Microsoft Strategic Management

Background:

It’s the 1970s. At work, we rely on typewriters. If we need to copy a paper, we likely use a Roneo or C paper. Few have heard of personal computers, but two young computing enthusiasts, a 19-year-old and his 22-year-old business partner (Bill Gates and Paul Allen), sold their first program to a small computer company in Albuquerque, New Mexico.

The program was called BASIC, and it was the start of the company we call Microsoft. We see that computer science is a way to the future.

In 1975, Gates and Allen formed a partnership called Microsoft. Like most start-ups, Microsoft begins small but has a huge vision – a computer on every desktop and in every home. During the next few years, Microsoft begins to change the ways we work.

Starting in 1980, Microsoft formed an important partnership with IBM that allowed them to bundle Microsoft’s operating system with computers that they sold, paying Microsoft a royalty for every sale.

In 1985, IBM requested that Microsoft write a new operating system for their computers called OS/2; Microsoft wrote the operating system but also continued to sell their own option, which proved to be in direct competition with OS/2. Microsoft Windows eventually overshadowed OS/2 in terms of sales.

When Microsoft launched several versions of Microsoft Windows in the 1990s, they had captured over 90% market share of the world’s personal computers.

We can take a look at the roadmap of Microsoft products, how it became a giant in the personal computer market.

In 1982-1985 (Windows 1.0) – Microsoft launched the first version of a new operating system – Interface Manager is the code name and is considered the final name, but Windows prevails because it best describes the boxes or computing “windows” that are central to the new system.

In 1987-1992 (Windows 2.0) – Microsoft releases Windows 2.0 with desktop icons and expanded memory. With improved graphics support, you can now overlap windows, control the screen layout, and use keyboard shortcuts to speed up your work. Some software developers write their first Windows-based programs for this release.

In 1990-1994 (Windows 3.0 & Windows 3.1) – Microsoft announces Windows 3.0, followed shortly by Windows 3.1 in 1992. Taken together, they sell 10 million copies in their first two years, making this the most widely used Windows operating system.

In 1995-2001 (Windows 95) – Microsoft releases Windows 95, selling a record-setting 7 million copies in the first five weeks. It’s the most publicized launch Microsoft has ever taken on. Television commercials feature the Rolling Stones singing “Start Me Up” over images of the new Start button. The press release simply begins: “It’s here.”

In 1998-2000 (Windows 98, Windows 2000, Windows Me), Windows 98 was the first version of Windows designed specifically for consumers. Personal computers were becoming increasingly common at work and at home, and internet cafes where you could access the internet were starting up. Windows 98 was described as an operating system that “Works Better. Plays Better.”

In 2001-2005 (Windows XP), Windows XP was released with a redesigned look and user experience that was focused on serviceability and included an integrated Help and Support services center. It was available in 25 languages. From the mid-1970s until the release of Windows XP, approximately 1 billion personal computers had been shipped worldwide.

In 2006-2008 (Windows Vista), Windows Vista was released with the strongest security system yet. User Account Control helped prevent potentially harmful software from making changes to your computer.

In 2009 to the present day (Windows 7), by the late 2000s, the wireless world had arrived. When Windows 7 was released in October 2009, laptops were outselling desktop personal computers and it was common to access the internet at public wireless hotspots like coffee shops. Wireless networks could be created at the office or at home.

External Environment

Microsoft has had a good track record over the past 30 years. However, they still need to face changes in the market, which we call the External Environment. Let’s take a look at the External Environment that Microsoft is facing.

Political factors – Microsoft is highly affected by the political scenario in the USA. Microsoft has become one of the giant companies globally and has created a huge monopoly across the world. The US government is now seeking to break up Microsoft into several different companies to maintain equal competition throughout the market. One of the other reasons for dividing up Microsoft Corporation is that it is becoming so strong that it could be a threat even to the US government in the near future.

Economic factors – Being such a diverse company and with the market share they have, Microsoft plays a major role in boosting the economies of the countries where they have set up their businesses. According to independent studies, the economies of the countries shoot up three times when Microsoft starts businesses there.

Social factors – Microsoft has an edge over all its competitors, as socially, more people are inclined towards Pentium platforms. This has naturally helped them to gain more market share compared to others. The market segment of Pentium users is very large, but it could be a threat for Microsoft if they continue to lose their share at an average pace due to their unsatisfied customers.

Technological factors – A decade ago, Microsoft was the leader in producing high-tech software and appliances. However, now they are facing tough competition from the global phenomenon brand ‘Apple.’ There is no doubt that Microsoft adopts and markets new technology.

Environmental factors – Microsoft follows very strict policies to ensure that the company remains in full compliance with international environmental regulations and the specific environmental demands of each country/region where they are conducting their business. Microsoft reduces waste disposal where possible through source reduction and recycling at company facilities. All waste is safely and responsibly handled and disposed of properly.

Legal factors – Microsoft is playing a critical role in the legal aspect of their pirated products like Windows and other software. They are doing their level best to reduce the use of their pirated software. They are introducing different security features that may reduce the use of pirated products.

Porter’s Five Forces Model

Force 1: Potential Rivals

The entry barriers of Microsoft’s business divisions are high. In the operating system business, it holds a major market share in personal computing. Over 90% of personal computers use the Microsoft Windows Platform (NETMARKETSHARE, 2012).

The second is Mac OS by Apple Inc., which only has a 7.3% market share. Making an operating system takes years and requires a high skill set and knowledge. Besides the coding, it involves designing for better user experience, integration between various platforms, and the design of advanced features.

Both Microsoft and Apple have been developing operating systems for nearly 30 years. Microsoft has a very strong user base from home users to enterprise and even government all over the world. To create a new operating system is very challenging, not only due to the financial problem but also experienced developers and the market to promote this product.

Force 2: Competition Among Incumbent Firms

The threat of competition is relatively low for Microsoft. There are only a few competitors in the operating systems market. The only differentiation between operating systems is what software it can run. However, many famous applications have released cross-platform versions.

Force 3: Supplier Power

For supplier power, the threat for Microsoft is relatively low. All major resources come from corporate internal. Most of them are human resources. For other businesses like their gaming console, Microsoft has several suppliers available. The only downside a supplier could hold is that the items needed by the console are a wide assortment of electronics.

Force 4: Buyer Power

Most of the Personal Computer companies sell their desktops, laptops, workstations with the latest Microsoft Windows OS. This is expected by purchasers. Even the direct rival like Apple, their Mac computer and MacBook can also support Windows OS. The cost of the OS is absorbed in the price of the Personal Computer, and buyers treat it as bundled software. So it leads to low dissatisfaction from purchasers.

Force 5: Substitute Products/Services

The threat of a substitute for Microsoft is low, even with the improvements of Mac OS X that have been made. To replace it with Mac OS, the user needs to buy an Apple PC. Apple PCs are normally more expensive compared to other brands in the same hardware configuration. Many users see the cost as not justified.

Microsoft SWOT analysis is conducted in order to dissect the company’s state of affairs in the market, comprising of four segments: Strengths, Weaknesses, Opportunities, and Threats. To date, the global business of Microsoft Corporation primarily involves developing, manufacturing, licensing, and supporting software products for various computing devices.

Its performance has been exceptional in the science and technology circle, through its strong operating performance and financial stability. The company is expected to seek more growth avenues in the future. However, Microsoft’s margins and market share were partly affected by intensifying competition.

Strengths:

• Windows is the dominant operating system in PC desktops worldwide, accounting for 92 percent of the market, compared to Apple’s 6 percent.
• Microsoft Internet Explorer is the second-largest web browser behind Google Chrome.
• MSN was one of the favorite instant online chatting platforms.
• Bing is the second-largest search engine behind Google.
• Software products have high name recognition, broad-based corporate and consumer acceptance, for example, Word, Excel, PowerPoint, Access, and numerous powerful features that are used worldwide, thereby promoting standardization and competitive advantage through their ease of integration and cost-effectiveness.

Weaknesses:

• Dependency on hardware manufacturers to pre-install Microsoft’s PC operating system.
• Falling sales in the operating systems and server software sectors.
• Little or no significant presence in the wireless market. For example, Windows CE has been unclear and discontinued.
• Few products are focused on internet applications.
• Perceived by many as a cutthroat competitor that uses its dominant market position to marginalize competition by stealing/destroying the competition’s products, stifling product innovation, and reducing the availability of rival products.

Opportunities:

• Lower global telecommunication costs create new markets as people connect to the Internet.
• Mobile phone applications and the development of personal digital assistants represent a growing industry, and strategic alliances could provide Microsoft with opportunities in the market.
• Popularity among people for Internet access.
• The demand for personal computers in the global markets is still necessary for the aspect of documents, although the growth and increasing popularity of personal handheld devices.

Threats:

• Apple and Linux threaten Microsoft’s 88% market share of the desktop operating market.
• Currency exchange rates affect demand for application/operating software and hardware, and fluctuating currencies can negatively impact revenues in the global marketplace.
• Hardware manufacturers (Sun Microsystems, Oracle, and IBM) have collaborated on new platform technologies that replicate much of the value of Windows.
• Hardware manufacturers (Sun Microsystems, Oracle, IBM, AOL, and Apple) are preinstalled in their own prefunded programs with their own hardware.
• Personal computers, mobile phones, personal digital assistants, entertainment-oriented handheld computing machines, and similar wireless products for Internet access do not require Windows operating system products.
• Rapid development of mobile devices that will displace/replace personal computers.
• Software piracy of commercial and consumer applications software could directly endanger revenue streams.
• The cycle of technology life is shorter.
• UNIX is believed to dominate in high-end mission, as its clients do not believe Windows can handle these operations.

Capability and Resources

In today’s information age, intangible assets are indispensable. We no longer live in a world where physical assets are more valuable than intangible assets. High levels of business performance depend on intangible features. Successful business can be achieved depending on tangible and intangible issues.

Intangible

Leadership and managerial capabilities A slogan quoted by Bill Gates of Microsoft goes as follows: “Our basic assets, which are our software and our software development skills, do not show up on the balance sheet at all.” Bill Gates advocates that the ability to innovate, ability to change, speed to market, developing and retaining the best people, and making a one-to-one customer relationship are crucial for running a company.

He clearly points out the market’s preference for intangible assets over tangible ones. Therefore, businesses will have to acknowledge new drivers of value, such as client-led company processes, increased specialization, and an emphasis on knowledgeable employees.

Brand name

According to http://brandirectory.com/league_tables/table/global_500_2011, Microsoft jumped from 5th to 2nd place in Brand Finance’s new list of the world’s most valuable brands as of 2011, but it was still behind first-place Google.

The Microsoft brand was worth $42.8 billion in 2011, up from a value of $33.6 billion in 2010, according to the list released today.

Patent

The Microsoft Intellectual Property Licensing group is responsible for licensing Microsoft patents and other forms of intellectual property (IP), such as research technology and know-how. The following points were examples of the products’ patents.

Several devices, from portable computers and personal digital assistants (PDAs) to mobile phones and video cameras, use liquid crystal display (LCD) technology to render images on a screen.

Exchange ActiveSync is a communication protocol that enables mobile, over-the-air access to email messages, schedules, contacts, task lists, and other Exchange Server mailbox data.

File systems patent

The Extended File Allocation Table (exFAT) is the latest file system for personal storage devices. The file allocation table (FAT) file system makes it possible for an operating system to track the location and sequence of each piece of a file. Microsoft also offers a flexible Intellectual Property (IP) licensing plan upon increasing industry interest in licensing its growing hardware technology portfolio.

Strategic Partnership

Nokia and Microsoft joined forces in 2011 to create market-leading mobile goods and services designed to provide consumers, operators, and developers with unparalleled choice and opportunities. As each company focused on its important competencies, the partnership created opportunities for fast time-to-market execution.

Besides, Nokia and Microsoft integrated important assets and created entirely new service providers, while extending established goods and services to the handheld devices market.

Tangible Research Centre and Installations

Microsoft Research Cambridge was established in July 1997 with a few research workers. Today, over 100 research workers, largely from Europe, are engaged in computer science research at the lab. The city of Cambridge, England, was the perfect choice for the installation’s location because of its world-renowned reputation and rich history as a center of learning.

Located in Mountain View, California, Microsoft Research Silicon Valley was founded in August 2001 and now employs about 75 research workers. Its research work focuses on assigned computer science and includes privacy, security, protocols, fault-tolerance, large-scale systems, concurrency, computer architecture, Internet search and services, and related theory.

Microsoft Research Asia was founded in Beijing as Microsoft’s central research installation in the Asia Pacific region and expanded quickly. By attracting the best talent from Asia and around the world, Microsoft Research Asia has grown into a premier research lab with more than 240 research workers and developers and more than 260 visiting scientists and students.

Nowadays, the lab conducts core research in natural user interfaces, next-generation multimedia, data-intensive computer science, search and online advertising, and computer science fundamentals.

Employees

With 90,000 employees in over 190 cities, planning and developing many products and services for all clients and partners, Microsoft focuses on ensuring a top level of satisfaction among its clients and partners. It is an important component of its business. The final mission is to provide experiences for the clients and partners, across all of their interactions with Microsoft, that they value and recognize, and enable them to realize their full potential.

Strategies

In order to discuss Microsoft’s strategies at the business level, corporate level, and international level, it is necessary to define them ahead. Business-level strategy is a comprehensive mechanism a company chooses to gain competitive advantage or high quality in a particular business (Cutcher, 2006).

Corporate-level strategy refers to the decision a company makes to explore new strategic opportunities, which range from an extension of the current product line to expanding current operations and further moving the company to completely new lines of business, under such conditions to vendor continuous growth or maintain current sales and profits (Cutcher, 2006).

International-level strategy is a strategy through which the company sells its goods or services outside its domestic market by a few entry manners, like exporting, licensing, joint venture/alliance, and exclusive venture.

Microsoft adopts accessibility as one of the business-level strategies by:

• Providing accessibility options that allow users to personalize the computer display, mouse, keyboard, sound, and speech options in Windows and other Microsoft products.
• Offering assistive technology products, specialty software, and hardware products (such as screen readers and specialty keyboards) that provide essential computer access to individuals with significant vision, hearing, motor, language, or learning needs.
• Ensuring interoperability among assistive technology products, the operating system, and software programs, which is critical for assistive technology products to work properly.
• Continuing their longstanding commitment and leadership in developing advanced accessibility solutions.
• Making the computer easier to see, hear, and use by building accessibility into Microsoft products and services.
• Promoting innovation of accessibility in the development community and working with industry organizations to encourage innovation.

Microsoft also uses cost leadership as one of the business-level strategies to be consistent with the purpose of Microsoft’s original goal of enabling PCs that run Microsoft software on every desktop, making the use of software possible for everybody (blogspot, 2011).

Microsoft provides affordable upgrade offers for users to upgrade from existing operating systems or software to brand new versions. Additionally, OEM versions of operating systems that come with brand new PC devices are sold at a considerable discount. Furthermore, special editions of operating systems and software specified for college use are also offered with much discount to penetrate the market of students and adolescents.

To maintain the growth of the business, Microsoft goes for diversification and innovation as a corporate-level strategy (scribd, 2009). An example would be the television game console, Xbox 360, mobile phone operating system, and voice over IP service software, Skype. Such a strategy enables Microsoft to benefit in terms of money, market share, and better use of resources by:

1. Exposure to new products and markets.
2. Providing prolonged innovation and use opportunities to integrate knowledge into operations.
3. Spreading risk by avoiding having all eggs in one basket and providing better risk control through not being reliant on a single market.
4. Moving away from declining activities (scribd, 2012).

Regarding the international-level strategy, Microsoft adopts licensing as an entry mode, in which Microsoft, the licensor, authorizes a foreign licensee to use its patented technology for making and selling products in the licensee’s home country (Cutcher, 2006).

Microsoft sells goods and services by forming partnerships with local licensees all around the world. Their partners are often accredited resellers and authorized distributors who sell Microsoft’s products to local customers and provide marketing operation (Microsoft, 2012).

Also, Microsoft adopts a global strategy to compete globally. Besides accommodating the language for each country and region, their products, like OS and office suite, are standardized so that they share the same functions and features.

Recommendation:

Microsoft is the world’s largest software maker, representing the top grade in the industry and playing the role of market leader. In reality, there are not many weaknesses in its dominant markets like operating systems and office applications. However, due to changes in user behavior on the internet, more and more users are surfing the internet using mobile devices. In 2011, only 3.79% used mobile or tablet for browsing the internet. By the end of 2012, this had increased to 10.42% (NETMARKETSHARE, 2012).

We can predict that the number of mobile devices will continue to grow in the near future. Microsoft once dominated the mobile device (or PDA during that era) market with its Windows Mobile/Pocket PC OS but lost its position when Apple released iOS and iPhone.

The consumer market keeps changing at a rapid pace. A market leader can fall in an instant. Microsoft took two years to release Windows Phone 8 after the release of Windows Phone 7. To regain its market share, Microsoft may need to speed up its R&D, provide an upgrade path for its product, or even produce its own hardware, as other direct rivals like Apple Inc. and Google have done.

Bibliography:

1. Cutcher, L., & Wailes, N. (2006). Cases in Strategy and Management. North Ryde: McGraw-Hill. p. 100.
2. Chakidan. (2011). Microsoft Business Strategy Analysis. [Online] Available at: http://chakidan.blogspot.hk/2011/04/strategy-analysis-for-microsoft.html [Accessed 26th Dec 2012]
3. Microsoft. (2012). Microsoft Partner Program. [Online] Available at: http://www.microsoft.com/taiwan/partner/CertPartner/p10.htm [Accessed 26th Dec 2012]
4. NETMARKETSHARE. (2012). Browsing by Device Category. Net Applications. com. [Online] Available at: http://www.netmarketshare.com/report.aspx?qprid=61&qptimeframe=M&qpsp=144&qpnp=24
5. NETMARKETSHARE. (2012). Desktop Operating System Market Share. Net Application. com. [Online] Available at: http://www.netmarketshare.com/operating-system-market-share.aspx?qprid=8&qpcustomd=0