Strategic Analysis

Microsoft Corporation

Professor Scot Julian

Wayne State University
MBA Program
Marketing and strategic management.

Submitted by:
Hussein Abdul Sater
Daniel Gust
April 2010

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TABLE OF CONTENT

EXTERNAL ANALYSIS..........................................................................................4
MACRO-ENVIRONMENTAL ANALYSIS..........................................................................................................4
DEPMTS: Demographic ...................................................................................................5
DEPMTS: Economic..........................................................................................................6
DEPMTS: Political/Legal...................................................................................................8
DEPMTS: Mother Earth..................................................................................................11
DEPMTS: Technological.................................................................................................12
DEPMTS: Socio-Cultural.................................................................................................14
Conclusion......................................................................................................................16
PORTER’S FIVE FORCES FRAMEWORK.....................................................................................................16
Industry Competitors......................................................................................................17
Bargaining power of buyers...........................................................................................20
Bargaining power of Suppliers........................................................................................21
Threat of Potential Entrants...........................................................................................22
Threat of Substitutes......................................................................................................23
Summary........................................................................................................................25
ANALYSIS OF KEY SUCCESS FACTORS......................................................................................................25
What do customers want?..............................................................................................25
How does the firm survive competition?........................................................................25
Key Success Factors.......................................................................................................26
Conclusion......................................................................................................................26
INTERNAL ANALYSIS.........................................................................................28
HUMAN RESOURCES.....................................................................................................................................................28
INFRASTRUCTURE/INFORMATION SYSTEMS......................................................................................................................30
FINANCE.....................................................................................................................................................................31
OPERATIONS................................................................................................................................................................33
RESEARCH AND DEVELOPMENT.....................................................................................................................................36
MARKETING AND SALES...............................................................................................................................................39
SERVICE......................................................................................................................................................................43
DISTINCTIVE/CORE COMPETENCY......................................................................46
ESA..........................................................................................................................................................................46
MISSION AND VALUE STATEMENTS....................................................................49
SYMPTOMS AND CAUSES..................................................................................51
SOLUTIONS AND RECOMMENDATIONS...............................................................55
CROSS-FUNCTIONAL (HIFORMS)..............................................................................................................................58

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 MULTI-LEVEL STRATEGIES..........................................................................................................................................59
Business Strategy (COMPETE)........................................................................................59
Corporate Strategy (CIDRBLU).......................................................................................59
Global Strategy (GILT)....................................................................................................60
PLAUSIBILITY...................................................................................................61
FEASIBILITY................................................................................................................................................................61
ADVANTAGE................................................................................................................................................................61
CONSISTENCY..............................................................................................................................................................62
ENVIRONMENTAL FIT...................................................................................................................................................63
STORYLINE..................................................................................................................................................................64
REFERENCES....................................................................................................65

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 EXTERNAL ANALYSIS
This exercise analyses the external environment of Microsoft based on course concepts

studied in class. We use the Macro-Environmental Analysis, Porter’s Five Forces Frameworks,

and identify the Key success factors when analyzing the external environment for Microsoft.

Microsoft, founded in 1975, has become the largest computer technology corporation in

the world. It produces the Windows Operating System, with its many versions that it has released

over the years, that is pre-installed on almost all IBM compatible personal computers. It also

produces many server products like Windows Server 2008, an operating system for networks

servers and database server SQL server, messaging server called Exchange Server, among

others. It offers tools that can be used by developers to develop software systems. For business

users, Microsoft produces business solutions applications and high performance solution

computing applications. It produces Microsoft suite of office products like Word, Excel and

PowerPoint. It also has products in the mobile market and the software games market.

MACRO-ENVIRONMENTAL ANALYSIS
In this section, multiple macro-environmental factors are analyzed and how each affects

the external competitive environment for the computer industry. The analysis covers six sectors

and each sector is considered at both the national and global level. The sectors include:

Demographic; Economic; Political/Legal; Mother Earth; Technological; Socio-cultural. These

sectors can be easily identified by the acronym DEPMTS. Each sector can either be an

opportunity for the industry or a threat to the industry.

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 DEPMTS: Demographic
The demographic environment formulates the trends of the IT industry, where the

development of new products is a major key due to the short life cycle of most information

technology products and the wide variety of segments the industry needs to service.

Globalization, education, aging, transportation and the diffusing of technology drive significant

changes in the demand of IT products and services world-wide, which creates vast opportunities

in this industry. Software and internet applications have become embedded in everyday

activities not only in the business environment but also in personal lifestyles. This is especially

apparent in western countries where use of these applications has become rooted throughout all

aspects of the culture.

Globally, there has been a rapid increase of internet users in the last decade, expanding

the global market for the IT industry. The statistics in the chart below show that worldwide

internet users increased by 380.3% between 2000 and 2009 with total world-wide users at 25.6%

of the population. The chart shows that Africa currently has the lowest penetration of internet

use. Asia has the largest amount of internet users but this still represents less than 20% of the

total Asian population. These two regions offer the greatest opportunity for information

technology companies.

Population Internet Users Internet Users Penetration Growth Users %

World Regions
( 2009 Est.) Dec. 31, 2000 Latest Data (% Population) 2000-2009 of Table
Africa 991,002,342 4,514,400 67,371,700 6.8 % 1,392.4 % 3.9 %
Asia 3,808,070,503 114,304,000 738,257,230 19.4 % 545.9 % 42.6 %
Europe 803,850,858 105,096,093 418,029,796 52.0 % 297.8 % 24.1 %
Middle East 202,687,005 3,284,800 57,425,046 28.3 % 1,648.2 % 3.3 %
North America 340,831,831 108,096,800 252,908,000 74.2 % 134.0 % 14.6 %
Latin America/Caribbean 586,662,468 18,068,919 179,031,479 30.5 % 890.8 % 10.3 %

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Oceania / Australia 34,700,201 7,620,480 20,970,490 60.4 % 175.2 % 1.2 %
WORLD TOTAL 6,767,805,208 360,985,492 1,733,993,741 25.6 % 380.3 % 100.0 %
www internetworld stats.com

This clearly indicates that the IT industry is growing rapidly and this is an opportunity for

this industry. Although the global recession limited growth in the last two years, there are still

indications that the global economy started rebounding and will jump by 5% in 2010. Based on

the table, Africa, Asia and the Middle East should be targeted as growth opportunities for IT

companies. This would shape the industry’s operations but will create exposure to copyright

piracy.

The world population is projected to reach 9 to 11 billion by 2050 (Wikipedia.com/world

population). Almost all growth will take place in underdeveloped regions (5 billion) where

population in developed countries will remain unchanged at 1.2 billion. The challenge facing the

IT industry is how growth will be accomplished as underdeveloped countries are not yet ready to

invest heavily in technology and some developed countries are projecting declines in population.

The effect would be a decrease the overall growth.

In summary, the demographic sector is an opportunity for the IT industry. Internet

growth in nations such as Africa, Asia, and the Middle East offers the greatest source of

prospective growth in this industry.

DEPMTS: Economic
The economic environment shapes the IT industry by affecting production levels, pricing

strategies and global operations. The global economic situation determines if the IT industry is

booming or slowing down, where spending on technology by individuals, businesses or

government is the main source of revenue for such an industry. A bad economy and high

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unemployment rates mean that consumers spend less on computer products, which leads to a

downturn in the industry’s growth and production. Recently due to the global economic crisis,

spending on computer applications could decrease which would decrease the industry growth

and create a threat that all IT companies would have to face.

Standish group’s 2010 annual survey on investment plans found that 22% of respondents

plan to spend more, 5% will spend the same and 28% plans to spend less. The survey results for

2009 found that 23% planned to spend more, 69% the same and only 8% less. Standish group

predicts to see a 10-20% downturn in the overall IT industry as shown in figure 1 graph. AMR

research shows that the impact of the recession was far greater than the dot.com melt down in

2001 and has been the largest downturn in IT spending in the history of the software market.

Amid fears of a global recession, companies have started to cut or delay spending on technology

services. For instance, the storage software industry has seen its first quarterly sales decline.

According to a report from market research IDA first quarter 2009 revenue sank 5.2% (Cecere,

December 2009)

The economic situation articulates IT industry strategies on spending, marketing,

operating and developing. It presented the industry with a major global challenge as governments

have started to cut spending in favor of social priorities. Additionally, individual consumers are

spending less on software due to the global mood of fear and cloudy economic situation. On the

other hand, if governments set reasonable interest rates companies will be inclined to spend more

and the revival of economy will result in increases in individual consumer spending too.

The economic situation shapes the pricing strategy of IT companies. The situation where

most of the IT industry production facilities located in countries with low labor cost and highly

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skilled human resources (India, Thailand, East Asia), drive companies to readjust their strategies

in order to compete and increase economics of scale.

The current economic situation will continue to be a threat to the industry as projections

for spending at the business and consumer level remain uncertain.

DEPMTS: Political/Legal
The political/legal external environment affects every industry and encompasses the laws

and regulations in effect in all markets that a company has a presence in. In order to make sure

they are operating legally, businesses have to follow these laws and regulations. Political

environments are affected by politicians who in return are influenced by changes and challenges

in the social-cultural environment (language, immigration…) or economic environment

(currency exchange rate). The rules and regulations created by politicians have significant

influence on the cost of running businesses and the way products and services are marketed.

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 The Information Technology industry is highly affected by the political environment;

changes in regimes along with changes in regulations and rules can create new opportunities in

some countries. Eastern Europe has implemented significant changes in the political and legal

structure that have had led to significant increases within the IT industry in these countries.

Statistics found that from the year 2000 to 2009, internet and computer application users have

increased tremendously in Eastern Europe due to the diffusion of democracy and modernization

of the laws and regulations to meet the rest of European standards.

Country % population User Growth

Russia 41.8% 1359.7%
Hungary 59.3% 721.4%
Bulgaria 36.7% 515.6%

Internet usage in Europe: INTERNET WORLD STATS

These numbers show how changes in political structure created a huge market for the IT

industry, allowing global IT companies to enter these markets after decades of restrictions.

Conversely, government’s laws and regulations can construct a threat on IT industry and

cause losses and damages for certain companies. Governments may create regulations and laws

that strategically place entry barriers against companies. Governments also could sue the

companies and have been known to encourage the copyright infringement of software which

involves the unauthorized copying of computer software. In third world countries, copyright

and intellectual property law is completely ignored which had led to widespread diffusion of

copyright infringement.

Most commercially exploited proprietary software is developed in the United States and

Europe. Hence, for those located in economically disadvantaged economies, it can be

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prohibitively expensive to pay for the end user license fees for those products. Instead they rather

purchase just one license and then copy the software without paying any additional licensing

fees. Copyright infringement is considered a threat for software companies that spend billions

on research and development and have to spend more on fighting the piracy of software.

Another issue related to the political environment is the power of government to change

or create laws which affect all industries and the willingness of a government to ban certain

products and adjust the local market in a way to harm or benefit certain companies. Antitrust

cases, monopoly cases or adjusting policies by government should affect an industry and put

more pressure on companies to react or readjust the whole operation. A little list of the

intervention of politics on the operation of Microsoft might show the huge effect of political

environment on the IT industry.

In 2009, Europe dropped their antitrust case against Microsoft after Microsoft agreed to

offer consumers a choice of rival web browser. This case cost Microsoft €1.67 billion in fines

and penalties (Obrien, New York Times 2009). In 2009, the Russian federal anti monopoly

services investigated Microsoft for antitrust violation, the charge - cutting off sales of XP.

Brazil’s government is abandoning Windows in favor of open- source software like Linux. The

reason is that for every work station, the government pays Microsoft fees of around $500. If they

switch to open- source, they pay less. Brazil could save $120 million a year (Kingstone, BBC

News).

In 2004, the Chinese government policies drove some US tech companies from the

booming market. They passed a new law requiring that chips include a security technology

licensed by Chinese companies. Exchange and interest rates set by governments play a major

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role in formulating the companies’ pricing strategy and competition strategy. Finally, the

political environment is considered a major external environmental factor in IT industry which

effects the whole industry’s operation globally.

The political and legal environment is a threat as the world regions that have the greatest

information technology growth opportunities have the least legal protection against the rampant

copyright infringement growth. This industry is also constantly challenged by all large nations

on anti-trust or monopoly laws.

DEPMTS: Mother Earth

As the technological world continues to advance and more electronics are produced the

next step would to be to make more environmentally friendly electronics. In 2007, about 2.5

million tons of televisions, cell phones, computers, faxes, printers, and computer peripherals

were discarded, with only 18% of that being recycled. All of these electronics contain lead and

mercury which cannot be broken down by the environment naturally. These are also very

dangerous to humans. When they are dumped into landfills the mercury and lead leak into the

water table and contaminate the drinking water for the community in the surround area. This can

lead to people getting very sick and even developing cancer.

As the amount of electronic production continues to increase, manufacturers are going to

start to be held responsible for the amount of mercury and lead in their products. Being

proactive and setting up worldwide recycling programs would be a good way to get consumers to

try to start recycling more and become more environmentally friendly with their old computers

and electronics. California has implemented an Electronic Waste Recycling Fee which taxes

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electronic device purchases, the funds going to electronic recycle programs. This solution passes

the recycle expense to the consumer instead of holding the manufacturers responsible for making

a safer product.

If companies start to make electronics with less environmentally harmful components

consumers might be more inclined to buy that electronic to save the money and to save the

environment. If more states adopted a similar policy then the backlash from consumers might

help start pushing towards making products more environmentally friendly. If manufacturers

start working on this now, when consumers start to complain about the recycling tax, they will

already have an advantage over the rest of their competitors.

Consumers are now more aware of environmental issues related to the production, use

and disposal of products. The Mother-Earth sector is an opportunity for all companies in the

information technology industry to begin to take proactive steps to assume more responsibility

for the entire life-cycle of their products.

DEPMTS: Technological
The technological environment of the technology sector has grown by leaps and bounds

in the past few years. More competitors have emerged and some have risen to the top in their

respective sector. Computer size has been reduced from a component-filled tower the size of a

mini-fridge to having a netbook the size of a small notebook. Cell phones have changed from

being an exclusive luxury-product to being owned by everyone. Their original size was over six

inches long and about four inches thick and used only for making phone calls. Now they are

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small enough to fit in your hand and they do everything from make a phone call to create an

Excel spreadsheet.

The next generation of phones is becoming more advanced with each release. The Apple

I-Phone Touch has completely revolutionized what people expect from their phones. Consumers

want a simple operating system and a one stop shop so they can have all of their hand held

electronics in one device. The I-Phone can take pictures, record videos, download and play

mp3’s and games, search the internet through Wi-Fi or through a wireless provider, and

send/receive text messages, not to mention make phone calls. In the future, cell phones will

increase the technology contained within the device. Phone companies like RIM, Apple,

Google, Nokia, Palm and Motorola for example all are trying to advance the quality of the

pictures, the speed of the phones, and the ease of use for the end consumers. Soon phones will

be able to take pictures with the same quality as the digital camera, surf the internet faster than a

home computer, and also be easier to use.

In ten years who knows how advanced phones will be. The next step seems to be a

mobile home entertainment system. Consumers will be able to make a phone call, search the

internet, read a book, watch TV, and take a picture all with the same device. Every phone that

has come out is faster, easier to use and more technologically advanced.

Current operating systems for home computers continue to advance, but more players

have been entering the market. Microsoft Windows is the current computer operating system of

choice. However, with their extremely high priced operating system, how long until consumers

start looking for alternatives and leave Windows for good? The main two options besides

Windows are Mac OS and Linux. Mac OS is only available with Apple computers and Linux

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has considerably less the market share that Windows. Now would be the perfect time for another

system to try and start to make the move into the PC operating system. The Mac Operating

System could become a major contender if the system was to be offered on other computer

platforms such as Dell. Another potential competitor is Google. Google has already started

Google Chrome, a web browser that is compatible with all operating systems. Also, Google has

a presence in the cell phone industry with Droid, an operating system for cell phones.

Technology might become too far advanced for users to be comfortable with. Cell

phones, lap tops and home computers are all built to make our day to day lives easier, but some

companies can lose this vision, trying to make the most advanced product and beating others to

the market. This can cause problems because products could be rushed to market before all the

bugs are discovered and corrected. This happened with Microsoft’s Windows Vista and

consumers were extremely dissatisfied with the product. Microsoft had to rush to get a new

product to market and on top of that they had to try and get back customers that were lost. Had

Microsoft taken the time to make sure the product was right when they introduced it, Microsoft

would have avoided the loss of customers and the bad press that went along with it.

Clearly, the on-going constant and exponential technological growth in this sector is a

massive opportunity for any company in this industry.

DEPMTS: Socio-Cultural
Computers are used for playing games and searching the internet. They are used for

writing papers, doing research, and teaching classes. Computers are being used all across the

world in both developed and developing countries. Underdeveloped countries use them to help

teach in schools as it is easier to give students a computer study on. When the classrooms are

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overcrowded it’s easier for the student to get the one on one attention of learning with the

computer helping them learn the right and wrong answers. Computers used for this purpose do

not need major operating systems to help children learn to read and do math problems.

Consumers want all of their technology in one simple easy to use device. The cell phone

appears to be the future device that will contain all the current technological gadgets. In the near

future the cell phone may also be your home computer. After work the consumer will come

home, plug their phone into their television, grab their wireless keyboard and just work off the

home television and cell phone. If this does come to fruition, Apple and RIM would be the

hands down leader with Android and Windows as the second tier of mobile operating systems.

Business is now conducted in a global environment. Just because a company is based in

the United States does not mean all of their operations are based in that country. Companies

have plants all across the world. With this global business environment companies have to be

connected to all their employees across the world. Technology needs to keep these people

connected and do it quickly. If there is a problem in a plant in China, sending a letter to the

United States does not work with the current fast paced business environment. In the short

future the plant might be able to have a mobile video conference where they can take their cell

phone throughout the plant and show live action of what the problem is.

This technology can be used for personal use also. People are moving all across the

world. Families are now spread across wider distances where before most would stay local and

close to their family. Flying across the world can be expensive and time consuming. With video

chat families can stay closer and get a different feeling of just talking on the phone or sending e-

mails.

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 The United States is not a well-received country across the world and many countries

view American electronic companies as inferior, especially when compared to Japanese

technology. Even though companies such as Google, Apple, and Microsoft are investing billions

of dollars in research and development they will have to come out with the best technology for

the world to believe in the product. Other countries that are anti-American are just waiting for

them to come out with a bad product so they can give bad publicity to the American product.

While technology growth is still rapid, consumers are now expecting better service from

their electronic gadgets. Companies in this industry are encouraged to develop a single gadget

that will consolidate the electronic functions currently performed on multiple devices. This is an

opportunity for the industry.

Conclusion
In order for a business to be successful it must thoroughly understand all the external

factors that influence its industry. Based on the opportunity or threat of each sector the business

can then build a successful corporate strategy. The information technology industry has

opportunity in most sectors (Demographics, Mother Earth, Technological, Socio-Cultural).

However, the threats in the Economic and Political/Legal sectors must be considered.

PORTER’S FIVE FORCES FRAMEWORK

In this section, the external factors are analyzed based on Porter’s Five Forces of

Competition Framework. Porter’s Framework “views the profitability of an industry… as

determined by five sources of competitive pressure”. (Grant, pg 71) The forces include

competition from substitutes, entrants and established rivals. These three forces place

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“horizontal” pressure on the industry. Vertical pressure comes from the remaining two sources:

the power of suppliers and the power of buyers. The risk level of each of these five forces must

be considered by companies as they develop their corporate strategy.

Industry Competitors
The computer and software industry has rapidly evolved over the last decade. Countless

innovations have been introduced from this industry and new software products and services are

introduced all the time. Customer expectations are constantly changing as they have better

experiences using each new generation of computer products. New devices, like smart phones,

have powerful computing power that can run various applications that historically required an

entire personal computer to run.

The operating system is an interface between the user and the hardware of the device.

The OS coordinates and manages the resources of the computer allowing various applications to

run smoothly, without the user or the programmer having to manage these resources

individually. Almost all computing devices require an operating system including servers that

cater to multiple client systems, personal computers that are generally used by a single user, and

various hand held devices like smart phones and personal digital assistants (PDA). Competition

has been intense in each of these platforms.

The major companies competing in the operating system market have been IBM,

Microsoft, Sun Microsystems and Apple. Recently open source and free operating systems are

gaining popularity and becoming more common.

Some version of the Windows Operating System is currently in use in nearly 90% of

IBM compatible personal computers. Apple has its own operating system that is used exclusively

in all Macintosh computers. Linux, a free open source operating system, has begun to see

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increases in the overall number of users. Larger scale servers are utilizing operating systems

such as Sun’s Solaris Operating System and Windows Server Operating Systems. The table

below shows recent market share data for personal computer operating systems:

Aug '09 Sep '09 Oct '09 Nov '09 Dec '09 Jan '10
Windows 88.56% 89.43% 88.49% 88.95% 88.52% 88.22%
Mac 10.88% 9.82% 10.87% 10.52% 10.97% 11.26%
Linux 0.45% 0.63% 0.55% 0.43% 0.40% 0.40%

Total 99.89% 99.88% 99.91% 99.90% 99.89% 99.88%

Source: http://www.statowl.com

Development tools and databases are software products used to develop software

applications. Among databases, Oracle, IBM and Microsoft are the biggest vendors. There are

also open source and free databases such as MySql which are used by many companies and are

be considered a major threat to the market.

Office Product software is another growing market where many companies have been

introducing new products. VisiCalc was one of the original spreadsheet programs introduced by

VisiCorp. Over the years, it was replaced by Lotus 1-2-3 and then by Microsoft Excel. In the last

decade, Microsoft has been dominating the office products vendor. Their products include text

editors, spreadsheet and presentation applications. Recently, open-source applications like Open

Office have been gaining acceptance in the marketplace, they are free and work quite well.

Additionally, Google has developed online products like Google Docs that will be a further

threat to the dominance of Microsoft in the office products market.

The Web Search market has become very competitive in the past few years. Google has

been the world-wide dominant search engine since its inception in 1998. Strong competition in

this market comes from Yahoo search, AOL search, Ask, and now Bing from Microsoft. In

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addition, there are regional search engines that are popular in certain areas such as Baidu in

China.

The table below shows the recent division of the market share for Search Engines:

Search Engine Market Share

Google 85.84%
Yahoo 6.13%
Bing 5.03%
Aol 2.41%
Ask 0.50%
Others 0.01%
Source: http://www.statowl.com

The mobile market is another market that has several competitors and where the industry

in rapidly changing. Apple’s iphone dominates the smart phone market. Google has also entered

the market with the Android operating system for mobile phones. Though Microsoft was one of

the early entrants to the smart phone market with their Windows Mobile operating system, it has

not been able to maintain dominance.

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 In summary, the risk level from competitors is very high. Countless new products and

innovations are introduced on a routine basis. There are several very large competitors in this

industry that have resources available to fund strong research and development. These

competitors have superior reputations allowing them the ability to enter into related IT markets

with ease.

Bargaining power of buyers

The Windows operating system has been the most popular operating system choice for

buyers of personal computers and laptops. Certain niche-users prefer Apple’s Macintosh

although it is generally more expensive than Windows. Recently, price conscious buyers have

been buying the newest “computer”, NetBooks, without an operating system. The consumer

then loads free Linux operating system, reducing the overall price of the NetBook.

In the operating system market and the software development tools market, buyers now

have the option to download open source and other free products. Many of these open source

products are created by multiple developers, meaning they are well tested and widely used.

Microsoft and Apple do have a strong brand-name advantage. Their products are well known

and established and support and upgrades for the products are provided at no additional cost,

something that the open source and the free products lack. But increasingly as buyers have much

less expensive alternatives, the open source products are forcing existing companies to reduce

the price of their products and provide better service and more features.

The same dynamic is true for the office products market. With the introduction of Google

docs and increased popularity of open office, the dominance of the Microsoft office products is

threatened. The availability of cheaper and good alternatives in this market will force Microsoft

to rethink its strategy for this cash cow. Google docs provides free online document, presentation

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and spreadsheet software. However, security concerns may prevent many potential users from

using these applications as the documents are stored in Google’s servers and many users may not

be comfortable with that.

The buyers, or consumers, of these technological products have tremendous power and

influence. The risk level from this sector is very high. Consumers have integrated technology

into their lifestyle and the cost of switching to another manufacture is not significant.

Consumers are not brand-loyal and are much more comfortable with the technology and can

easily adapt to a different manufacturer’s product.

Bargaining power of Suppliers

In the information-technology industry there are multiple outside suppliers for every

products including office and computer equipment, software, IT and computer services,

telecommunications services, and hardware components. The major companies that dominate

this industry are huge and include Microsoft, Apple, Oracle, Google and Oracle. As a result, the

supplier companies compete with one another to get business from these major players. The

supplier industry is not very concentrated therefore the bargaining power of the suppliers is low.

Additionally, the cost to the manufacturer of switching from one supplier to another is extremely

low.

Companies like Apple get many of their products like the iphone equipment developed

by vendors. Microsoft markets a number of hardware products like mice, keyboards, joysticks

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and game products, and the manufacture of many of these are outsourced. Generally, these

suppliers have very good relationships with the companies like Microsoft and the big companies

may not be willing to change suppliers and in this respect, it is possible that the suppliers may

yield some bargaining power. But since these companies are very big and they generally are

huge customers for the suppliers, many suppliers are eager to get their business. The big

companies can switch to other alternatives and the cost may not be very high.

In summary, the risk level from suppliers is very low. The manufacturers have

absolute control over any functions that are outsourced because the pool of suppliers is very

large. This dynamic places significant pressures on the suppliers to provide services at the

lowest cost possible. These cost controlling initiatives benefits the manufacturers and, therefore,

the consumers.

Threat of Potential Entrants

The companies that Microsoft competes with are very big and powerful. Entry into this

market by an unknown company would be nearly impossible. An unknown entrant would need

to be an established company with massive resources. For example, Apple entered the smart

phone business in 2007 with the introduction of the iphone. Apple had not been in the mobile

market but they were a large and established company with a strong reputation of innovative

products. Apple was immediately able to create interest among consumers and successfully

captured a large market. The same is expected for the ipad, a tablet pc recently launched by

Apple, which has generated considerable interest among consumers.

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 Google is another company that is attempting to enter into new markets. Google began in

the search engine market. Over the years, it has successfully entered into other markets. Through

its purchase of Android, it developed an operating system for mobile phones and entered the

mobile phone market. Apple and Google are examples of big companies using their massive

resources to enter into new market segments.

Smaller companies are not immediate threats to the market because of the barriers to

entry like the high capitalization that is required, the lack of brand awareness and market reach.

However, these smaller companies are frequently targeted for acquisition by a bigger company.

This allows the bigger company instant access into the market. This creates an immediate threat

to the established players in the market.

Due to the resources that are required to enter this market, the threat level from the risk of

new entrants is low. The extensive capital investments needed as well as consumer preference

for brand name devices limits the ability of unknown or newer companies to enter the market.

Large companies in this market can expand into newer markets and develop new products by

acquiring smaller ventures. This strategy is dependent on the financial resources available to

fund such mergers and acquisitions.

Threat of Substitutes
For years when consumers needed to create documents on the computer the only suitable

software was offered by Microsoft. The recent economic downturn has resulted in more

consumers looking for cost saving substitutes. Most of the word processing substitutes do not

contain as many features as Microsoft, but they all share the same key characteristic, they all

produce professional and elegant documents. Openoffice.org, AbiWord, gOffice, and Buzzword

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are some of the alternatives presently available to consumers. These alternatives are a direct risk

for Microsoft because they are available for free.

These substitute products could have a direct impact on Microsoft’s customer base due to

the fact that college students, housewives or seniors may be inclined to download a free

substitute with inferior technology and limited user capabilities if it equates to saving money.

Using these alternative products does not isolate the user as these substitutes provide the user

with an import/export function allowing them the ability to open documents created in Microsoft

Word and to open documents in Microsoft Word that were created in one of the alternative

programs.

Microsoft has enjoyed much success with its operating systems such as Windows XP,

Windows Vista, and Windows 7. Until recently, many users were left with no alternatives or

substitutes. Before the end of 2010, IBM and Canonical will introduce a cloud and Linux based

product in the United States called IBM Client for Smart Work. It will have the capabilities to

be used on a network for multiple computers within an organization or simply on a single

computer for a single license user. The cost of purchasing and implementing the IBM Client for

Smart Work is expected to be 50% less than any one of the existing Microsoft operating systems.

(Help Net Security, 2009) With business owners and consumers constantly seeking to lower

cost, this substitute could prove to be a huge threat to Microsoft.

The threat risk from substitute products is very high. The current trend of open source

operating system software, such as Linux, shows that consumers are willing and comfortable

switching to these products. These products offer the same key features that are important to the

24
consumer and they allow for file compatibility with various platforms, such as the Microsoft

Office products and Macintosh systems.

Summary
This analysis of the forces of competition using Porter’s “five forces” framework clearly

shows that there are significant threats in the information technology industry. Any business that

is in this market needs to consider these risks as they develop their corporate strategy. The threat

level from consumer power and substitute products from industry rivals is significant. The risk

level from suppliers is very low as is the risk level for the threat of new entrants to the market.

ANALYSIS OF KEY SUCCESS FACTORS

What do customers want?
Customers are looking for low prices, product consistency and product reliability. With

the world recovering from a mild recession most consumers are becoming wiser shoppers and

have become more aware of what they are spending on various products. Less and less

consumers are jumping on the band wagon to pay high prices just for a name brand product.

Consumers are looking for products that meet their core needs and they are willing to sacrifice

certain luxuries if it results in reducing their costs. This is one reason why store brands such as

Spartan or Meijer have become so successful in the grocery industry, consumers have become

willing to sacrifice a name brand product for a generic product that satisfies their core need while

saving them money. The alternatives or substitutes mentioned previously may not be as well

organized or offer users as many features as consumers would like, but those products

successfully meet the core needs expected by the consumer.

How does the firm survive competition?

25
 Firms wishing to survive in the business world of today must be innovators. They have to

be at the forefront of every technological advance in their industry. For firms in the computer

hardware or computer software industry, they must constantly improve themselves and their

products, as any area left unexplored will be capitalized by the competition. Madonna, for

example, has continued to change throughout the years and has not been afraid to adapt to the

changing needs or wants of her vast customer base. This has allowed Madonna to be have more

long-term success than other performers, producers and managers who are more talented than

she is. (Grant, 2008) Microsoft has dominated its industry for a long period of time and if they

do not continuously improve their products, another competitor will easily take advantage.

Key Success Factors

Based on the detailed analysis of consumer preferences and demands as well as the

competition analysis the key success factors that are required for this industry can be developed.

Clearly any company that is in this industry needs to have a competitive pricing strategy. This

requires cost-efficient operations in production and development of products. Additionally,

because the technology changes so rapidly, a company needs to have sufficient funds allocated

research and development in order to development new products and move these products to

market as quickly as possible. Finally, all information technology companies need to have a

strong internal structure than can collaborate with the governments in the various regions where

they have a presence. This will ensure companies have a proactive and collaborative relationship

when business activity is suspected to violate antitrust laws. Also, it is very important for

information technology companies to work with governments in development and enforcement

of copyright piracy laws

Conclusion

26
 It is quite evident after an extensive analysis of the concepts of the external environment

that any company within any industry that wishes to be successful must have a clear

understanding of the external factors that have the potential to make or break businesses. If

Microsoft wishes to continue their success, they must work hard to obtain a clear understanding

of Marco-Environmental Departments. They must understand how the components that make up

the Marco-Environmental Departments, which are demographic, economic, political,

technological, socio-cultural, and mother-earth, affect their business, their suppliers and their

current or potential customers. Microsoft must not underestimate the bargaining power of buyers

or suppliers. They must constantly prepare themselves for industry substitutes and potential

entrants. The most important factor of all must not be ignored as well and that is to know what

your customers want.

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 INTERNAL ANALYSIS
This analysis looks at the internal environment of Microsoft Corporation. It looks at the

various cross functional areas in company's value chain and analyses how these areas contribute

to the strengths and weaknesses of the company and how they provide a competitive advantage

to the company.

Human Resources
Strength

The most important element or resource of any company is its human resources. This is

made up of the employees or staff of the company who ensure that the mission or strategy of the

company is being implemented and executed successfully

If any company wishes to obtain a competitive advantage in its industry or market it must

properly manage its human resources. “These are all important to organizational effectiveness,

but the factor most likely to provide potential competitive advantage is human resources and how

these resources are managed. Production technology, financing, and customer connections

(marketing) can all be copied. The basics of managing people can also be copied, but the most

effective organizations find unique ways to attract, retain, and motivate employees, a strategy

that is more difficult to imitate.” (Fisher, Schoenfeldt, & Shaw, 2006) Any company that wishes

to succeed must fully develop its human resource department.

Microsoft has been named on Fortune’s List of 100 Best Companies to Work for, five

years in a row. This high rate reflects Microsoft’s successfulness in human resource management

over the years, which allowed it to sustain as one of the leading software company in the world.

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 With 93,000 employees in 2009, Microsoft has successfully developed incentive

programs that have allowed it not only to retain its talented and well qualified employees, but to

attract talented professionals from all over the world to join the Microsoft team, which is a great

competitive advantage for the company. Outstanding benefits include medical, Mobile medicine,

free transportation, extensive training programs, vacation and holidays, discounts on hybrid cars,

stock options and retirement plans, and more. This shows the willingness of the company to

sustain its competitive advantage in human resource management. Human resource managers

utilize a transformational leadership style, where they encourage creative ideas, listen to and

respect the employees ideas, and communicate effectively, which creates a motivation work

environment that leads to the development of stellar products which sustain the company’s

position as a market leader.

Weaknesses:

The unfavorable global economic environment affected the business as consumers and

businesses cut back spending. Microsoft announced in January 2009 the elimination of 5,000

positions (Microsoft annual report, 2009). We believe that this decision shows a weaknesses in

the Human Resources strategy, because Microsoft has the potential to lose talented researchers

and developers that are necessary to meet innovation challenges within the industry, and this step

might reflect the disability of Microsoft to retain its employees, as it creates a discomfort among

other employees who might start thinking of leaving. Additionally, the staffing cutbacks might

shakeup the reputation of Microsoft among shareholders, showing its weaknesses.

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Infrastructure/information Systems
Strengths:

Microsoft has used a mix of both owned properties as well as leased facilities across the

globe to provide customer access in a localized fashion. They have placed regional operating

centers in strategic geographic locations that service all aspects of customer interactions

including order processing, credit and collections, information processing and vendor

management and logistics. Regional centers have been divided into three main locations:

Ireland (supports Europe, Middle East, Africa)

Singapore (supports Japan, Greater China, Asia-Pacific)
Various United States sites (supports North and South America)

Microsoft also has numerous operational centers located throughout the United States and

Europe that serve as data centers.

While many individual components are currently produced from single sources or limited

sources there are no long-term contractual obligations that would restrain changes that may

become necessary. Raw materials are procured from multiple vendor sources which allows for

flexibility in negotiation of volume discounts.

The computer infrastructure and software systems that are used internally are either

developed by Microsoft staff or purchased from outside vendors, So, we believe Microsoft gains

the flexibility of being close to market allowing it to respond quickly and gain bargaining and

negotiating power with suppliers based on no long term contractual obligation, and the

possibility of developing a products that would meet any regional or local requirement if needed.

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Weaknesses

The way in which Microsoft contracts most of its products might affect the quality of

products, due to different supply channels in different locations. Also, we believe that such an

infrastructure could increase the corporate expenses (locations, employees, facilities) to handle

these operation centers.

Finance
Strengths:

One of the strongest assets that Microsoft has is its financial position. The Fiscal Year

2009 Annual Report shows that the company continues to produce a positive net income and

cash flow continues to increase. The table below summarizes financial highlights for Microsoft.

Fiscal Year 2009 gross revenue was impacted by the current recession, experiencing a decline

for the first time in four years. Microsoft responded by eliminating 5,000 jobs. However, the

cash position has remained strong and increased by $7,800,000 from 2008. At the end of 2009

cash and short-term investments were over $31 billion.

Microsoft Corporation
Financial Highlights
FY FY FY FY FY
(in millions, except per share data) 2009 2008 2007 2006 2005
Gross Revenue $58,437 $60,420 $51,122 $44,282 $39,788
Operating Income $20,363 $22,271 $18,438 $16,380 $14,576
Net Income $14,569 $17,681 $14,065 $12,599 $12,254

Diluted Earnings per share $1.62 $1.87 $1.42 $1.20 $1.12

Cash Dividends per share $0.52 $0.44 $0.40 $0.35 $3.40

Cash and Short Term Invsts. $31,447 $23,662 $23,411 $34,161 $37,751
Total Assets $77,888 $72,793 $63,171 $69,597 $70,815
Long-Term Debt $11,296 $6,621 $8,320 $7,051 $5,823
Stockholders Equity $39,558 $36,286 $31,097 $40,104 $48,115
Source: Microsoft Annual Report FY 2009

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 Long term debt at Microsoft has historically been kept low. In May 2009, Microsoft,

for the first time, issued $3.75 billion bonds to investors. The SEC approved up to $6.0 billion in

debt financing. Microsoft capitalized on their stellar AAA credit rating from Standard & Poors

to secure an interest rate that is slightly higher than U.S. government debt but substantially lower

than interest seen on most corporate debt issues. (Wingfield, Varghese) The AAA rating from

S&P was the first such rating issued to a U.S. corporate bond issuer in ten years. At the time,

there were only four other U.S. nonfinancial issuers that held such a prestigious rating. (Linnane)

Sufficient cash reserves are important for Microsoft to maintain so that funds are

immediately available if an acquisition target becomes available. Over the last decade,

Microsoft has been one of the most active acquirers of venture-backed companies. (Venture

Capital Dispatch) Microsoft did attempt to purchase Yahoo Inc. in 2008 at a price of nearly $45

billion. The purchase attempt failed but talks with Yahoo continue on possible partnerships in

future ventures, especially in the search engine sector. (Wingfield, Varghese) In August of

2008, Microsoft acquired Greenfield Online Inc., a software maker, for $486 million in an

ongoing effort to increase competition pressures with Google Inc. (Patrick, Guth) Other 2009

acquisitions included BigPark, an interactive online gaming company; DATAllegro, a provider

of data warehouse technologies; and Zoomix, which develops automated enterprise data

synchronization software (2009 Annual Report).

Over the last several years, the Board of Directors approved several stock buy-back

programs for Microsoft’s common stock. At the end of Fiscal Year 2009 (June 30, 2009)

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Microsoft had repurchased almost 1.7 billion shares. The quarterly dividend was increased in

FY 2009 to $0.13 per share (from $0.11).

Microsoft is in a very unique financial position that will allow it more flexibility in the

future. Its strong cash position and relatively minimal long-term debt are key factors that are

unique in this industry. The ability to continue to fund internal research and development and

acquire targeted companies that match strategic objectives is essential to the continued growth of

the company. Moving forward into the future, Microsoft must continue to maintain this strong

financial position.

Operations
Strength

One competitive advantage that Microsoft has developed over the years is the operational

competency of the business. Due to the volume of businesses and the importance of sustaining a

competitive advantage, Microsoft structured its operation into five distinct operating segments:

Client, Server and Tools, Online services, Microsoft Business Division, and Entertainment and

Devices.

The operating segments provide the framework for timely and rational allocation of

development, sales, marketing and services resources within the businesses. By having these

segments, Microsoft is capable to decentralize decisions and respond quickly to changing market

demands by allocating resources as required allowing each segment to operate easily and

promptly to meet any external environment challenge.

Additionally, to serve the needs of customers and to improve quality and utilization of

products, Microsoft localizes many of its products to reflect local languages and conventions. It

accomplishes this by establishing operational centers all over the world; it has an operation

33
center in Ireland to cover Europe, Middle East, and Africa. Also, it has a center in Singapore to

cover Asia; and it has various centers in America. Microsoft also operates through regional

subsidiaries to minimize cultural differences in more than 60 countries. This allows timely

updates and releases of new products worldwide. Diversifying the operation globally makes the

distribution and development of its products easily accessible to the consumer; that’s why

Microsoft software exists in almost every household worldwide. The ability to operate

worldwide gives Microsoft the flexibility to respond, develop, and stay in touch with the market.

As a result, Microsoft gains a competitive advantage against other competitors who lack this

flexibility.

In addition to the organization structure, Microsoft took advantage of globalization trends

and outsourced most of its operations (Software architecture, Software development,

manufacturing, legal work,…) offshore. Microsoft’s outsourcing policy is shaped by the need to

maximize computing resources and budgets, minimizing administrative overhead, and

maintaining focus on the company’s core competencies. Microsoft has three building campuses

in India, and manufacturing Zone in China. The outsourced operations sustain its competitive

advantages by reducing cost, and leveraging economies of scale (it successfully reduces the

wages of a software developer from $90/hour to maximum $23/hour, and out sourcing the legal

work to CPA firm in India saved 6.5M in operation), putting Microsoft in the position of

competing effectively. Manufacturing products overseas (China, India and Porto Rico, Mexico,

Hungary,) helps sustain its competitive advantage against other companies because it allows

Microsoft to produce in high volume, low cost and flexible production capacity. This results in

significant cost efficiencies, where such a process requires big investments and highly effective

logistic and administration effort which makes it harder for competitors to imitate.

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 Sustained with strong financial situations, Microsoft is able to contract some

manufacturing activities to third parties and acquire components of material on volume discount

basis. This causes more flexibility and rapid product development, for it locates its facilities near

the suppliers (India, China, Ireland, USA, Singapore).

On the other hand, to eliminate time factor needed to develop a new product, requiring

significant resources and capabilities, Microsoft designed a strategy to acquire companies that

have the desired capabilities. Such a strategy would be considered a competitive advantage for

Microsoft because acquiring companies requires big investment, managerial and operational

skills to integrate multi structural and cultural organizations in one whole corporation.

In general, the Microsoft operation system adds a competitive advantage to the company.

This enables it to operate globally, to have a facilities and operation centers all over the world

allowing it to sustain the flexibility to respond rapidly while maintaining cost efficiencies.

Weaknesses

We believe that the operating structure of Microsoft reveals some weaknesses. Due to

multiple facilities and high operation expenses Microsoft can’t compete effectively in pricing.

Adding to this most developing countries and new start-up companies are switching into open

source software like Linux with no or little price. These trends may caused Microsoft to start

losing market shares (Window dropped below 90%, and reach 89.6%, while Linux gain and

jumped from 0.5% to 1.5%).(Orion, The inquirer. Dec 2008)

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 In addition to the price pressure, Microsoft operates all over the world, opening doors for

criticism and lawsuits in Europe, China and Russia regarding issues such as monopoly, standards

and operating agreements.

Research and Development

Strength

Microsoft Corporation is among the biggest software companies in the world and they are

continuously involved in Research and Development to bring forth new innovations and improve

their existing products. Microsoft Research is a division of Microsoft created in 1991. It

researches various computer science topics and issues with researchers in eight locations

globally. The locations are in Redmond, Cambridge, Asia, Mountain View California, Germany,

India, Cairo and England. Additionally, visiting researchers and students also work in these

locations along with the employees of Microsoft. In many of these locations, Microsoft Research

keeps a close ties with the Universities.

Research and Development is vital for a company to achieve competitive advantage. In

the field of technology, it is very important for a company to innovate and come out with new

products and also enhance existing products to maintain and gain market share. Microsoft spends

almost $10 billion a year on research and development activities, which is among the highest

among the companies in the world. Much of Microsoft’s investment on research is currently

focused on cloud computing, or providing software services over the web. Microsoft’s position

as leading provider of products like MS Office has been threatened by companies like Google

who offer similar services online over the web. Microsoft argues that there will still be

36
significant need and demand for on-premise software like MS Office, but it is also investing to

make it a leader in Cloud Computing.

Microsoft founded Microsoft Research with the goal of pure research and to keep it free

from product Delivery cycles. They have maintained this charter till date. This has allowed

Microsoft researchers to work on cutting edge technologies, while also working with the Product

teams to get constant feedback and incorporate the features into the products. Many of the

Microsoft Research labs are also located in close proximity to the product teams, making it easier

for them to work together.

There are many products over the years that have come out of the Microsoft Research

and are now part of the Microsoft mainstream. These have added value and provided

differentiation to many existing products. Answer wizard is one of these products. This product

was developed when the Microsoft product team approached the Research team to develop a

product that will help users to find information more easily. The Research team developed the

algorithm that provides answers to the user’s request making informed guesses based on clues

typed in the screen. This has become one of the top features on MS Office products.

Speech Recognition software is another example that has proved to increase productivity

of end users with speech disabilities or who are slow typists. Microsoft researchers were able to

spot it as an area that can have a good commercial application and worked on the software.

Windows Vista and Windows 7 provide the software with the Operating System at no additional

charge.

SQL Server is a database server product offered by Microsoft and has a substantial

market share. Microsoft research worked on improving the product. They developed a new

37
feature that tuned the database without needing an administrator to do it. They pitched the

product to the SQL server product team. The product team called it Index Tuning Wizard and

SQL server was the first product to offer such a feature.

Microsoft research is working on various Computer Science disciplines including

Communication and Collaboration, Computational Linguistics, Computational Sciences,

Economics (includes electronic commerce and technology for emerging markets), Education

(includes games for learning and learning assessment), Gaming, Graphics and Multimedia,

Hardware and Devices (includes robotics and sensors), Health and Well-being, Human

Computer Interaction (like handwriting communication and speech technologies), Information

Retrieval and Management (like databases, data mining and knowledge management), Machine

Learning(includes adaptive systems and artificial intelligence), Security and Privacy(Anti-piracy,

cryptography and cyber security), Social Science, and Software development(like various

development tools, programming languages, design and testing tools).

Weaknesses

Microsoft has been criticized for being slow in delivering new products to the market

whcih affects its reputation as a market leader. Microsoft should supply the market with updated

products continuously in order to sustain its position, and block any new entrants that may try to

construct a threat situation against it ( Linux, open source programs,..).

With a $10 billion budget, Microsoft shouldn’t come with Vista after a long time, which

negatively affected the brand, and raised many questions from the shareholder, about the

efficiency of R & D department.

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 Even while other competitors kept introducing a new innovations to the market ( Apple,

Google), Microsoft showed a slow respond to these threats, and we believe this also led to the

decrease in market share within the last two years.

Marketing and Sales

Strength

Microsoft generates revenue by developing, manufacturing, licensing, and supporting a

wide range of software products and services for many different types of computing devices.

Microsoft currently has five operating segments; Client, Server and Tools, Online Services

Business, Microsoft Business Division, and Entertainment and Devices Division. Within each of

these segments Microsoft spent over $12.8 billion in 2008 in Sales and Marketing (Microsoft

Annual Report).

Microsoft introduced Vista to consumers, as an upgrade replacement of XP, but it didn’t

capture the consumers’ perception, and that encouraged consumers to look for other alternative

in Microsoft’s competitors products. Microsoft respond was by introducing their newest

operating system, Windows 7 with the advertising campaign “I’m a PC and Windows 7 was my

idea.” The idea with this marketing campaign is to admit that Windows Vista was a problem and

Microsoft listened by creating Windows 7 with your help. This is a strength because people who

were frustrated with Windows Vista now have a new operating system that has corrected all the

old mistakes. While Microsoft has lost some of their market share, they still control over 90% of

it.

Consumers tend to stick with what they are familiar with and returning Windows users

will look for Windows to be their first choice again. However with other companies gaining

ground in the operating system if Microsoft does not keep improving their product people will

39
start to leave and go to their competitors. With Windows 7, they have finally introduced another

operating system that consumers are taking to and is just as easy to use as earlier versions.

In May 2009, Microsoft introduced Bing, with massive advertisement campaign ( Bing

and decide).Their new search engine and eliminated their two previous search engines MSN

Search and Live Search. Bing is going to be more than a search engine; it will be a decision

engine. Bing is going to help consumers make better decisions based on their web searches. It

will focus on four key vertical areas: making a purchase decision, planning a trip, researching a

health condition, or finding a local business.

Introduced to the United State almost one year ago, with a consistent marketing campaign

Bing now controls 11.5% of the search engine market, Google controls 65.5% (Comscore). To

overtake Google in less than a year in the web searching industry would be a very hard task,

however to gain almost a 12% market share in that time period is a very impressive

accomplishment. With web searching there is millions of dollars to be earned with

advertisements and search sponsorship. The larger the market share that Microsoft can control

the larger the profits will be for the division. The search engine has been gaining ground on the

leaders and within another year they could split the market if not completely take it over.

Microsoft currently does not have a strong presence in the smart phone industry. As

Microsoft’s CEO Steve Ballmer said, the company has “screwed up with Windows Mobile

(McDougall).” The operating systems for mobile phones have not been successful and has since

opened the door for companies like RIM (Blackberry) and Apple (I-Phone) to have great success

and be the leader in smart phone technology.

40
 Microsoft now has a chance to step back and make the necessary adjustments to compete

with a better product that has a chance to make a large impact on the smart phone market.

Windows Phone 7 Series (WPS) is expected to launch in the United State in time for the 2010

Holiday Shopping Season.

Microsoft has partnered up with Dell, Garmin-Asus, HTC, Hewlett-Packard, Samsung,

LG, Sony Ericsson, Toshiba, and Qualcomm to all produce phones with the Windows Phone 7

Series Operating System. They have also made commitments with the following network

providers to offer their phones; AT&T, Deutsche Telekom, Sprint, T-Mobile USA, Verizon

Wireless, Vodafone, Telecom Italia, Telefonica, and Telstra (Hamblen).

Such an established distribution channels and strategic alliance gives Microsoft a

competitive advantage over Apple, which currently only sells their I-Phone through the AT&T

network. Also, it does not limit their operating system to one type of phone. They have multiple

network carries and multiple phone manufactures who will be able to access the Windows 7

Phone Series. If the network is more important than the phone then people who might want an I-

Phone, but would rather stay with Verizon can now buy a phone with the Windows operating

System, and hopefully become accustomed to it and stick with Windows on their next phone.

Weaknesses

As of February 2010 Windows market share went from 94% (Operating System Market

Share) in 2006 to 92% (O’Neill). We believe that losing market share reflects a weaknesses of

marketing and sales effort, which is necessary to boost their sales and sustain their position.

41
Marketing department should create and do whatever necessary to maintain the brand, and

increase the revenue. A market leader is losing market share consider a weakness and threat for

the progressive of the company.

Additionally, Microsoft has faced many law suits all over the world, but the most

expensive and harmful one was in Europe, where Microsoft was exposed to a media attacks there

for a long time, with a little to no PR and Marketing campaigns from Microsoft to build a strong

image, which results in big expenses and more regulation for Microsoft to meet, and encourages

other countries to sue Microsoft and leverage their bargaining power like in China and Brazil.

Solution

Microsoft has become complacent with their technology and seemed to assume they would be

the top technology company in the world forever. However, there are always niche markets

where new companies can take market share from them and start to erode away the monster that

is Microsoft. Currently Apple is seen in the public’s eye as the most innovative company with

all of their new technology that has been introduced. With the I-Phone and now the I-Pad

Microsoft’s technology has become stale. Microsoft introduced the Zune which was not as

technologically advanced at the I-Pod, yet it was in the similar price range. Microsoft needs to

start pushing more advanced technology and listen to what the consumers want, not what

Microsoft thinks they want. This has started with the Windows 7 campaign and will continue

with the Windows operating system for cell phones. However, the damage has been done to

their public image and other companies such as Google and Apple are gaining ground on them.

By introducing new technology and focusing their marketing campaign towards the idea that

42
their new products are focused on the consumer they can slowly gain their customers confidence

back and can hold their top spot at the largest technology company in the world.

Service
Strength

Microsoft has long been a leader in the services category. Microsoft serves an array of

clients ranging from individual consumers, to small and medium organizations to governmental

and educational institutions. The availability and scope of their products and services to fit each

consumers needs is key in their business operation. Based upon the services they offer, Microsoft

is divided into five key service segments that help streamline the process of insuring each

customer’s demands can be met.

Client Services deals with the technical architecture, engineering and delivery of

Windows products to manufacturers and personal users of computers. They are responsible for

creating and maintaining customer relationships through enticing repeat purchases of Microsoft

products. From a manufacturing standpoint the goal is to have these products pre-installed to

make it more convenient for the consumer. Goals of this group are to insure customer

satisfaction of products by insuring compatibility with other computer hardware and software,

flexibility, and ease of use.

Server and Tools as its name indicates develops and markets software server products,

software developer tools, services, and solutions. They offer a broad range of consulting and

product support services that assist customers in developing, deploying, and managing Microsoft

server and desktop solutions. Training and certification to developers about the use of Microsoft

Server and Tools are also provided to insure understanding of the vast products offered by

Microsoft.

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 Online Services Business is an online advertising platform that offers Microsoft

products to publishers and advertisers. Some of the products offered online are Bing, which is

Microsoft’s online search engine, email, and instant messaging. The goal of this division is to

provide a way for advertisers to reach their consumers. Bing for example was released in 2009

and is competing directly with the online market leader Google. Bing was designed to help users

make quicker and more informed decisions by only providing relevant search results, using

expanded search services, and a broader selection of content.

Microsoft Business Division consists of the Microsoft Office system and Microsoft

Dynamics business solutions. The goal of this department is to increase personal, team, and

organizational productivity through use of a wide range of programs, services, and software

solutions. Success within this unit is critical because of the competition associated with the

segment in the form of Google, Apple, IBM and a host of other competitors. Functionality of

products is a key determinant within this segment.

Entertainment and Devices Division sole responsibility is to develop, produce and

market all aspects of the Xbox video game system. The key for this segment of the business is

the availability of games for the gaming system, having games that are demanded by the

consumer, and being able to create new gaming experiences with online playing, and

downloadable content. The life cycle of a video game console is five to ten years, which makes

early success very critical. You have to be able to meet and exceed customer’s expectations from

the start.

In an effort to provide more convenience and service to its clients Microsoft has decided

to focus on the mobile consumer. This has been a relative unknown segment dominated by

Blackberry smart phones and the popular IPhone. Microsoft acquired Danger Inc and its ten

44
years of expertise to help in its quest to gain market share in this segment. This is an important

step for Microsoft as it is catering to the demands of the consumer, who want to be able to have

their work, home, and pleasure all in the palm of their hand. Microsoft also forged a partnership

with Sony Ericsson to create the Windows mobile phone series, which aims to compete with the

Iphone and Blackberry Smartphones. This phone will include many of Microsoft’s personal use

applications such as Windows Live Messenger, and Hotmail.

Weaknesses

Microsoft doesn’t has a customer services center, instead each operation center over the

world has its own center, which we believe affect the effort collaboration and the usefulness of

Data, which could benefit the service segments to be proactive and easily analyze and deliver

the data to the R & D department.

Another weak point in services is Microsoft services is that they showed a slow in

responding to the customer satisfaction rate and try to re gain those unsatisfied customers by

solving their problems, and develop and improve the product line to maintain quality that satisfy

customers. “According to a report released by a market researcher Vendor rate. Out of score 100,

Microsoft’s server and infrastructure software rate 55, its operation system score 67 and its

application software came in at 64” (Whitney). In addition, Microsoft is slow in responding to

customer’s questions and inquiries through web site, which push them to seek more reliable

products, which they can count on in case of problems.

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 DISTINCTIVE/CORE COMPETENCY
ESA
Microsoft in terms of the ESA framework finds them to be a very viable source within

the industry. Beginning with Extent, Microsoft is a very financially strong company. In their

2009 Annual they reported annual revenue of 58.4 billion, with an operating income of 20.4

billion. These numbers are usually strong figures for any normal corporation, however for

Microsoft represented declines of three and nine percent respectively from 2008 figures. This

was due partly to the effects of changes in consumer buying patterns as a result of the global

recession. Secondly despite the tough economic conditions Microsoft made several strategic

acquisitions that will position them for future success and allow them to capitalize on the

changing desires of the consumer. One such acquisition was BigPark, and interactive online

gaming company. The ability to play opponents on video game systems outside of your normal

circle has become increasingly huge business. Microsoft, with the Xbox gaming system, hopes to

continue to adapt to this market especially with rival Sony and its Playstation gaming unit.

Thirdly, Microsoft has not changed their approach to the way they do business despite the

recession. They invested more in R&D than any other competitor in their industry and will

continue to do so. They invested 9 billion dollars in R&D in 2009, also opening a new Research

lab in Massachusetts and a technology center in Europe. In terms of products released they saw

the introduction of its Bing search engine, which is competing against the monster Google and

has taken about 15% of the market already. They launched windows Azure which is the new

operating system for cloud computing allowing developers to build applications that will enable

46
people to store and share information easily and securely in the cloud and be accessible from any

device from any location. (Microsoft 2009 Annual Report)

Sustainability is another strong point for Microsoft. They have been around since 1975,

starting very humbly under founder Bill Gates and going on to dominate the market for many

years. Many considered the company a monopoly, prompting the government to take action

against the company. Even through those times Microsoft remained relevant in the industry.

Secondly Microsoft possesses a brand name that is recognized all over the world. Consumers and

companies are familiar with the products and services being offered when they see the multi-

colored waving flag or hear the name. This brand name has been built up with over 35 years in

the industry. Finally, Microsoft has strategically placed themselves in locations across the globe.

They currently operate in the North, Central, and South America, Africa, the South Pacific and

Europe.

The final term in the ESA framework is Appropriability. Microsoft was the dominant

player in the technology and computer services industry for many years prior to 2004 in which

the government ordered the break-up of the company because of its assumed monopolistic

practices. Their customer focused ideas were tops in the industry during this time and could not

be matched. They stayed ahead of many competitors such as IBM, Lotus and WordPerfect. They

kept their products fun and easy to use. Secondly the age of technology makes Microsoft

appropriate. The current recession has caused the need for companies to look for ways to

improve productivity and reduce costs. Microsoft is able to meet these needs with its wide range

of technological products aimed at this very nature. On the other hand as personal users change

their demands and look to be more accessible and be able to access their information from

anywhere on the planet, Microsoft has taken steps to insure a share of this market. It cloud

47
computing technology will allow them to deliver on this consumer demand. Finally Microsoft

offers three types of licenses to its customers that allow them to purchases software and services

for a specified amount of time and gives them the opportunity to purchase new versions upon

their release. Open licensing is available for small to medium organizations. Select licensing is

available for medium to large organizations and Enterprise agreement licensing is for medium to

large organizations.

48
 MISSION AND VALUE STATEMENTS
Mission- At Microsoft our mission and values are to help people and businesses throughout the

world realize their full potential

Values- As a company, and as individuals, we value integrity, honesty, openness, personal

excellence, constructive self-criticism, continual self-improvement, and mutual respect. We are

committed to our customers and partners and have a passion for technology. We take on big

challenges, and pride ourselves on seeing them through. We hold ourselves accountable to our

customers, shareholders, partners, and employees by honoring our commitments, providing

results, and striving for the highest quality.

Meets
Term requirements

Customer
focused yes
Overarching no
Moral no
Particular yes
Aspirational yes
Concise yes
Transmitted yes
Stable yes

Microsoft Mission and Values statement can be summed up in the chart above. As noted it meets

all the requirements of COMPACTS except for the overarching and moral terms. In the

statements there were no mention of its role in society and its moral position in the world. They

did not state they had a responsibility or commitment to its customers and people associated with

the company. Perhaps Microsoft should look at including a statement that identifies its role in

49
society not just to the people who purchase their products. This will change old perceptions of

them as well. This would also put them more in line with their founder Bill Gates who is very

philanthropic.

50
 SYMPTOMS AND CAUSES
“Strategy is the pattern of objectives, purposes, or goals and the major policies and plans

for achieving these goals, stated in such a way as to define what business the company is in or is

to be in and the kind of company it is or is to be.” (Andrews, 1971) Since its interception

Microsoft’s core strategy has been to become and remain an industry leader as a company at the

forefront with the most innovative technology that anyone had ever seen as it relates to software

and operating systems. During the last decade Microsoft has been faced with many distractions.

One of the biggest distractions has been the lawsuits filed against them in regards to antitrust

laws. In 2006 the European Union filed a lawsuit against Microsoft alleging that Microsoft had

broken antitrust laws to acquire a monopoly on the PC operating market.

Microsoft is currently losing market share in the operating systems and software markets.

This is due to the rise in popularity of something called “Open Source Software.” It is called

Open Source Software because any user can tailor it to fit their individual needs. Open Source

Software has managed to become a problem to Microsoft due to the fact that is free to the public.

“Most of Microsoft’s product line can now be replaced with open source applications free of

charge that actually are good enough or better than Microsoft’s own products.” (Prag, 2007)

Microsoft Office was once the premier office software to use in order to produce letters, memos,

spreadsheets and presentations, but now consumers have been given the option to purchase a

similar product called Open Office, that offers nearly the same benefits and is free of charge.

In Brazil the government is even making the switch from Microsoft to Open Source

Software. “Increasingly, Brazil’s government ministries and state-run enterprises are

abandoning Windows in favor or open source or free software, like Linux.” (Kingstone, 2005)

51
Brazil’s government could possibly save 120 million dollars by switching to Open Source

Software as oppose to Microsoft. With this type of dilemma how does Microsoft compete with a

product that is free and nearly identical to its own?

Microsoft is also losing market share due to new entrants into the market like Apple and

Google. Apple computer has been around for quite some time, but have not been able to

successfully enter into the market of PC operating systems or Office software like Microsoft.

However in the last few years as Apple Desktops and Laptops sales have increased the need for

Microsoft products have decreased, because Apple offers its own operating system as well as its

own version of Microsoft Office called iWork. With iWork Apple customers are able to create

documents, spreadsheets and presentations and iWork cost substantially less than Microsoft

Office.

Google, who is known for its internet search engine, has created its own operating system

for smart phones. The operating system is called Droid which is similar to the operating system

that is currently being used on the iPhone. Given the success that Google is having with Droid

operating system it will not be long before they duplicate it for computers.

Microsoft is currently losing revenue with the rise of software piracy in developing

countries. In the United States, software piracy laws have been created and enforced unlike

developing countries like China and India. As the sale of computers in countries like Chain and

India has increased so has software piracy. This is due to the economic conditions of these

countries. The average consumer in China or India cannot afford to purchase Microsoft Office

or feel that it is an unnecessary expense when they can acquire a pirated version for free.

52
Steve Ballmer began to transition into the office of CEO in 2000. Bill Gates’ goal was to train

Ballmer and gradually phrase himself out of the company. In 2008 Gates felt that Ballmer was

ready to take center stage and allowed him to run Microsoft completely on his own. Ballmer had

no prior experience as a CEO, which means he lacks the necessary experience of helping to

develop a vision of a product that will fulfill the needs and the wants of consumers.

Ballmer has not been instrumental in Microsoft introducing any products to compete with

Apple’s iPhone or Google’s Droid Based Smart Phones. Ballmer has also failed to prepare

Microsoft for various trends in the market. Apple recently introduced the iPad which is a touch

screen tablet with the same applications offered on Apple’s iPhone. Ballmer was well aware of

this product, but did not see the need to introduce a product that could compete with it. Recently

after failing to introduce a similar product, Ballmer decided to partner with Hewlitt Packard to

make an operating system for their version of the iPad called the HP Slate which will hit the

market in late 2010. In with partnering with HP, Ballmer has failed to lead Microsoft in a

advertise campaign to promote the operating system on HP Slate in order to increase the public

interest in this product.

Ballmer failed to acquire Yahoo, which would have allowed Microsoft to gain the

number two spot in internet search engines directly behind the industry leader Google. Ballmer

failed to see the value in buying Yahoo. He did not realize the true value in eliminating one

competitor and at the same time becoming greater competition to your number one rival.

Microsoft has also been slow to bring new products to the market because of there are too

many approving layers within the company. By the time the proposal or product has went

through the various channels of the company, another company has already introduced the

53
product to the market. If the products or the concepts do make it through the approval process in

time, the product remains in research and development for far too long. Microsoft is not willing

to venture outside of their core products. Any products or ideas that are in research and

development outside of their core products are held longer due Microsoft’s fear of not being able

to successful introduce that product.

54
 SOLUTIONS AND RECOMMENDATIONS
Microsoft has grown over the years and is now among the biggest software companies in

the world. But as it has grown, its middle management has become bloated. This has resulted in

increased bureaucracy and slower decision making. There is too much hierarchy in the company

and too many layers of management. (Wilcox, 2010) Microsoft needs to focus on this so that it

has a more efficient management structure, where layers in the management structure are

reduced. This will result in faster decision-making, more nimble company and more innovations

because of better collaboration among the employees.

Microsoft is a very innovative company. It has development centers and research centers

worldwide. It is working on various products in many of the computer science fields. Last year,

it spent almost $ 10 billion on Research and development activities. It should continue to do so to

maintain competitive advantage in the industry, and bring out new products in this highly

competitive and fast changing field.

Microsoft has a lot of cash. In fact, it had a $ 25 billion in cash, when it took on debt last

year. This debt has low interest because of the market conditions in 2009 and all this has made

Microsoft very well positioned to acquire other companies. Microsoft should acquire smaller

companies that have good products and a good customer base. This will give Microsoft access to

new products and markets.

Microsoft also has been a market leader in many products by being a follower in

innovation. VisiCalc was the first Spreadsheet application developed by the company Software

Arts. Microsoft developed its own product called Microsoft Multiplan and finally Excel and

became a market leader in Spreadsheet applications. Similarly, in World Wide Web, Microsoft

developed Internet Explorer following Netscape Navigator and captured the largest share in the

55
browser market. Thus, Microsoft should use its vast resource of technical talent to develop better

products and capture new market.

Microsoft also needs to focus on Cloud Computing. This is the next big thing in

technology and its competitors already have lot of products in the market. Many of these Cloud

Computing products also compete with their desktop products, for example Google Docs

competes with Microsoft Office. Thus, Microsoft needs to aggressively develop products in this

area. With Microsoft Azure platform, Microsoft is in this space and it should continue

developing products to get a bigger chunk of this market.

With Healthcare becoming larger part of the economy, more and more software

companies are getting into the Healthcare sector. Its competitors like Oracle are buying Medical

software companies. (Worthen, 2010) Microsoft already has products like HealthVault in this

sector. It needs to develop more products and acquire other medical software companies and

have a bigger presence in this very important sector. This will help it to grow further and

establish it in this very important field.

Microsoft has released the new version of Operating System for personal computers

called Windows 7. It will also be releasing the new version of Office productivity suite called

Microsoft Office 2010, codenamed Office 14. Operating System and Microsoft Office constitute

a big part of Microsoft’s revenue. As the economy revives and companies start spending on

capital expenditure like upgrading hardware and buying new hardware, Microsoft should provide

incentives to customers to upgrade the Operating System and Office suite. Many customers

skipped the upgrade to Windows Vista Operating System, the version before Windows 7.

Windows 7 has good reviews and Microsoft’s effort to encourage customers to upgrade to it and

to Office 2010 will provide them with good revenues.

56
 Microsoft is rapidly losing its market share in the mobile phone arena. Developers are

mostly developing applications for iPhone, Android phones and BlackBerries and there is a

perception that Windows Mobile is not as worthy as its competitors (Gralla, 2010). Mobile

constitutes a very small part of Microsoft’s revenue today. But smart phones are essentially

computers with phone features and this is a very high growth industry for the future. It is very

important that Microsoft recaptures the market and gets developers to write applications for

Windows mobile. The new version of Windows mobile, Windows Mobile 7 is a step in the right

direction, and it has very good features. But Microsoft has to see that it is not too late in this

market and does not lose further market share to the rapidly growing Apple (iPhone) and Google

(Android) phones. Thus, it should not delay Windows 7 mobile release and encourage

developers to write applications for the platform, so that it is able to attract customers to use it.

Along with that, it should also look for vertical integration where it also brings out its own

mobile phones, instead of just providing the software for the mobile phone manufacturers,

something they had done and which worked for them for the PC operating systems. But in the

mobile phone arena, only providing the software for the Mobile Phones has resulted in many

lack luster mobile phones, and as a result Microsoft lost ground in the mobile phone market to its

competitors. Both its major competitors, Apple and Google, are involved in design of the

hardware of the phones. Designing and bringing out its own phone will avoid the wide variation

in quality of the phones, and help Microsoft recapture lost ground in the market. (Wingfield,

2010)

57
Cross-functional (HIFORMS)
We look below at the various cross-functional components of the value chain and what

Microsoft should do for each of them.

Human Resources - As mentioned previously, Microsoft management has too many layers in

the organization. It needs to reduce these management layers and define a more efficient

structure to reduce bureaucracy, enable better collaboration and faster decision making.

Infrastructure/Info Systems - Microsoft has a very good infrastructure. It has development

centers and research centers across the world.

Finance - Microsoft should use its cash to acquire other companies with established products.

Operations - Microsoft needs to see that it does not have significant delays in the planned

release of its software products. Also, it is common for Microsoft to release software and then

keep on releasing patches to fix bugs and security vulnerabilities in the software. This makes it

difficult for an ordinary user to keep track of the patches and updates to the software. It is

important for Microsoft to have more stringent quality assurance so that software is released with

fewer bugs and vulnerabilities.

Research & Development - Microsoft spent almost $10 billion on Research and development

last year. They have research centers all over the world. They should continue doing this to gain

and maintain competitive advantage.

Marketing & Sales - Microsoft is working with various computer science fields and developing

innovative products. Along with that, Microsoft should do market research to understand

customer needs and develop products that meet those needs. It also should work on improving

the brand perception. A perception about the company as a result of the various anti-trust

58
lawsuits is that it monopolizes the market. Also, its products are sometimes perceived as having

bugs. Microsoft is an excellent company with talented technical resources and it develops

innovative products. It should work on refreshing the brand perception.

Service - Microsoft should continue differentiating itself with its good customer service.

Multi-Level Strategies
Business Strategy (COMPETE)
Microsoft should focus on the following two business strategies:

 Customer Support
Microsoft is competing with many low cost and free open source products. A major advantage

that Microsoft has over these low cost and free products is customer service and user

documentation. They really need to continue to focus on the customer service and differentiate

themselves from the competitors through customer service.

 Excellence
Microsoft should differentiate itself from the competitors and the low cost and free products

through the excellence in their products. Microsoft products should have features and ease of use

that is lacking in many competitor products and that will make the customers pay for and use

Microsoft products. They should also work on making their products more open and compatible

with other products, so that the customers do not totally feel tied down to their suite of products.

Open compatibility with other products will enable lot of customers who have not used

Microsoft products earlier to use them now.

Corporate Strategy (CIDRBLU)

In Corporate Strategy, Microsoft should go through Related Diversification.

59
Microsoft has Research and development centers across the world. They employ the best minds

and are working on several different computer science fields. Their culture and the technical and

innovative talent is their core competence. They should use this competence to diversify across

related software industries. Thus, they will be utilizing their excellent resources across several

related products in fields like Cloud Computing, Healthcare, Green Industry, Operating Systems

and Development Tools.

Global Strategy (GILT)

In GILT, Microsoft should go for Global Strategy. Microsoft products do not need a lot

of customization to meet local needs. Thus they do not have a lot of localization needs. But

Microsoft is competing with Open source and cheaper alternatives and also products like those in

Cloud Computing (e.g. Google Docs competes with Microsoft Office) that requires it to reduce

its costs. It is also getting into the rapidly growing economies in the emerging markets but that

will also require it to reduce the price of its products, because of cheaper alternatives and

software piracy. Thus, it needs to focus on its costs.

60
 PLAUSIBILITY
Feasibility
Can Microsoft rebrand their image with consumers? Yes, we are Microsoft, one of the

largest companies in the world. We have hired some of the smartest employees in the world and

have a path forward that we are going to follow. We have already introduced Windows 7 to

replace Windows Vista and we introduced the Bing Search engine to replace Live and MSN

Search. These are going to be the cornerstones of the fresh new face of Microsoft. The new

marketing campaign focuses on our customers talking how Windows 7 was their idea. We want

to make the new Microsoft’s focus on fulfilling customer’s needs. With our new search and new

operating systems we are making things simpler for our customers while introducing the most

advanced technology on the market. Windows 7 Mobile is set to be released in 2010 and again

will be a simpler and more advanced product for our consumers.

Advantage
We currently invest over $10 billion in Research and Development per year. There are

very few companies that can invest this amount of money into R&D. We also have over $25

billion in liquid cash. If the company needs to make a quick move on a purchase of another

company we have the liquid cash available to make that move.

Microsoft is one of the recognizable names in the world when it comes to technology.

Our market share is still over 90% in operating systems. Every computer built needs some sort

of operating system so that is a great area to have a strong hold of the market share. With such a

strong customer loyalty and hard entrants to the market it can be difficult for Microsoft to lose

their share. Slowly we could see trends of consumers switching to different products, but with

61
the high entrants to market we can make adjustment and curb their efforts before too much

damage is done.

Consistency
We are trying to make all of our products align together. Windows 7 Operating system

will be available for home computers as well as a simpler version for mobile phones. We are

learning from our past mistakes with pervious operating systems we have introduced in the past.

Windows Vista was too complicated and not user friendly. We had the same problem with

previous versions of mobile operating systems. Now everything is simpler and consumer

friendly. We are trying to make Microsoft the company that can fulfill all your technological

needs. The consumer’s cell phone will be run by a Windows 7 operating system, along with

their home computer which runs on the same operating system. Within both products they will

be able to run Microsoft Office products, search the internet with Microsoft Internet Explorer

and search the internet through Bing search engine.

In the business sector most companies are using older versions of Windows products

such as Windows XP and Office XP. We want to get these companies to upgrade their current

systems to our newest office and operating systems. Most companies have all of their data

through our products so switching from Microsoft would be difficult. However with all this data

they need computer storage and physical storage for the computers. We are focusing on taking

their data and using our property to store their information. By having the companies do cloud

computing our business customers can use their space more efficiently and save the space for

employees or work space rather than having computer servers taking up valuable renting

property. Not only can they save money on rent, but save money on the energy these servers

use.

62
Environmental Fit
Our recommendations go along with the current strengths of the company and improve

on their weaknesses. Our strengths are the amount of money we use for Research and

Development, our cash reserves, our current market share, and the brand name of Microsoft.

The weaknesses we have to improve upon are the stale consumer products we have on the

market, our lack of listening to customer’s actual wants, and our slowness to react to market

trends.

We are introducing an entirely new brand image with our customers in mind. The

Windows 7 operating system and Marketing campaign is focused on making our customer’s

lives easier. With past products they were pushed to market too early and did not serve our

customer’s needs. Now we have taken our time and did the correct market research to make a

product that is very advanced, but easy to use. This goes along with our strength of a large

customer base that does not want to leave Microsoft, but want a better product. We have been

spending large amounts of money on Research and Development, but now we are catching back

up to the market curve rather than being behind it.

With cloud computing, this can help our customers and lock them into long term deals.

We will hold all their data, and this makes switching difficult for them. If their historical data

was all produced in Microsoft programs and we now are holding all that information at our

company, they will need to have compatible systems to access this information. We are keeping

with the strength of the large customer base, by giving them something new and making their

business life easier.

63
Storyline
Microsoft is one of the largest companies in the world and the current leader in many

different products in the technology sector. However, we have had some setbacks in recent past

that has caused us to lose market share and hurt our brand image. In the cell phone market we

have lost almost our entire market share because we did not offer what the market was asking

for. We are losing market share in the operating system, search engine, and internet browser for

the same reason. Our brand has become stale and stagnant, while our competitors are

introducing new products that are fresh and innovative. They are driving the market while we

are hanging on to what has worked in the past.

With the new Microsoft we are creating new products with the customer in mind. We are

becoming more innovative by giving the customer what they ask for before they have to. With

Windows 7 and Bing search the customer is finally getting a product that is innovative and easy

to use. The Microsoft of a few years back that made complicated products that were not user

friendly and caused more problems than solutions is gone. We will spend the time on Research

and Development focusing on making the most advanced products with customer use in mind.

Our products will not be rushed to market, but will not take years to develop. The Windows 7

operating system on home computers and phones will be faster and easier to manage than our

past products. Today we emerge a new Microsoft that helps people and businesses throughout

the world realize their full potential.

64
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