1)Who should Microsoft have targeted at the launch of the Tablet PC & why? Before discussing who Microsoft should have targeted, we have to look at the strengths and weaknesses of the product. The success of any strategy depends on being able leverage the most of the strengths and rely less on the weaknesses. The strengths of Microsoft were its brand, distribution channel, existing enterprise user base and large resources. The risks involved those related to new product development, price and changing user behavior. The exhibit tells us that the large and medium business accounted for the most portable PCs in terms of volume and revenue. Due to the enterprise refresh cycles, a third of the PCs are replaced every year.
Now let’s take a look at the options Microsoft had as target initial customers. They could target first time PC buyers, enterprise IT managers, students, early tech adopters or existing Windows customers. Looking at the strengths and weaknesses listed above it is easy to eliminate a few of the choices provided. Microsoft should have targeted the enterprise user base. Enterprise devices are much less sensitive to price as regular customers and have a higher willingness to pay. Thus the high price tag might not have been a difficult barrier if the product delivered value.
They demand compatibility with existing enterprise frameworks. Given Microsoft’s dominance in enterprise software, they could easily ensure that the tablet PC has software that was compatible with Microsoft’s existing enterprise software. The iPad was very geared towards the consumer segment. Thus there was a niche in the enterprise tablet space that Microsoft should have exploited.
This would have also helped in terms of narrowing down the focus on a few key applications, distributors and use cases. Taking a leaf out of Blackberry’s book they could have made enterprise security as one of their key differentiators especially given the wide adoption of outlook email in the enterprise. 2) What are the pros & cons of Microsoft’s strategy vs. Apple’s (Microsoft being dependent on hardware manufacturers to market the Tablet PC, vs. Apple’s control of both the hardware and software?)
This is essentially a question on the merits and demerits of a horizontal strategy vs a vertical strategy. The Microsoft strategy is a horizontal strategy. It involves creating a product that can deliver value up and down the value chain by allowing manufacturers innovate above and below it. This strategy can scale quickly and demands fewer resources from an individual firm to create an ecosystem. This also allows for wide range of innovations from a variety of players along the value chain. It is also a case of imperfect competition given that at each level of the value chain different levels of competition exist that promote greater product differentiation on multiple levels.
The demerits of this strategy is lack of focus and control. Since the product is extensible and involves many players, there is always a risk of not being able to control what the end product looks like and the features it should prioritize on.The vertical strategy by Apple allows for control on the experience, and look and feel of the product. This enables Apple to focus and do a few things really well and better position the brand. By vertically integrating, Apple is also able to extract multiple premiums at different levels of the value chain. This can lead to higher profit margins. However, the downside of this strategy is that it cannot scale quickly, requires high upfront fixed costs and doesn’t offer the wide breath of product differentiation or features.