RUNNING HEAD: MICROSOFT BUSINESS ANALYSIS

Microsoft Business Analysis

Maryanne Blume, Renee Couperthwaite, Precilla Muniz, and Noreen Sands Strategic Management- EBA4498

January 28, 2015

1Microsoft Business Analysis

Executive Summary

Computers are one of the most effective way of

communicating. The software industry is fairly new

and has extreme potential for growth. It has long

been a dream of many upcoming companies to be

part of this quickly progressing market. Gladly

Microsoft has been one of the companies that have

made this dream a reality.

Today over 2.8 billion of customers are using a computer or portable device to browse the World

Wide Web from all over the world. Microsoft is working on becoming the top software and

hardware providers. Currently about 92% of computer users are somehow connecting with

Microsoft. This can be by browsing with Internet Explorer, working with Windows, or gaming

with Xbox.

The idea of combining all technological programs and devices under one company was a

particularly unique idea at the beginning of the business and the goal for similar companies in the

industry. In 1994 Microsoft became an official threat to all competitors in the computer and

software industry At that point Microsoft was just in the beginning stages of its innovative

strategies. Starting with a dream of having a personal computer in each home, then merging into

providing accessibility to internet and access at any location; Microsoft has contributed to a big

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portion of the world’s advancements in technology. However, it is still heavily involved in

personal computers and software rather than advancing into portable and mobile devices.

Microsoft has encountered many challenges and has numerous competitors. Most computers are

equipped with Microsoft operating systems and word processing program, plus a majority of the

browsing being done is with the use of Internet Explorer. The brand recognition is definitely

strong and the company has the opportunity to take advantage of this momentum to enter a new

market. Currently, Apple seems to be one of the biggest competitors when it comes to mobile

hardware and operating systems. Microsoft has HTC under its belt and it is working on a good

release strategy to enter that market with full force.

The mission and vision of Microsoft is very much still very much alive. It wants to provide easy

and accessible information for its users but also provide new, fresh, and innovative products to

the public. This company has been one of the firsts in the industry and has remained one of the

tops in its market ever since. There is still a lot of room for growth and with the proper marketing

and strategies it can become number again.

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Table of Contents

Executive Summary………………………………………………. 1

Table of Contents…………………………………………………. 3

Section 1

Company History……………………………………………….….. 4

Company Mission………………………………………………….. 5

Company Vision and Values..……………………………………... 5

Section 2

P.E.S.T.E.L…………………………………………………………. 7

S.W.O.T……………………………………………………………. 10

Five Competitive Forces…………………………………………….13

Section 3

Value Chain……………………………………………………….. 15

Corporate Strategies ………………………………………….…… 16

Competitive Strategies ………………..............................................16

Offensive and Defensive…………………………………………... 17

Section 4

Microsoft's Competitors …………………………………………... 17

Financial Becnchmarking………………………………………….. 18

Key Strategic Issues ……………………………………………….. 22

Alternatives ………………………………………………………... 23

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Recommendations …………………………………………………..24

Conclusion ………………………………………………………….25

History

In 1975 Bill Gates and Paul Allen created a partnership called Microsoft with a huge vision that

would have a desktop computer in every home. In 1980 IBM partners with Microsoft to create an

operating system and “MS-DOS” was developed as the software that manages the current

hardware. By the early 1990’s it had sold more than 100 million copies but it was still difficult to

operate. Around the same time, the next upgrade was released called Windows 3.0 with a new

graphical interface and word processing. Microsoft became public mid 1990s and it had become

the most powerful and profitably companies in American history. Even during the Great

Recession of 2008-09 its net income had grown to more than $14 billion by the end of the fiscal

year. (Microsoft, 2013) However, this rapid growth was not taken well by competitors and they

began complaining about unfair competition. The U.S. Justice Department concluded with a

settlement for Microsoft to change some of its sales practices. Microsoft moved into internet

software and created a program called Internet Explorer to surf the World Wide Web. This

product was introduced for free and Microsoft was aggressively pursuing any computer maker

and internet providers for distribution. Microsoft continued to prevail regardless of the fierce

competition. Competitors again became overwhelmed with the company’s continued success and

accused them of violation the previous decree from 1995. Microsoft was found in violation of the

Sherman Antitrust act for attempting to maintain a monopoly. In 2001 Microsoft entered the

gaming world by introducing Xbox an electronic game console which was followed by Xbox

live a broadband gaming network. By 2010 Xbox was the most-used game console in the

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American home. Although the gaming world was overtaken by Microsoft, competitors with

alternate operating systems were becoming more of a threat. Google had taken the lead on the

search engine market. As a defensive move, Microsoft offered to buy Yahoo for $44.6 billion,

but this proposal was rejected and a separate agreement was achieved for Yahoo to handle

premium advertisements for Microsoft’s site. On another end, Microsoft moved into cloud

computing where application software and data storage are provided by centralized internet

services. Microsoft’s fist move was with its Windows Azure platform. In 2011 Microsoft bought

the internet voice communication company Skype for $8.5 billion, which at that time was the

largest acquisition in Microsoft’s history. The company has been going through ups and downs

with Bill Gates assigning a new CEO Ozzie Ballmer and now Satya Nadella has become the new

CEO in 2014. The company retained its top spot in both business and consumer segments,

including operating systems, productivity software, and online gaming services.

Mission

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

2013) The mission statement is considered a commitment to its customers. They deliver on that

commitment by striving to create technology that is accessible to everyoneof all ages and

abilities. Microsoft is one of the industry leaders in accessibility innovation and in building

products that are safer and easier to use.

Vision Statement

To build a customer service oriented professional services company that specializes in IT

consulting. Specifically managed services and sales force automation. The focus will remain on a

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successful strategy, education its users, and customer satisfaction. Create slow consistent growth

that will build long-term relationships with both the clients and team members.

Accessible technology

Enables individuals to personalize their technology to make it easier to see, hear, and use.

Accessibility and accessible technology are helpful for individuals who experience visual

difficulties; pain in the hands or arms, hearing loss, speech or cognitive challenges; and

individuals seeking to customize their computing experience to meet their situational needs and

preferences.

Strategy

Accessibility, as part of overall usability, is a fundamental consideration for Microsoft during

product design, development, evaluation, and release. Microsoft endeavors to integrate

accessibility into planning, design, research, development, testing, and documentation

(Microsoft, 2013). The idea is to create an open and transparent communication to engage with

stakeholders and resolve accessibility issues. It creates an international accessibility professional

society to produce more accessible devices, application, and content for people of all abilities.

Microsoft believes that accessibility must mature to form a more internationally recognized

profession. Promoting innovation by reducing complexity of accessible development, engaging

in research development, people-centric design, collaborations, and supporting the industry

(Microsoft, 2013).

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(Forbes)

PESTEL Analysis

Political Factors

Microsoft is a politically active company. It sponsors the Microsoft Political Action

Committee (MSPAC), a bipartisan organization that contributes to campaigns of federal, state,

and local candidates. MSPAC supports those candidates who share Microsoft’s view on public

policy. MSPAC allows Microsoft employees and shareholders to participate more effectively in

the U.S. political process by keeping its members informed about important issues and

government decisions that can affect Microsoft’s business. MSPAC members also have

opportunities to support public policy positions that are important to Microsoft (“Corporate

Citizenship”).

MSPAC also supports candidates who serve as congressional or legislative leaders or

represent districts where Microsoft has a major business presence. Microsoft claims its

participation in the political process is transparent. For reasons that are clear and justifiable to its

shareholders and the public, Microsoft regularly files and publishes reports that detail its

advocacy activities. The disclosures include consultant fees, lobbying expenses, and trade

association dues spent on advocacy (“Corporate Citizenship” ).

Economic conditions

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The market for Microsoft’s products and services is highly competitive. Because

technology advances rapidly, Microsoft must evolve and adapt with an ever-changing

environment to remain competitive.

In July 2014, Microsoft announced a restructuring plan that would enable it to streamline its

engineering processes, move faster and more efficiently and simplify its organization. With

these changes, Microsoft has some concern that the investments it makes in devices and

infrastructure will increase its operating costs and decrease its operating margins (“2014 Annual

Report”).

Microsoft is exposed to economic risk from foreign currency exchange rates, interest rates, credit

risk, equity prices, and commodity prices. A portion of these risks is monitored daily and

typically hedged to maximize economic effectiveness of its foreign currency positions (“2014

Annual Report”).

Sociocultural forces

Microsoft has been named one of the “100 Best Companies to Work For” seventeen years in

a row by Fortune magazine (“Best Companies 2014”). Employees confirm that supportive

benefits and a welcoming culture remain consistent across the company. Microsoft continues to

attract professionals seeking the opportunities in a global organization at the forefront of

technology. One employee proclaims, "The benefits are outstanding, and the ability to impact the

world in a positive way cannot be beat by any other company" (“Corporate Citizenship”).

Microsoft also has an enduring commitment to fulfill its public responsibilities and to serve the

needs of people in communities worldwide. Organizations around the world consistently

recognize Microsoft as one of the leading global corporate citizens. In just the past few years,

Microsoft has been recognized for the following citizenship awards:

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2014 CR’s 100 Best Corporate Citizens, Corporate Responsibility Magazine (Microsoft named

among top 5)

2014 Human Rights Campaign's (HRC) Corporate Equality Index – 100% rating for 9th

consecutive year

2013 World’s Best Multinational Workplaces by the Great Place to Work Institute

2013 World’s Most Ethical Companies, The Ethisphere Institute, New York

2013 NYSE Euronext Vigeo US 50 Index (50 most advanced U.S. companies on Environmental,

Social, and Governance performance)

2013 NASDAQ OMX CRD Global Sustainability Index (QCRD) (“Corporate Citizenship”).

Technological factors

Microsoft conducts research and develops advanced technologies for software, devices, and

services. Its success is based on its ability to create new and compelling products, services, and

experiences for its users. Microsoft is an innovator with a goal of bringing products and services

into new geographic markets. It invests in a range of emerging technology trends and

breakthroughs that offer significant opportunities to deliver value to its customers and growth for

the company. Microsoft maintains its long-term commitment to research and development

across a wide spectrum of technologies, tools, and platforms spanning communication and

collaboration, information access and organization, entertainment, business and e-commerce,

advertising, and devices.

In addition to Microsoft’s main research and development operations, it also operates

Microsoft Research which is one of the world’s largest computer science research organizations.

Microsoft Research assesses key technology trends which lead it to significant opportunities to

drive future growth in productivity, platforms, cloud computing, search engine, communications,

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and smart connected devices. Microsoft Research also works in close collaboration with top

universities around the world to advance the state-of-the-art in the computer science sector

(“2014 Annual Report”).

Environmental forces

In May 2012, Microsoft made several commitments to reduce its carbon footprint

(“Corporate Citizenship”). Microsoft follows strict policies to ensure that the company remains

in full compliance with international environmental regulations and the specific environmental

requirements of each country/region where it does business. When it is feasible, Microsoft

conserves natural resources by using recycled materials and supplies, efficiently using energy,

and participating in recycling programs for Microsoft products after they have served their useful

life. Microsoft encourages and supports the sustainable use of renewable natural resources. By

recycling at company facilities, all waste is safely and responsibly handled and disposed of

(“Corporate Citizenship”). Microsoft’s environmental policies protect, conserve, and sustain the

world's natural resources.

Legal and Regulatory Factors

Microsoft adheres to applicable national and local laws and regulations. Its internal

policies and practices ensure adherence to a wide range of applicable requirements to keep it

accountable and transparent. Microsoft’s Regulatory and Public Policy Committee assists its

Board of Directors in overseeing the Company's policies and programs that relate to certain

legal, regulatory and compliance matters, business risks related to privacy and cybersecurity, and

public policy and corporate citizenship. The Regulatory and Public Policy Committee are

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responsible for reviewing and providing guidance to the company with respect to legal,

regulatory, and compliance matters concerning antitrust, privacy, security, and employment and

immigration laws. The Committee also reviews the company’s policies and programs related to

corporate citizenship, environmental sustainability, corporate social responsibility, supply chain

management, charitable giving, and political activities and expenditures (“Corporate

Citizenship”).

SWOT ANALYSIS

Strengths Weaknesses

Brand loyalty

User-friendly software

Strong research and development

capabilities

Strong financial performance

Lawsuits

Problems with releases over the years

Limitations on browsers

Mobile phones and tablets

Opportunities Threats

Growing cloud computing market

Desktop market

Demand for smart phones

Acquiring other companies

Competition

Lawsuits

Change in consumer needs/wants

Strengths

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Consumers are brand savvy. Fortunately, for Microsoft, with brand loyalty comes

pricing power. Microsoft’s brand loyalty has allowed it to gain a competitive advantage which

has paid off as it controls 92% of the desktop operating system market share (“2014 Annual

Report”). Microsoft has a strong research and development department which includes key

research areas such as algorithms and theory, hardware development, human-computer

interaction, machine learning, adaptation and intelligence, multimedia and graphics, systems,

architecture, mobility, networking, security, cryptography, smart connected devices and cloud

computing among others. The company’s innovation investments focus on the emerging

technology trends and breakthroughs across a wide spectrum of technologies, tools, and

platforms.

Weaknesses

Various legal proceedings have cost Microsoft a lot of money. Lawsuits relating to

product design, manufacture and performance liability, employment issues and intellectual

property rights, have resulted in significant legal costs. Huge penalties could adversely affect its

profitability.

Microsoft has received brutal criticism for some of its releases over the years, including

problems with stability, security and compatibility. Windows ME and Windows Vista both made

bad first impressions. Though Microsoft released patches to address many of those problems,

many people had already decided to avoid them. Fortunately for Microsoft, it's retained some

respect with releases that have left a more positive impression, like Windows XP and Windows 7

(Strickland and Crawford). At one time, Microsoft's Internet Explorer had over a 90% market

share, but its share reduced dramatically when Google and Netscape entered the market. As of

August 2013, Internet explorer’s market share reduced to 25.51%, as compared to that of Google

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Chrome, which enjoyed the leading market position with 42.85% market share (“Financial and

Strategic Analysis Review”). The declining market share could be attributed to the application

of Internet Explorer which is limited to only Windows operating system, while Google's Chrome

and Mozilla's Firefox also run on Mac and Linux. Such limitations could affect the usage of

browser across several consumer lines and further mitigate its market share.

Opportunities

Microsoft has the advantage if consumers prefer to buy the latest and greatest computer

hardware. Its products tend to have more features because it relies on the computer's native

processing power to run. Beside the Windows OS, Microsoft produces the Office suite of

productivity software, software for computer servers and the Web browser Internet Explorer.

Another important Microsoft product is its line of Xbox consoles and games. The video game

market is one area of strength for Microsoft that Google has yet to touch.

Microsoft could also capitalize on the growing demand for smartphones. According to

in-house research, global smartphones sales reached over 718 million in 2012, and are expected

to reach 1.9 billion by 2018 (“Financial and Strategic Analysis Review”). Considerable demand

for smartphones is expected from developing countries, particularly in the Asia-Pacific region.

Other emerging economies expected to contribute to a considerable increase in smartphone usage

are China, India and Brazil.

Threats

The software market is highly competitive, which may impact a company’s performance.

Microsoft faces competition in all its segments which may make it susceptible to market

pressures, which leads to a loss in the market share and decline in revenue. Its key competitors

in Windows Live software and services include Apple, Google and Yahoo. Its Internet Explorer

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product competes with browsers developed by Google (Chrome), Apple (Safari), and Mozilla

(Firefox) (“Financial and Strategic Analysis Review”).

Some of Microsoft’s key competitors for its Microsoft Office products include Adobe, IBM,

Google, Apple and Oracle. In the entertainment devices business, it competes with Nintendo and

Sony.

The technology market is subject to rapid changes, and companies must continuously introduce

new products to the market. In order to remain competitive and increase its sales, Microsoft will

need to continue to adapt to a rapidly changing business environment.

The Five Forces Model of Competition

The most powerful and widely used tool for diagnosing the principal competitive

pressures in a market is the five forces model of competition. This model holds that competitive

pressures on companies within an industry come from five sources: (1) competition from rival

sellers, (2) competition from potential new entrants to the industry, (3) competition from

producers of substitute products, (4) supplier bargaining power, and (5) customer bargaining

power (Thompson, et al., 2014, p. 49).

Competition from rival sellers

Microsoft is a diversified corporation with many products and services in the technology

sector. Its primary competitors include well-known brands such as

Apple, Google and IBM, among others. Microsoft produces hardware

and software. Its produces tablets designed to compete with similar

devices made by other companies, such as Apple. Microsoft produces a variety of computer

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accessories which compete with other companies specializing in this area, such as Logitech.

Microsoft also competes with Google with its Bing search engine.

Competition from potential new entrants to the industry

Microsoft will not have to worry much about the threat of new entrants into the industry.

It has held over 90% of the market share with its operating system and browser. Competitors

would have a hard time after any accessed the market in catching up to Microsoft. Also, there

are many economic, technological and legal barriers which may deter new entrants.

Competition from producers of substitute products

Microsoft’s Windows operating system is unique in terms of users trying to find a

comparable product. Users who were interested in changing their products would have to

completely change their computer.

Supplier bargaining power

The main suppliers for the computer industry are hardware device suppliers and software

tool suppliers. Principle hardware components are mainly obtained from a sole supplier, like

Intel. Microsoft installs Windows in every out-of-the-box PC sold. Since there is not another

operating system like Windows for the PC, PC manufacturers have no other options: they cannot

switch to another product; there are no substitutes.

Customer bargaining power

Luckily, Microsoft’s reputation in the industry helped it gain a competitive advantage. It

has such a monopoly on the PC operating system game that consumers have no choice but to

purchase Windows. The buying power of customers is limited because there are few

alternatives.

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Analysis Section

Microsoft’s is known for providing operating system and office applications. Software

application is the core of their business with their Windows operating system but Microsoft must

to adapt to stay competitive in this rapidly changing technology industry. Microsoft needs to

find other services and products that will provide a continuous revenue stream. The future of

Microsoft is based on how the company evolves to compete in a market similar to Apple

providing an integrated product that with their software that allows for control of content and

services through mobile devices and home entertainment. The strategy for Microsoft is to

deliver a compelling consumer experience to expand into new markets.

Today’s Microsoft homepage, www.microsoft.com, provides an overview of their

products and services available for consumers, including businesses. The website highlights

Microsoft’s value and related product support services, referred below:

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Figure 1 - Microsoft value chain

Evaluating Microsoft’s value chain, figure 1, the company is not just a software

company. Microsoft is a service and device company similar to Apple and Google. This value

chain, figure 1, highlights the potential strategic and tactical plan for senior managers within the

company. The implementation of the strategic vision by the management team drives towards

achieving performance targets. For Microsoft, the company’s strategic vision is to deliver

integrated services through their software, content aggregation and devices while creating new

innovation to be a leader in the technology industry.

Microsoft offers different products and services. The corporate strategy for Microsoft

requires analyzing the future trend of technological trends of the consumer and business. This is

important to define the strategic objectives and vision for their company. Unfortunately, the

technology industry is a rapidly evolving and changing with new inventions that before a product

Content & ServicesSkypeBingMSN

Content AggregationXboxLive (music, games, video, NFL, apps, etc.)

Hardware & Software platformsWindows 8.1Windows Phone (Cortona)Windows ServerMicrosoft Office

Products & Devices SurfaceSurface ProHTC OneLumia 635Lumia 830Xbox OneXbox with Kinect

Distribution & RetailMicrosoft Store

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is launched that it may already be obsolete. How does Microsoft strategically plan for the

future? It will require strategic planning with an efficient coordination when making a corporate

decision around the each different product’s business unit strategy. Microsoft has an array of

product and devices operationally supported by different business units. These business units are

the building blocks that can assist with the strategic plan using new innovation or products. The

strategic plan will require defining the competitive strategy.

Like other technology companies, Microsoft follows vertical integration. The company

has been playing a defensive strategy competing with Apple in the space of mobile and tablet

devices. Microsoft offensive response against Apple’s devices is the introducing the Surface

PC’s and tables and mobiles to consumer market. Another offensive response is the providing

content aggregation of platforms, software and hardware with their products such Xbox, Surface,

tables and mobiles. Although Microsoft has a retail store, one area that Microsoft needs to

consider an offensive strategy is opening a retail store front similar to Apple store. This

offensive strategy is going to be a challenge since Microsoft has business relationships with

manufacturers of personal computers and retail stores. Microsoft does not want to appear to be

competing with these businesses.

Microsoft’s success with differentiation strategy is to make sure that the competitors are not able

to copy their technology easily. Therefore, Microsoft’s competitive strategy will offer new

technology or offer new product to gain advantage over the competitors. Broad differentiation

strategy will provide Microsoft competitive edge against their customers. Microsoft can achieve

success with the firm’s existing brand quality reputation paired with the operational and business

structure. Microsoft is a leader in research and development. The company employs very highly

skilled development team who are also think creatively to provide new innovation. The

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company has a strong sales department that will support the implementation of the product and

services. This team will be responsible to bring the next generation product or service to market.

Microsoft’s Competitors

Due to Microsoft’s varying efforts, they experience competition from several different

technology sectors, including hardware, software, operating systems, search engines, cloud

computing, and cellular. Their big competitors include Apple, Google, Oracle, IBM, SAP, Red

Hat, Samsung, LG, Sony, and Nintendo to name a few (Investopedia, n.d.) Since Apple is

Microsoft’s biggest competitor, they will be the main comparative factor.

Apple and Microsoft compete in just about every area imaginable. Apple produces

hardware, software, and cellular products, in addition to a robust operating system for all of their

brands. They are well-loved by their loyal fans. Microsoft has to compete against Apple’s

impressive technology lineup: iOS, Mac, iPad, iPhone, iPod, iTunes, and soon, Watch.

Microsoft’s competing brands include Windows OS, PCs, Surface tablet, Windows phones, and

now Band, which is similar to Apple’s Watch. Microsoft also produces the XBox gaming

system, of which Apple does not have any competing products. Additionally, Microsoft

produces their popular Office Suite of business and personal software for the Apple platform.

Apple also has developed a pay system called Apple Pay, of which Microsoft has developed a

similar system that is rarely used or discussed (Hoffman, 2014).

Financial Benchmarking – Microsoft

Microsoft has experienced steady financial growth, while at times experiencing rapid

growth, over the last five years. Based on the Microsoft 2014 Annual Report (Microsoft,

Financial Highlights, 2014), company revenues (recorded in millions) have steadily increased:

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$62,484 [2010]; $69,943 [2011]; $73,723 [2012]; $77,849 [2013]; and $86,833 [2014].

Microsoft’s revenues have improved by $24,349M over the last five years, which is

approximately a 28.04% increase overall. Upon further detailed analysis, revenues have

increased 10.66% from 2010 to 2011, 5.13% from 2011 to 2012, 5.30% from 2012 to 2013, and

10.35% from 2013 to 2014. This is an average increase of 7.86% from year to year. Microsoft

made the following note on their annual report, related to revenues (Microsoft, Financial

Highlights, 2014):  On April 25, 2014, we acquired substantially all of Nokia's Devices and

Services business ("NDS"). NDS has been included in our consolidated results of operations

starting on the acquisition date.

Microsoft’s total assets have impressively improved by $86,271M over the last five

years, as outlined in their 2014 Annual Report (Microsoft, Financial Highlights, 2014), and are

recorded in millions: $86,113 [2010]; $108,704 [2011]; $121,271 [2012]; $142,431 [2013]; and

$172,384 [2014]. That reflects a 50.05% increase! The average increase from year to year has

been 15.85%, with the detailed analysis showing 20.78% from 2010 to 2011, 10.36% from 2011

to 2012, 14.86% from 2012 to 2013, and 17.38% from 2013 to 2014.

Microsoft records their liabilities as long-term obligations which have increased by

$23,184M, or 62.70%, over the last five years. The Microsoft 2014 Annual Report states how

much they have increased, recorded in millions: $13,791 [2010]; $22,847 [2011]; $22,220

[2012]; $26,070 [2013]; $36,975 [2014]. Microsoft’s long-term obligations have experienced a

39.33% average increase from year to year, while each year’s actual increases have been:

39.64% [2010 to 2011]; -2.82% [2011 to 2012]; 14.77% [2012 to 2013]; and 29.49% [2013 to

2014]. Note that from 2011 to 2012, their liabilities actually decreased.

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Microsoft’s stock prices have risen gradually over the last five years. The current price

as of February 13, 2015 is 43.87, while the closing price on February 1, 2010 was 28.41 (Yahoo

Finance, 2015). That’s an increase of 15.46 points. Generally, Microsoft’s stock prices have

experienced a regular uptick, with several periodic dips: May-June 2010, August-September

2010, November 2010, January-March 2011, May-June 2011, August 2011, November 2011,

March-May 2012, July 2012, September 2012, November 2012, April-June 2013, August 2013,

October 2013, December 2013-January 2014, March-April 2014, and September-December 2014

(Yahoo Finance, 2015).

The dividends per share paid out by Microsoft in 2014 were consistently 0.28, which was

a total of $9,270M, while the dividends per share paid out in 2013 were consistently 0.23, which

was a total of $7,695M (Microsoft, Financial Review, 2014).

Financial Benchmarking – Apple

Apple records their revenues as net sales, which have more than doubled over the last

five years, as outlined in their 2014 Annual Report (Apple, Selected Financial Data, 2014):

$65,225 [2010]; $108,249 [2011]; $156,508 [2012]; $170,910 [2013]; and $182,795 [2014].

Their net sales reflect a 64.32% increase over the last five years, with an average increase from

year to year of 21.38%. Each year, they have increased net sales by: 39.75% [2010 to 2011];

30.83% [2011 to 2012]; 8.43% [2012 to 2013]; and 6.50% [2013 to 2014].

Like Microsoft, Apple’s total assets have impressively increased by $156,656M, or

67.57%, over the last five years, and are recorded in millions: $75,183 [2010]; $116,371 [2011];

$176,064 [2012]; $207,000 [2013]; and $231,839 [2014]. The average increase from year to

22Microsoft Business Analysis

year has been 23.74%, with the detailed analysis showing 35.39% from 2010 to 2011, 33.90%

from 2011 to 2012, 14.94% from 2012 to 2013, and 10.71% from 2013 to 2014.

As assets have increased dramatically, so have Apple’s liabilities, $92,900M over the last

five years. The liabilities have increased by 77.23% since 2010, and the Apple 2014 Annual

Report states how much they have increased, recorded in millions: $27,392 [2010]; $39,756

[2011]; $57,854 [2012]; $83,451 [2013]; $120,292 [2014]. Apple has experienced a steady

30.92% average increase from year to year, while each year’s actual increases have been:

31.10% [2010 to 2011]; 31.28% [2011 to 2012]; 30.67% [2012 to 2013]; and 30.63% [2013 to

2014].

Apple’s stock prices have also risen gradually over the last five years. The current price

as of February 13, 2015 is 127.08, while the closing price on February 1, 2010 was 194.73

(Yahoo Finance, 2015). That’s an increase of 67.65 points. Apple’s stock prices have

experienced a steady increase, with less periodic dips than Microsoft: May-July 2010, October-

November 2010, March-June 2011, August 2011, November 2011, March-April 2012, July

2012, October 2012, December 2012-February 2013, June 2013, August-September 2013,

November-December 2013, March-April 2014, June-July 2014, September 2014, and December

2014 (Yahoo Finance, 2015). Many of these dips occurred around the same times as Microsoft,

which indicates an overall market dip. Comparably, Apple’s stocks have been more stable and

historically fetch higher prices than Microsoft.

Apple paid out dividends totaling $11B in 2014 and $10.5B in 2013 (Apple, 2014). The

dividends per share paid out by Apple in 2014 were 0.44 during the first and second quarters,

while they increased to 0.47 during the third and fourth quarters (Apple, 2014). The dividends

23Microsoft Business Analysis

per share paid out in 2013 were 0.38 during the first and second quarters, while they increased to

0.44 during the third and fourth quarters.

(Source: Google Search: Microsoft stock history)

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(Source: Google Search: Apple stock history)

Key Strategic Issues

Microsoft’s biggest change and subsequent challenge this past year has been the

onboarding of their new CEO Satya Nadella. Nadella started the job last February and his

mantra since taking the helm has been “mobile first, cloud first” (Tu, 2014). In an article for

GeekWire, Todd Bishop (2014) outlined a top five listing of hurdles the new CEO would face in

his first year, which include integrating newly-acquired Nokia, improving the company’s outlook

as an innovator, defending its current standing, navigating new internal politics, and deciding

which areas to focus. Microsoft strives to do too much and has too many branches of the

company in which to concentrate efforts. This lack of focus dilutes Microsoft’s edge as a

technology leader.

25Microsoft Business Analysis

Their competitor, Apple, also has a lot of projects and branches, but they have much

more of a focus and a sense of the technology sectors in which they want to concentrate.

Apple’s basic strategic problem, according to Tim Worstall (2013), is whether they should

concentrate on market share or profit margin.

Alternatives

Since acquiring Nokia, Microsoft has created a mobile division that produces phones that

run Windows. However, they could be biting off more than they can handle with having a

cellular phone division. Apple and Google control 95% of the mobile phone market share, as of

December 31, 2014, according to an analysis by Consumer Intelligence Research Partners

(Levin, 2015). That level of domination by Apple and Google leaves very little room for

Microsoft to infiltrate, much less succeed.

Recommended Course of Action

As stated previously, Microsoft has too many projects and too little focus. Adding and

concentrating efforts in the cellular division seems like wasted, fruitless effort. It seems

Microsoft is likely to waste a lot of time and money making their mark in the mobile world, and

should just leave it to Apple and Google to continue competing.

Conversely, Microsoft should concentrate on what they know best, which is software and

complementary hardware. Microsoft has carved a niche for itself in gaming with their XBox

brand, including the recent acquisition of Mojang, the company that produces Minecraft.

Microsoft has already seen a dramatic uptick in revenues of 79 percent since procuring Mojang

near the end of 2014 (Khani, 2015)! The decision to purchase Mojang seemed smart, and the

26Microsoft Business Analysis

return on investment sounds very promising, therefore Microsoft should consider developing

other key partnerships and shift their focus to the gaming sector.

The long term future success of Microsoft will be dependent on the company’s defensive

strategy. The focus for Microsoft should be on their strength to provide technology solutions to

business segment and expand the Xbox with new innovation. For example, Microsoft is already

partnering with businesses to provide solutions. A most recent example is the retail customer

deployment presented at the National Retail Federation’s Annual Convention & EXPO.

Microsoft Corp. and CKE Restaurants Inc. demonstrate the self-order kiosk solution running on

Windows 8 devices that enables Hardee’s (Carl’s Jr.) customers to place and customize their

orders. The self-order kiosk pilot is deployed across 30 restaurants. This kiosk provide point of

service (POS) purchasing from viewing the menu, customizing their order, and paying for their

transactions. The order is sent directly to the kitchen for order fulfillment for a quicker service.

The benefit for this self-service kiosk is the flexibility to have an extra cashier line without

assigning an employee to take orders. The kiosk has added features. It is configurable to

service other languages based on the store’s demographics. It is also a device to assist employee

to clock in and out for their shifts and breaks. This new retail self-service kiosks has a strong

strategic growth potential to sell across many business segments from restaurants, medical office,

pharmacy, bakery, department stores, etc. The ability to integrate the sales data with the

Microsoft office suites to create reports and financial dashboards will provide a competitive edge

since Apple does not have a strong presence in servicing businesses.

On the direct to consumer strategic growth, Microsoft’s vision for the future of

computing is “HoloLens” (Lisa Eadicicco, 2015). In January 2015, the company showed the

headset that allows user to virtually create an environment in 3D. Microsoft has followed in the

27Microsoft Business Analysis

footsteps of Google’s Glass, and likely will take the lead, on wearable computing technology

with the HoloLens. This type of technology is unlike anything coming out on the market in the

near future. The demo showed the real time creation of holograms where a user can interact by

reaching or touching objects. The HoloLens has potential business use, as it could be used for

collaboration scenarios in the science, engineering, and technology sectors, to name a few.

NASA has been involved with the production and will likely use the HoloLens when it rolls out

(Moorhead, 2015). Microsoft should take Patrick Moorhead’s (2015) advice by having

Microsoft demo the HoloLens in their stores, which will drive customers to the stores for more

exposure to both the store and the Microsoft products. With thorough demonstrations and

education, along with the endorsement of NASA and other big-name companies, Microsoft could

be the leader in the virtual visual market. If Microsoft can bring this technology to market

together with their Xbox, this will be a fast selling consumer device that will bring Microsoft in

the defensive strategy. Both, the self-service kiosk and the HoloLens are two examples on how

Microsoft can grow their business in the future. These two devices has strategic growth potential

both in US and internationally.

Understanding the international culture, their demands, and what attracts them will

ensure successful marketing. With new products and fresh ideas, Microsoft will be able to

overcome any challenges that it may encountered. It is important to understand how long the

company has been in business and how long it has remained on the top of the charts. Working on

reducing the threats and enhancing its assets Microsoft is ready for the future.

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