Microsoft Corporation is an American multinational software corporation headquartered in Redmond, Washington that develops, manufactures, licenses, and supports a wide range of products and services related to computing. The company was founded by Bill Gates and Paul Allen on April 4, 1975. Microsoft is the world’s largest software maker measured by revenues. It is also one of theworld’s most valuable companies. Microsoft was established to develop and sell BASIC interpreters for the Altair 8800. It rose to dominate the personal computeroperating system market with MS-DOS in the mid-1980s, followed by the Microsoft Windows line of operating systems. The company’s 1986 initial public offering, and subsequent rise in its share price, created an estimated three billionaires and 12,000 millionaires from Microsoft employees.
Since the 1990s, it has increasingly diversified from the operating system market and has made a number of corporate acquisitions. In May 2011, Microsoft acquired Skype Technologies for $8.5 billion in its largest acquisition to date. As of 2012, Microsoft is market dominant in both the PC operating system and office suite markets (the latter with Microsoft Office). The company also produces a wide range of other software for desktops and servers, and is active in areas including internet search(with Bing), the video game industry (with the Xbox and Xbox 360 consoles), the digital services market (through MSN), and mobile phones (via the Windows Phone OS). In June 2012, Microsoft announced that it would be entering the PC vendor market for the first time, with the launch of the Microsoft Surface tablet computer. In the 1990s, critics began to contend that Microsoft used monopolistic business practices and anti-competitive strategies includingrefusal to deal and tying, put unreasonable restrictions in the use of its software, and used misrepresentative marketing tactics; both the U.S.
Department of Justice and European Commission found the company in violation of antitrust laws. Microsoft is the undisputed leader in the market for operating systems (Sheremata 1997). The Microsoft Corporation has produced the vast majority of operating systems for all personal computers (PCs); moreover, operating systems that Microsoft has created are Windows95, Windows 3.1, and DOS. They also have produced the leading spreadsheet and word processors for both Windows and Macintosh operating systems. They own 85% of the market share with their office software Word, Excel, Powerpoint, Microsoft Exchange, and Microsoft Access. Not surprisingly, most of us have used some if not all of these products and/ or services provided by the Microsoft Corporation.
How did the Microsoft Corporation develop into a software monopoly? For the most part, one or several combinations of the following forge monopolies: an amalgamation of smart business decisions, mistakes by competitors, and at times some shady tactics that a company might employ to become a market leader and monopoly of today. Microsoft had its beginning during the 1970s when IBM was the computer hardware giant of the industry. In 1975 Microsoft was the producer of programming languages for MIPS Altair 7500 (Conigliaro1996). In 1981, Microsoft purchased an operating system for an Intel based 8086 chip from a small company named Seattle Computer Products and redesigned its product to sell it to license it to IBM for its new personal computer (PC) (Conigliaro1996).
The redesigned product was released under the name MS DOS 1.0. IBM being a monopoly at that time in the hardware department, by allowing Microsoft to provide the operating system to its PCs, then an outside source, relinquished control of the software industry to this up-and-coming powerhouse. Microsoft retained the right to license their operating system to other manufacturers and helped spur the massive IBM clone industry. Microsoft became one of the leaders in the computer industry during the 1980s with the help of technologies that help provide PCs for an information hungry age and with Microsoft providing the operating systems for a high percentage of the PCs sold. By the late 1980s, Microsoft controlled the operating system market; versions of MS-DOS ran over 80% of personal computers (Conigliaro1996). However, Microsoft did not control any of the application markets, this honor went to Lotus, which at the time had the top spreadsheet, 1-2-3 and WordPerfect had the leading word processors, WordPerfect.
When Microsoft introduced Microsoft Windows 3.1 in the 1990s, it locked in Microsoft in the driver seat for what is now the software monopoly that exists. Soon after, Microsoft introduced Excel 3.0 for Windows and Word for Windows 2.0. Lotus and WordPerfect did not realize the effects that Windows 3.0 would have on the industry and did not plan ahead for the evolution (Gleick 1995). The claim has also been made that Microsoft used its control over the operating system and graphical user interface markets to help growth in the applications market. Some executives spoke of the “Chinese Wall”, that is some of the developers learned to take advantage of the operating system before other companies could who did not have the access (Gleick 1995).
They were also accused of when introducing new technology called object linking embedding (OLE) in Windows, they would provide the technology to Excel 3.0 developers to incorporate it into Excel before the technology was available to other companies. Making it possible for applications on a system to work with other applications made by Microsoft before competitors could have a chance to compete and provide the same or a comparable application. With the introduction of Windows 3.1 (an update on 3.0) and Microsoft having the edge, Microsoft’s Excel, Word and Office started to dominate the application market. The dawn of Microsoft the monopoly empire was on the horizon. In the 1990s Microsoft began to diversify with its dominance over the application and operating systems it began to get into producing products for multimedia, business operation systems, and now even games and online services.
They have been accused of shady business practices when they attempted to purchase Intuit, the software company that owns Quicken, the world’s most popular personal finance manager. And Microsoft’s pairing Windows 95 with The Microsoft Network, both moves are threatening to new competitors because of the barriers they create. They also generate risks to innovation and competition through the entire industry. Microsoft has used its power as the leader in the market with operating systems to grow into the power that it is now. A combination of good business tactics, regretful business choices by competitors, and finally Microsoft using its new power has made Microsoft untouchable by competitors.
We have several examples of monopolies in our past as a nation, and we have found that monopolies have a tendency to stiffen innovation. With computer systems innovation is important to continue and stay ahead of the market. The example we can think about is IBM, when IBM split its business it opened the door to several new businesses that have only helped society. Is Microsoft going to help society if it is ordered to split? We can only wait and see. By making Microsoft split it will open the door to new ideas from small entrepreneurs that might have the next great operating system. #
Microsoft has long enjoyed Olympian profit margins, using its monopoly power to maintain prices on its software even in tough times. But now, amid a terrible downturn and rising competition, CEO Steven A. Ballmer is shifting to a scrappier approach. He is cutting prices on a variety of fronts, from flagship Windows and Office products to newfangled Internet services. The idea is to accept lower margins in some businesses but boost overall earnings by going after a grab bag of growth opportunities. These range from expanding its share of big companies’ software purchases to lowering the price of Office software so consumers in emerging markets pay for it rather than pirate it. With the outlook so cloudy, “we’re focusing on gaining share in those areas that are most critical,” says Stephen A. Elop, who heads the business division. On July 13, Elop demonstrated the new Office 2010 in New Orleans.
While Microsoft expects most customers to pay for the program the way they always have, less powerful, ad-supported versions will be available free on the Web. The company is also charging a monthly fee for online applications, such as the e-mail program Exchange, which is about a third as profitable as selling the software on CDs. And on Oct. 22, Microsoft’s new Windows 7 PC operating system will go on sale in stores for $40 less than the $240 it charged when it launched its Vista program in 2007—the biggest price cut on a new version of Windows in years. All of these moves amount to a risky experiment in price elasticity. By lowering prices, the company hopes to increase sales of existing products while making fast headway with new ones.
If the company can gain enough market share to cover its massive costs in Web services and Internet search—notably, its vast data centers—every extra dollar will be pure profit. “I’m not saying it will be easy,” says Ballmer. “But we have great opportunities to grow total profit dollars.” ONLY $29 IN CHINAMicrosoft is cutting the price of Office and offering the free versions of Word, Excel, and other programs to head off competition from Google and other rivals that offer similar software at little or no cost. Microsoft has so many promotions for Office that its effective price is $100, down from $150, and even lower in such countries as Brazil and India. But the experience is sparking optimism at Microsoft about the new strategy. The company says unit sales of Office surged 415% in the second half of last year. The most aggressive price cut has come in China, where Microsoft says 95% of Office installations have been pirated.
Since it began testing a $29 offer in China last September, sales have soared morethan 800%. The low price was “like taking firewood from under the cauldron” of piracy, says Liu Tianxiang, a vice-president with Beijing Federal Software, a Chinese software distributor. He figures Microsoft has sold 80,000 copies of Office in China since the trial started. Now Microsoft intends to make the low price permanent.
Not surprisingly, Microsoft continues to hunt for ways to offset price cuts. It hopes to boost the bottom line by encouraging Windows 7 software users to upgrade more often. Since the program CD will come loaded with multiple versions, users who buy the cheaper Starter edition can easily pay later to get premium features. Of course, that risks annoying users—when rivals such as Google are trying to lure customers with cheaper alternatives. But in the current economy, there’s no risk-free way to stay ahead.
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