Microsoft: Strategy and Position

Brian Wells, MPH

The Early Computer Environment

• “I think there is a world market for maybe five computers” - Thomas Watson, chairman of IBM, 1943

• “There is no reason anyone would want a computer in their home” - Ken Olson, President, Chairman and Founder of Digital Equipment Corp., 1977

Company History

• Founded as a partnership in 1975 and incorporated in 1981

• 1980 - Microsoft purchases Seattle Computer’s SC-DOS (QDOS) and renames it MS-DOS

• Microsoft and IBM helped start the modern PC era• Introduced Windows in the mid-1980s to challenge

Apple’s GUI• Went public in 1986• 1993 - Microsoft introduces Windows NT• Early 1990s - Monopoly charges against Microsoft and

prevented a $1.5B acquisition of Intuit

Company History

• 1995 - Microsoft’s launched MSN• 1997 – Sun sues Microsoft for creating an

incompatible version of Java• Microsoft responded by dropping Java from Windows

XP• 1997 – Microsoft purchases WebTV• 1998 – US Justice Department and 18 states file

antitrust charges against Microsoft • 1999 – Microsoft invests $5B for a stake in AT&T to

help acquire MediaOne – Microsoft also buys Visio for $1.3B

Company History

• 2000 – Gates resigns as CEO and appoints longtime friend Steve Ballmer

• 2001 – Federal Appeals Court struck down an order to break up Microsoft

• 2002 – Netscape files suit against Microsoft for antitrust

• 2003 – Microsoft settles suit with Netscape and agrees to pay AOL $750M

Microsoft Today

Company Mission:

To enable people and businesses throughout the world to realize their full potential.

Microsoft Advertising Campaign

Microsoft Today

• World’s largest producer of software for PCs and other devices– Microsoft develops, manufactures, licenses, and

supports its broad line of products– Microsoft has offices in more than 80 countries

• Key people:– William H. Gates III (Chairman and Chief Software

Architect)– Steven A. Ballmer (CEO and Director)

Microsoft Today

• Some of Microsoft’s products:– Access– Excel– MS Office– FrontPage– Outlook– Project– Microsoft Network (MSN)– Flight Simulator– Many, many more

Microsoft Today

• Company Financials– Sales for 2003: $32,187 mil.

• 72% in US

• 28% in other countries

– Net Income in 2003: $9,993 mil.

• Company Personnel– In 2003, Microsoft employed 55,000 people

Microsoft Today

• Microsoft and its top competitors

– Annual sales• Microsoft-$32B

• IBM-$89B

• Oracle-$10B

• Time Warner-$38B

– Market Capitalization• Microsoft-$298B

• IBM-$141B

• Oracle-$56B

• Time Warner-$79B

Microsoft

IBM

Oracle

Time Warner

Microsoft

IBM

Oracle

Time Warner

Core Competencies and Competitive Advantages

• Microsoft performs many operations well

• Employee empowerment and compensation

• Customer Support – Microsoft Knowledge Base

• Digital Nervous System

• Large installed product base

Core Competencies and Competitive Advantages

• No close competitors for the desktop operating system market

• Microsoft’s Active Directory provides functionality throughout its server products thus simplifying management

• Many of its products are considered the standard by information technology managers (Office, Exchange, SQL, etc.)

• $50B+ cash reserve

Business Strategy

• Development and introduction of a wide variety of new software products

• Achievement of market acceptance of these products

• Constant enhancement of existing products

• Focus on satisfying customer requirements

Strategic Problems

• Slower growth and stagnant stock price—Microsoft’s core markets are maturing

• Anti-trust cases– Microsoft has to tread lightly with future strategy and

acquisitions

• Microsoft often represents a target for viruses

• Microsoft software remains plagued by security problems

• No clear solution to the emerging Linux problem

“It’s not a bug, it’s a feature!”

Strategic Problems

• Microsoft is often seen as an imitator, not an innovator

Win95 “Innovation” Actual Origin

Icons on desktop Xerox (1981)

Long File Names UNIX (1979)

Taskbar HP Vue

Right-button menus Sun SunView

DCOM Xerox Alto; RPC (1981)

Internetworking TCP/IP UNIX (1982)

Start Menu Apple Menu (1982)

Five Forces Model of Competition

Competitive Landscape

• Main competitors:– IBM

– Oracle

– Time Warner

• Other competitors:– Apple Computers

– Hewlett-Packard

– Novell

– Logitech

– Sun Microsystems

– etc

Competitors

• Linux represents a rising threat– More companies using threat of Linux when negotiating with

Microsoft– Key advantage for Microsoft – switching costs– Linux may be more cost-effective for small companies but the

switching, training, and software costs for large companies could be prohibitive

– Linux advocates support for Microsoft’s anti-Linux strategy as it increases Linux awareness

Competitors

• Apple– Rival platform to PC and thus rival OS

• Apple plans to release its latest, advanced OS Tiger in the first half of 2005, a year before Longhorn

– Apple targeted less by viruses and malware than Windows

– Apple has far smaller market share (~5%)

– Apple has been very successful in the online music and portable music markets

Competitors

Emerging Business Strategy

Response to Competition

• Diversification of its core software business– “We’re taking everything we know about the PC

and applying it to smart, mobile devices, to the Internet, and to gaming.” - Bill Gates

• Aggressive pursuit of equity investments, joint ventures, and strategic alliances

New Ventures: Products

• New Windows Operating system (“Longhorn”) and applications

• Emerging mobile PC market (smartphones, PDAs)• New X-Box – console and online gaming• Advanced Access Content System License

Administrator • Continued Research and Development - .NET

architecture• Tablet PC—full-featured, powerful, highly mobile

laptop, with applications such as pen and speech capabilities

New Ventures: Alliances, etc

• Microsoft and Fiat Auto Partner for Major Telematics Deal

• Microsoft invested $5 billion in AT&T

• To promote MSN Mobile, Microsoft bought 16.67 million shares of Nextel Communications

• Microsoft formed joint ventures with NBC– It now owns 50% of MSNBC Cable L.L.C. and 50% of

MSNBC Interactive News L.L.C.

New Ventures

"One thing I love about this [decade] is this is a period where the reality is driving the

expectation.” - Bill Gates, 2004 International Consumer Electronics Show Keynote

Concluding Thoughts

• Microsoft remains in an excellent position to dominate the market

• Emerging threats and competitors remain a concern

• Legal problems continue but seem to be subsiding

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur

in the next ten. Don't let yourself be lulled into inaction.”- Bill Gates, The Road Ahead

“It’s tough to make predictions, especially about the future” - Yogi Berra

Sources

• Research under fire in Microsoft/Linux Debate: http://www.internetnews.com/ent-news/article.php/3297361

• Interview with Steve Ballmer: http://news.com.com/Ballmer%3A+Xbox+to+%27take+Sony%27/2008-1082_3-5268571.html?tag=nefd.lede

• Microsoft PressPass: http://www.microsoft.com/presspass/features/2004/jul04/07-15MSABUFiat.asp

• Cross-Industry Alliance to Facilitate Compelling New Consumer Entertainment Experiences:http://biz.yahoo.com/prnews/040714/law051_1.html

• Microsoft Case Study:Anderson, Jamie. “Microsoft.” London Business School. April 2002.

• Microsoft Corporation:http://premium.hoovers.com.lp.hscl.ufl.edu/subscribe/co/

• Microsoft News:http://premium.hoovers.com.lp.hscl.ufl.edu/subscribe/co/news/

• BusinessWeek Online Technology Commentary:http://search.businessweek.com/search97cgi/s97_cgi?action=FilterSearch&filter=bwfilt.hts&QueryText=microsoft&x=10&y=11

Questions? Comments? Observations?