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

• Microsoft-$32B IBM
Oracle
• IBM-$89B Time Warner
• Oracle-$10B
• Time Warner-$38B
– Market Capitalization
Microsoft
• Microsoft-$298B IBM
• IBM-$141B Oracle
• Oracle-$56B Time Warner

• Time Warner-$79B
 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?