Microsoft’s Diversification Strategy
Microsoft’s Diversification Strategy
1. Why did Microsoft, the most successful computer software company, choose to remedy its strategic disarray? Microsoft is a multinational computer technology 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 the world’s most valuable companies. However, after a string of bad news seriously undermined the future growth of Microsoft, the bad impression was arisen.
Microsoft tried to remedy its strategic disarray, because in the high-technology industry, standstill is equal to commit suicide. IT industry is really a highly competitive industry. Microsoft must to solve their problems as soon as possible. Microsoft was the most successful computer software company. However, if they ignore its strategic disarray, they may be defeated. I would like to use SWOT analysis to illustrate my views why Microsoft chose to remedy its strategic disarray. Strengths: Microsoft is the world’s largest software company with global name recognition and strong reputation for innovative products. Microsoft’s Software products have high name recognition, broad-based corporate and consumer acceptance (Word, Excel, PowerPoint, Access), and numerous powerful features that are in use worldwide, thereby promoting standardization and competitive advantage through their ease of integration and cost-effectiveness.
Windows 95, 98, 2000 series are globally known as the PC desktop operating system with a market share of about 88%. What’s more, Microsoft has relatively rapid product development processes that allow for timely updating and release of new products. Weaknesses: Between1990-1995, Microsoft leadership failed to correctly anticipate the growth or popularity of the Internet. In addition, it perceived by many as a cut-throat competitor that uses its dominant market position to marginalize competition by stealing/destroying the competition’s products, stifling product innovation, and decreasing the availability of competitor products. Furthermore, Microsoft had its strategic disarray in the early 2000s. Opportunities: In the early 2000s, the demand for personal computers in American and global markets remains strong despite the growth and increasing popularity of personal handheld devices.
Moreover, cheaper global telecommunication costs open new markets as people connect to the Internet. Threats: From the case study, basic office software had been challenged by a string of start-ups. Between 1993-1995, Sun Microsystems, Netscape, Oracle, IBM, AOL, and other companies moved into the Internet space and defined it while Microsoft failed to anticipate its growth or popularity. These new competitors were able to churn out popular programs such as e-mail, desktop search engines, and instant messaging over the Internet much faster than Microsoft. So Microsoft need reinvent itself. For instance, Red Hat, the one of key competitors of Microsoft, dominated the market for Linux, went public in 2000.
Red Hat became famous. What’s more, in 2001, Red Hat expanded its software products and included database applications and an e-commerce software suite designed for average-sized businesses. Nevertheless, a string of bad news undermined the future growth of Microsoft since the early 2000s. If Microsoft didn’t remedy its strategic disarray, Red Hat or other competitors may surpass Microsoft in the future. Furthermore, from the case study, according to a study conducted by McKinsey＆Co. in 2004 on IT spending trends, although IT spending had increased since 2003 after three years of decline. 2001 is the first annual decline since 1958. Customers would expect to get more out of their technology investments. Companies had been more concerned about the value of IT and enforced stringent rules and guidelines for IT spending.
Therefore, Microsoft would have less opportunity to develop in the U.S. Moreover, Apple and Linux threaten Microsoft’s 88% market share of the desktop operating market. Linux influence growing from 7% in 1998 to 17% in 1999. In addition, Personal computers, mobile-phones, personal digit assistants, entertainment-oriented hand-held computers, and similar wireless products for Internet access do not require Window operating system products. And Software piracy of commercial and consumer applications software on a global scale threatens revenue streams. In general, the weaknesses and threats outweigh the strengths and opportunities in the early 2000s. At that time, Microsoft was threatened by a series of challenges, both external and internal. That why Microsoft choose to remedy its strategic disarray at that time.
2. How did Microsoft grasp market chances to diversify its operation beyond its comfort zone, fighting all the way with its major competitors? Microsoft chose to diversify its operation beyond its comfort zone since early 2000s. Diversification marketing strategy is a corporate strategy to increase sales volume from new products and new markets. Diversification can be expanding into a new segment of an industry that the business is already in, or investing in a promising business outside of the scope of the existing business. As what we have learned in the textbook, diversification strategy has many advantages.
Diversification strategy can help Microsoft to limit risk. This is because a diversified portfolio is not overexposed to a single industry and therefore is somewhat insulated from downturns and volatility — or market fluctuations — in that industry. In addition, diversification limits an investor’s risk extending from an individual company or type of investments. In addition to limiting downside risk, diversification strategies also have the effect of maximizing portfolio returns. This is in part because risk is limited — by avoiding exposure to major losses, the portfolio can be more likely to make money. Microsoft was moving beyond the personal computer (PC) software business and expanded its product lines into enterprise software, consumer products, and services markets. It got into other devices such as mobile phones, television setup boxes, and game consoles. Microsoft had ventured into the services market through MSN in order to generate new revenue.
MSN is a collection of Internet sites and services provided by Microsoft. It was a Web portal that offered a wide range of online services including: news, information search, e-mail, instant messaging, online shopping and games, chat rooms, and message boards. Based on its success in MSN, Microsoft had hoped to leverage its experience to transform its Windows-based services for consumers and enterprises. Moreover, Microsoft also leveraged MSN to generate revenue through traditional advertising on its Web site, and also sold text-based advertisements to compete with Google’s AdWords and AdSense, and Yahoo! Search Marketing. In the enterprise software market, Microsoft deliberately chose not to compete with leading enterprise applications providers such as SAP and Oracle for large multinational companies. Instead, the software giant aggressively pursued opportunities with small and midsized enterprises. In 2001, Microsoft acquired Great Plains Software, a long-time partner and a specialist in accounting applications for small and midsized businesses.
In 2002, Microsoft acquired Navision, a Denmark-based enterprise software maker. Therefore, Microsoft Business Solutions offered a wide range of software applications. This kind of strategy is really shrewd. If Microsoft competes with leading enterprise applications providers at beginning of the extending stage, it is impractical. Microsoft used acquisition method to enhance its strength in order to compete with leading companies in the future. Microsoft entered the video gaming business in 2001 compete with Sony. After the first launch of the video game console, Xbox, Microsoft is in the distant second place behind Sony’s Playstation 2. Microsoft tried to challenge Sony’s dominant position. First, the software giant’s Xbox 360 was launched several months ahead of its rivals’ products: Sony’s Playstation 3. Some believed that the success of Sony’s Playstation 2 had been partly due to its advantage in reaching the market earlier than its rivals. Hence, Microsoft copied this marketing trick by becoming the first game console in the new business cycle.
It is called, dominating the market by striking first. We can learn from the Microsoft that capturing initiative is important in the business. Second, learning from the flop of the original Xbox in Japan, this time Microsoft worked closely with the producers of the Japanese games in the hope of neutralizing the traditional advantages of its two main rivals. I can learn from this case, we should learn from failure as Microsoft did. Avoiding backwards and developing merit. Third, Microsoft abandoned its previous approach of using off-the-shelf parts provided by Intel and Nvidia. Although efficient, that approach lacked the flexibility that Microsoft’s rivals enjoyed in reducing the consoles’ costs and increasing the profit margins during their lifetime. For example, Sony had gradually reduced the number of chips required by its Playstation 2 without sacrificing its performance.
So Microsoft adopted a new design for Xbox 360, hoping to achieve a new degree of flexibility that could help integrate various components and profitability in the future. Microsoft also ventured into the mobile communications market. Microsoft went to the mobile operators because of the exclusion of the mobile handset manufacturers. At that time, many mobile operators, particularly in Europe, started to leverage original design manufacturers (ODM), mostly in Taiwan, to produce handsets that would bear their own brand names in order to create market differentiators. Meanwhile, Microsoft spotted this opportunity and persuaded the operators and handset manufacturers to develop phones based on its Windows Mobile operating system. In 2002, HTC launched the first Windows-based smart phone. HTC is a leading ODM in Taiwan.
Other operators followed suit after that. In late 2005, Palm (Microsoft’s rival in handheld devices) decided to adopt the Windows Mobile software and replace is Palm OS with its Treo smart phone. This move further signaled Microsoft’s success in penetrating the mobile and handheld market segments. From this case, we can learn that the company should be sensitive to the business environment and grasp the chance in time. Microsoft spotted and grasped the opportunities to further establish itself in the industry. Microsoft had struggled for many years in the television market. At the beginning, many competitors were concerned that once Microsoft entered the market it would repeat its monopolistic practices of the PC business in the cable industry.
In this situation, Microsoft had formed strategic partnerships, hoping to improve its position in the cable market. In this way, Microsoft established itself as a leading IPTV technology provider. Through this arrangement, a number of leading telecom operators adopted Microsoft’s software for their IPTV services. Hence, understanding how to cooperate with competitors is also important for doing business. In 2009, Microsoft created Bing as a search engine competed with Google. Microsoft grasped chances to be successful in the Chinese market to the best of its faculty. When entering the Chinese market, challenges remain for those looking to do business in the country. Intense competition, corruption, business etiquette and language are some of the barriers that can be faced.
However, challenges are opportunities to some extent. Microsoft realized that when entering the Chinese market, the product may not sell like it does in the United States or Europe. In terms of Microsoft and China, the country has a strong censorship in place for its citizens, and Microsoft tried to come to an agreement to partner with a Chinese company to make the browser effective. Microsoft has signed a deal with Baidu, the biggest search engine in China, to provide English-language search results to improve its market share. In addition, Microsoft knew that Chinese government’s demands are significant. Microsoft Company censored the search results to relevant department to meet the Chinese government’s demands.
The announcement of the deal is a boost to Microsoft, which has been struggling to boost the position of its Bing search engine against Google’s dominance in almost every country around the world. Sometimes, Bing trumps Google in touch-accessed services designed expressly to help iPhone and iPad die-hards have cooler experiences shopping and finding restaurants online. It will also be a boost for Baidu, which has ambitions internationally. In 2012, Microsoft launched panel computer, Surface. Ballmer redefined panel computer at Surface’s New Product Presentation in June, 2012. Surface is different from iPad. Surface is closer to the idea of Bill Gates. This is a panel computer that can work in the company. This is in harmony with Bill Gates’ definition to the panel in the beginning. Apple thinks panel is a mobile terminal. Microsoft Surface is more inclined to think is personal computers. I can see this point at the choice of the operating system.
Apple is using iOS system for iPad. On the contrary, Microsoft is using Win8 for Surface. Moreover, Surface’s design is directed against for the iPad’s weaknesses. Microsoft used differentiation strategy. iPad’s input system is inconvenient, but Surface has a detachable keyboard, which makes Surface use like a computer. Meanwhile, Surface’s design is directed against for iPad’s App Store. App Store’s application depth is not enough. Nevertheless, Surface Pro is using the X86’s Win8 operating system, it can use more compatible operating system. One of Microsoft’s largest competitors is Apple Corporation. At the first competition between Apple and Microsoft, the winner is Microsoft. Windows operating system has good compatibility. Different brands and types of the computers around the world are installed in the same system.
Despite it has shortcomings, but it can not hide the plebification characteristics. In contrast, Apple is pursuit of perfection and strict exclusiveness. Only Apple can install Apple’s system, but also only be installed such systems. Although Apple produce a good product, but can not win the favor of consumers. What’s more, Microsoft faced the challenge actively. In 2011, Skype was purchased by Microsoft Corporation for over $8 billion, and now operates as a division of Microsoft. Skype is a proprietary Voice over IP service and software application. Skype has expanded into education, as numerous classrooms worldwide now use the service to video conference with instructors, other student, and even other institutions. This will allow Skype to have a leg up in the future, when they decide to push even further with their subscription plans. What’s more, with Microsoft’s efforts in 2010 like apps store, Bing search engine, Yahoo-deal for ad-sharing, Zune platform and Project Natal, will undoubtedly compete with Apple and others effectively.
3. What can you foresee or what suggestions can you think about its growth of new area in the future? As far as I’m concerned, the growth of Microsoft’s new products will increase smoothly. However, Microsoft will face some challenges. Xbox, Kinect and Xbox Live continue to emerge as a rich hub for games, sports, movies and TV shows that can be accessed via touch and voice controls. And these controls are being increasingly integrated into all manner of screens: HDTVs, smart phones and tablets. “Two years ago, very few services connected,” says Frank X. Shaw, Microsoft’s vice president for corporate communications. “Now if you have an Xbox, you can see Bing, access Sky Drive (cloud storage) and use your Windows Phone to have a better experience, because the services are shared.” They are all products of new area.
Their marketing foreground will be rosy. In my opinion, in all new products, Microsoft should focus on Bing. The key competitors of Bing, Google and Yahoo!, had adopted the application-as-services model coupled with a new advertising-driven funding approach, which enabled them to develop open-source and free software products for the general public. In particular, in the case, Google and Yahoo! had formed partnerships with various telecommunication or cable service providers in order to position their respective portals as the default entrance to the Internet. Microsoft should find methods to provide Internet users a range of services from search to e-mail and discussion blogs to news in order to compete with competitors. In the entertainment and consumer markets, Microsoft’s Xbox Live had been a leader of online gaming. The system provided classic arcade games, game trailers, and upgrade packs that were downloadable.
However, the Xbox game console and the ventures in mobiles and IPTV, these products should be more consumer-oriented. The big competitors, Apple and Sony, their products are much more consumer-oriented and media savvy. For instance, Apple’s iMac and iPod products, and iTunes services were designed to cater to the high-end media centric consumers. Sony’s video games and entertainment business remained one of the strongest in the industry, particularly in the consumer electronics segment. If Microsoft’s products be more consumer-oriented, in my views, the Xbox game console and the ventures in mobiles and IPTV will be the star products in the future. However, Microsoft should pay attention to its major area, that is, personal computer software business.
The superiority and proprietary advantages will be diminished if Microsoft ignored its major area. Japan and South Korea joined China in 2012 on a project to jointly develop a new operating system based on Linux as an alternative to Microsoft’s Windows. Thailand and Malaysia have instigated programs to offer low-cost PCs to citizens with Linux operating systems. It is the Butterfly Effect on global pricing. They’re being helped along by Microsoft competitors such as Sun Microsystems, which has signed a deal with the Chinese government to supply its Linux desktop operating system and office program to as many as a million PCs there. In Apple Company, Steve Jobs wants to overwhelm Microsoft in the field of operating systems. It is worth noting that, Apple’s computer hardware performance has been unmatched.
However, Apple chose to “kill” Microsoft in the field of software. It means Apple was warning Microsoft intentionally: Not only IBM can be a threat to Microsoft, but also Apple. Microsoft’s competitors are trying to improve their market share in China and all over the world. Microsoft should not relax vigilance. It is still a long way to go for Microsoft. In my view, Microsoft should forge its own product culture. Apple is pursuit of elegant products. Apple adheres to creativity and uniqueness.
Eventually become a model for other companies to emulate. Microsoft should find its own development route and set up unique product culture. Only in this way can Microsoft have its own distinguishing features and lead the industry. Microsoft used diversification strategy and it had entered various new markets in which it had no proprietary advantages. Facing with a bunch of new challenges, Microsoft should not confront alone. It should have new partnerships. The impression of people to Microsoft is a little bit haughty. So Microsoft should form more strategic partnerships in the future and learn more from the competitors modestly to capture opportunities in these new markets.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 9 October 2016
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