Microsoft: Maintaining the Competitive Edge - Essay Example

Microsoft: Maintaining the Competitive Edge Microsoft is a dominant player in personal computer operating systems, office applications, and gaming; and continues to consolidate and gain market share in the internet and server businesses. Introduction Microsoft is in the business of developing, manufacturing, license and support software products and services for computing devices. It operates in the following five segments: Client; Server and Tools; Online Services; Microsoft Business; and Entertainment and Devices. Client handles technical architecture, engineering and Windows product family. Software server products, software developer tools, services and solutions are developed and marketed by Server and Tools. Bing, MSN portals and channels, and personal communication services are offered on an online advertising platform. Microsoft Office system and Microsoft Dynamics business solutions are offerings of Microsoft Business. Xbox including consoles and accessories, third party games and games published under the Microsoft brand are responsibilities of Entertainment and Devices (CNBC, 2009). Some popular Microsoft products and services include BASIC; DOS; Office; Windows OS; Internet Explorer; MSN portal; Visual BASIC; Business Solutions; Tablet PC; Windows Mobile OS; Visual Studio; Xbox 360; Vista OS; SharePoint, etc. Microsoft has adopted a catch-up-and-strive approach to embrace significant shifts in technology and business opportunities as a part of its business strategy, and the approach has worked remarkably well for Microsoft (see Fig. 1). Figure 1. Microsoft Earnings (Source: cnbc.com) Case Analysis Michael Porter’s framework of five forces (see Fig. 2) that influence an industry is a tool that has been used for the analysis of Microsoft’s strength in its competitive positioning (McNurlin et al., 2009) Figure 2. Porters Five Forces (Mind Tools, 2009) Rivalry Microsoft has gained competitive advantage over its rivals such as Netscape, Apple, IBM, Sun Servers, etc. by improving product differentiation; improving features and implementing innovations; and creatively utilizing channels of distribution; vertical integration. Netscape’s Navigator browser enjoyed a 90% market share in 1995, while Microsoft had negligible market share. However, Microsoft’s IE was able to capture over 76% market share by 1999 (Windrum, 2004). IE had a market share of 70% in 2008. Rival browsers such as Apple’s Safari, Mozilla’s Firefox, and Google’s Chrome continue to gain on IE. Apple’s Mac OS has been making incremental gains over Microsoft (Neil, 2008). Microsoft enjoys a near-100 percent four-firm measurement in PC operating systems, indicating a monopoly as classified by their concentration ratio (economicexpert.com, 2009). Threat of Substitutes Microsoft faces challenges from substitutes in all its segments of business operations. Microsoft is threatened by alternative operating systems developed by rivals such as Apple, and the Linux Operating System developed under an open source initiative with collaborators worldwide. Microsoft is behind Sun, IBM, Hewlett-Packard and Linux in the servers business with less than 4% of the market share. Open Office is an open source initiative that challenges Microsoft’s Office. Microsoft’s rivals in the online business include Google, AOL, and Yahoo. The gaming industry has been intensely competitive with Microsoft in third place after Sony and Nintendo with sales on 5 billion $ and 16.3% growth during 2005-2007 (Baker, 2007). Buyer Power Microsoft is operating in a business where firms compete for buyers. Buyers have the capability to buy products and services from Microsoft’s rivals. However, products are not standardized and it is not easy to switch to other products. Products such as Open Office and the Linux operating system are available for free, but have issues with interoperability with other products or users. Buyers are fragmented and no buyer has influence on any product or price. Microsoft has enjoyed government discount contracts, student/educational discounts, and enterprise license discounts. Supplier Power Customers are powerful in the use of software products. However, the development of products and services require highly skilled developers, and in the absence of applicable regulations or standards, Microsoft is well positioned with its intellectual property. Manufacturers of hardware pre-install operating systems and other programs from technology partners. Microsoft has forged partnerships with hardware suppliers for providing its products on their systems. Barriers to Entry Microsoft has faced several antitrust lawsuits from rivals across the globe, and has been fined on several instances. However, in the absence of discernible regulations, Microsoft enjoys being the intellectual powerhouse and ability to gain competitive edge over its rivals by its effective strategies or the ability for gainful partnerships (such as Hotmail, Yahoo, etc.). Microsoft has attained a minimum efficient scale (MES) for a majority of its products and services creating barriers of entry for new entrants to the market. However, there are several initiatives from new players such as the Linux OS, Open Office and Google’s Chrome that pose a threat to Microsoft’s businesses. Discussion According to the Extant theory, late entrants focus on the development of products with superior quality/performance winning standards competitions. Lazonick and West (1995) argued that business enterprises could gain sustained competitive advantage by achieving increasingly higher degrees of ‘organizational integration.’ An important determinant of differences among rival enterprises is the quickness and effectiveness of their strategic response. Microsoft not only developed products and services with superior quality, but also succeeded in leveraging user bases from vertically integrated markets; Windows to other products and services (Windrum, 2004). An analysis of strengths, weakness, opportunities and threats has been illustrated in table 1 (Haffner & Hibbert, 2001). Table 1. SWOT Analysis Strengths Vertical integration of markets/businesses Adaptive business practices, and rapid product development process Economies of scale Merger/acquisition for adoption of technology Widely accepted high name products (Windows, Office, etc.) New leadership under Steve Ballmer Weakness Failed to anticipate popularity of Internet Dependency on manufacturers of hardware to install Microsoft products High employee burnout, and employee turnover Declining sales in operating systems and server software Products do not work well with other products (antitrust lawsuits and fines) Opportunities Internet as a medium for future business Mobile telephony applications, and personal digital assistants Strong growth in demand for personal computers, and increasing popularity of handheld devices Threats Rivals such as Apple, Linux, Google gaining market share Microsoft had failed to anticipate growth or popularity of the Internet and continues to lag Shorter and shorter technology life cycle Antitrust lawsuits Business practices such as hardware manufacturers issuing pre-bundled programs Conclusion Microsoft has adopted a sense-and-approach for its businesses, and Steve Ballmer, Chief Executive Officer along with Craig Mundle, Chief Research-and-Strategy Officer have performed remarkably well in delivering products and services for strengthening and consolidating Microsoft’s position in the market. Microsoft has been successful in adopting technology that it has lagged, developed products and services with superior quality, and leveraged user bases from vertically integrated markets. References Baker, James. (2007). The Video game industry: Nintendo back in the lead. Retrieved from http://seekingalpha.com/article/40770-the-video-game-industry-nintendo-back-in-the-lead CNBC. (2009). Microsoft Corp. Retrieved from http://data.cnbc.com/quotes/MSFT/tab/4 economicexpert.com. (2009). Concentration Ratio. Retrieved from http://www.economicexpert.com/a/Concentration:ratio.htm Haffner, Arthur & Hibbert, Erica. (2001). Swot Analysis: Microsoft Corporation. Retrieved from http://www.bsu.edu/libraries/ahafner/awh-th-swot-ms.html Lazonick, William & West, Jonathan. (1995). Organizational integration and competitive advantage: explaining strategy and performance in american industry. Ind. Corp. Change., 4(1), 229 - 270 Mind Tools. (2009). Porters five forces analysis. Retrieved from http://www.mindtools.com/pages/article/newTMC_08.htm McNurlin, Barbara, Sprague, Ralph & Bui, Tung. (2009). Information Systems Management in Practice, Upper Saddle River, NJ, Prentice Hall Wisconsin School of Business. (2004). Porters five forces: a model for industry analysis. Retrieved from http://research3.bus.wisc.edu/file.php/139/Toolkit/Content/Porter_forces_3.pdf SEC. (2009). Microsoft corp. Retrieved from http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000789019&owner=exclude&count=40 Neil, Shane. (2008). Microsoft market share slips: pressures on for windows 7 and ie8. Retrieved from http://www.cio.com/article/467916/Microsoft_Market_Share_Slips_Pressure_s_On_for_Windows_7_and_IE8?page=2 Windrum, Paul. (2004). Leveraging technological externalities in complex technologies: Microsoft’s exploitation of standards in the browser wars. Research Policy, 33(3), 385-394. Read More