targeting and positioning, and ‘enhances a company’s competitive position by providing direction and focus for marketing strategies’. (Baines, Fill & Page, 2010). We will also be conducting an analysis of Microsoft’s strategic position, as well as any future opportunities and threats that could potentially arise.
Microsoft Business Division
Microsoft’s Business Division (MBD) develops software and online services aimed at increasing efficiency and productivity through programs designed for individuals and businesses. (Microsoft1, 2011). There are two components of MBD – Dynamics Business Solutions and Office System.
Microsoft uses psychographics to segment its customer base, splitting customers into two categories – Influential End Users (IEUs) and General Business Users (GBUs). Characteristics of an IEU:
- Technology enthusiast
- Purchases software for own use
- Gives more advice than they receive
Characteristics of a GBU:
- Small, mid-size, large or global enterprises
- Possess applicable software (Calliflower, 2011).
Targeting MBD uses a differentiated targeting approach, which involves targeting different products at different market segments. Although this approach exploits Microsoft’s opportunities, they may suffer a loss of economies of sales caused by the resources required to reach the needs of several segments. (Baines et al, 2010). MBD offers:
- 4 Office packages for IEUs
- 2 Office packages for GBUs
- 4 Dynamics packages for GBUs
Microsoft adopts a ‘viral marketing model’ whereby they focus marketing efforts on key segment ‘influencers’, (user groups and industry publications), and through this, word of mouth enables mass demand. (Calliflower, 2011).
Positioning Microsoft positions its software at premium prices to denote quality. Office and Dynamics software is frequently re-launched as an upgraded product to keep up with changes in technology and consumer needs. (OpenOffice, 2011). This is a crucial part of MBD maintaining its competitive advantage and arket share. Microsoft has stated that their ‘products compete effectively based on our strategy of providing flexible, easy to use solutions that work well with technologies our customers already have’. (Microsoft1, 2011).
Microsoft sees the main competitors to its Office System as:
As well as numerous Web-based competitors and local application developers in Asia and Europe.
Microsoft sees the main competitors to its Dynamics Business Solutions as:
- Salesforce (Microsoft1, 2011).
Market Share Microsoft held a 78. 6% share of the software market in 2010, a 0. 7% increase from the year before. However, despite being market leaders, Microsoft understands the importance of maintaining their market presence.
In relation to Ansoff’s Matrix, they have adopted a Product Development Strategy. Microsoft This strategy requires Microsoft to continually update their portfolio to ensure that they are constantly providing the most desirable software. ‘At Microsoft, we push the boundaries of what is possible through a broad set of research and technology innovations that seek to anticipate the changing demands of customers, industry trends, and competitive forces’. (Microsoft2, 2011).
Finances MBD accounts for 32% of Microsoft’s revenue stream – their second most profitable Business Unit. (Appendix 1). Revenue can be separated into two ategories:
- Sales to businesses (80% of MBD revenue)
- Sales to customers (20% of MBD revenue)
The Office system generates 90% of MBD revenue, with Dynamics Business Solutions making up the other 10%. (Microsoft3, 2011). The chart below has been constructed using Microsoft’s financial data from the past three years.
This chart shows the changes in MBD revenue over the last three years. Although there has been year-upon-year growth, this has been only marginal. This indicates that although MBD‘s software is still in the ‘growth’ phase of the product lifecycle, it may be nearing ‘saturation’.
This only serves to highlight the importance that Microsoft continues to develop its software packages to ensure they can maximise revenues and sustain their competitive position.
The Future Microsoft has identified their main opportunity, and subsequently, their main threat, as being cloud-computing software. There has been a growing demand for this type of software in recent years, due to both its convenience and low cost. Microsoft has already invested substantial resources in its production, and has a number of products in the pipeline.
However, this software is not yet a core competency for Microsoft, and is something which needs to be worked upon to ensure that an opportunity isn’t missed and competitors don’t establish market dominance. Although MBD’s products have such dominance within the marketplace, by operating within such a dynamic and highly competitive market, it is essential that Microsoft remains one step ahead of the competition. To do this they must continue to exploit all opportunities that arise in relation to changing trends and technology.
- http://www. microsoft. com/investor/reports/ar11/financial_review/segment_geo. html
- http://www. gartner. com/it/page. jsp? id=1654914
- http://office. microsoft. com/en-gb/buy? WT. mc_id=ODC_enGB_Office_Buy
- Baines, P. , Fill, C. & Page, K. (2010). Marketing. Oxford: Oxford University Press.
- Calliflower, 2011. Rule #4: Segment, segment, segment. http://www. saching. com/Articles/Segmentation-in-Marketing-6901. html (Accessed: 12 February 2012).
- Microsoft1, 2011. Operating Segments. http://www. microsoft. com/investor/reports/ar11/financial_review/operating_segments. html (Accessed: 31 February 2012).
- Microsoft2, 2011. Discussion & Analysis. http://www. microsoft. com/investor/reports/ar11/financial_review/discussion_analysis. html (Accessed: 20 March 2012).
- Microsoft3, 2011. Segment Information. http://www. microsoft. com/investor/CompanyInfo/SegmentInfo/MicrosoftBusinessDivision/Overview. aspx (Accessed: 23 March 2012).
- OpenOffice, 2011. Strategic Marketing Plan 2010. http://www. openoffice. org/marketing/strategy/v0. . pdf (Accessed: 12 March 2012).