External Analysis
Microsoft is an American multinational company that develops personal-computer software applications and systems. Its founders Bill Gates and Paul Allen determined that Microsoft needed to provide people with IT services that contributed to improving their lifestyles. The company provides efficient and effective products that have enhanced the lives of millions of people globally. It is apparent that the corporation’s external environment has been changing in the recent past to respond to competition from technology peers like Apple, Amazon, and Google. Consumer behavior is also changing as mobile innovation shapes the market.
New Entry
The high cost associated with developing a technology brand weakens the effects of new companies in the industry on Microsoft. However, the moderate cost of developing such an enterprise presents a significant capability for new entrants to compete to a point in the software and hardware market (CB-Insights, 2018). New entrants can also take advantage of the moderate switching costs to potentially compete with corporations like Microsoft.
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Rivalry with competitors
The tech industry is dominated by a few giants such as Google, Apple, Oracle, and Microsoft. To remain successful, Microsoft has to effectively compete. Existing competitors give Microsoft intense competition driving prices down and decreasing the overall profitability in the industry. The company operates in a competitive hardware, software, and service industry. This competition takes a toll on the long-term profitability of the company.
Threats of substitute products and services
Industry profitability suffers when a new product that meets similar customer needs is introduced in the market. For instance, Google Drive and Microsoft’s Dropbox are substitutes to hardware storage drives. Entertainment devices such as Xbox face competition from Sony’s Play station.
Bargaining power of consumers
When buyers have differentiated products, they can play one supplier against the other. Since Microsoft enjoys a virtual monopoly in some segments, switching costs for consumers may be high due to the specialized nature of goods and operational risks. This lowers the bargaining power of the buyers.
Suppliers’ bargaining power
Companies in the tech industry mainly buy their raw materials from numerous suppliers. Suppliers in dominant positions have the ability to reduce Microsoft’s margins in the market. They use their negotiating power to get higher prices from the companies lowering the overall profitability of Microsoft (Warner, 2019). For most Microsoft products like Windows and Xbox, however, resources can be obtained from a large number of suppliers lowering the bargaining power of suppliers.
Global Strategies
Microsoft is a global corporation that targets customers from all classes. It also targets both individual and business customers. Its customers include a large segment of businesses in different sectors including telecom, manufacturing, travel, and finance. Top customers include Vodafone, Walgreens, Jet.com, and other companies of all sizes from around the world (CB-Insights, 2018). Microsoft is leading in the cloud space and continues to refine its products to suit its corporate customers. Businesses around the world are today heavily reliant on digital technologies to perform their daily operations. This has led to a sharp increase in the company’s business customers. Microsoft also targets individual users and a large segment of professionals through Windows and its software range (Warner, 2019). A large segment of Windows users is young people. The company has, therefore, managed to tap into the worldwide enthusiasm for gaming.
Technological innovation
Microsoft is a leading technology brand, and like other leaders in the industry, it puts a lot of investment in research and development. Microsoft has invested in an organizational culture of technological innovation that nurtures creativity and drives quicker growth. Microsoft’s research and development expense stood at $16.9 billion in 2019. It has focused on strengthening its cloud segment with positive results. The segment generated more than $50 billion in the previous year (Nejstgaard, 2016). The investment in research and development has resulted in higher user satisfaction, superior customer experience leading to faster growth. Innovation is a key driver of the company’s competitive advantage and one of its pillar business strategies.
Market penetration
This is the primary intensive that the company uses to grow its business around the world. It involves selling more products in the markets where Microsoft has presence. For instance, Microsoft has grown by intensifying its sales and marketing in Asia. This has resulted in the dominance of the IBM PC-compatible operating system globally. The penetration is eased by the company’s broad differentiation strategy which uses Microsoft’s unique products to grow the customer base in various market segments.
Market development
This involves supporting business growth through targeting new markets. This strategy, however, has minimal impact on the company’s business performance. Despite Microsoft’s aggressive campaign on market growth, it has remained stuck for several years. This has made the company shift its focus to innovation (Warner, 2019). It has also transformed its image and expanded its software solutions brand to a company that partners with individuals and businesses worldwide.
Diversification
Diversification is one of Microsoft’s intensive growth strategies. This is achieved by developing new products and businesses and acquiring new businesses. This growth strategy facilitates the company’s growth through mergers and acquisitions. The company’s business segments can be classified into three groups; productivity and business solutions, cloud, personal computing. The first group consists of products aimed at enhancing consumer productivity including LinkedIn for talent management, Microsoft Office 365 for productivity, and Microsoft Dynamics for enterprise (Nejstgaard, 2016). Cloud products include Visual Studio and Azure. In the personal computing world, Microsoft has some of its most popular products including the Windows range of operating systems, Xbox for gaming, and the Microsoft Edge search engine.
Despite stiff competition from big tech companies and small and medium businesses, Microsoft is able to maintain high revenues by taking advantage of it healthy rate of growth of the industry. While some of its peers have gained more market share in various segments, the baseline growth in the tech industry means that Microsoft revenues continue to grow. Microsoft has diversified in many submarkets within broader consumer markets. Such submarkets include operating systems, cloud, productivity, social networking, human capital, gaming, hardware, and software. Specific products in these markets include Windows range of operating systems, Azure, Outlook, Skype, LinkedIn, Xbox, GitHub, and Surface Tablets. Different circumstances determine the form of diversification, growth style, acquisition.
Discussion
Microsoft has been transforming its growth strategy through deprioritizing Windows and diversifying new products and services. The company now gets most of its revenues from intelligence cloud and productivity and business processes. The diversification strategy is paying off. It has been reporting higher than expected earnings driven by its strong performance of business services and cloud products. Microsoft’s Azure plays a crucial in the corporation’s long-term growth potential. Azure provides the company’s foundation for gaming, software, and computing products. Microsoft has also been engaged in the robust acquisition of cloud-related technologies. Microsoft has grown its enterprise business to become the largest enterprise software globally through investment, acquisitions, and innovation (Nejstgaard, 2016). The nature of Microsoft’s software and its strength as a cloud provider enable higher revenues and better margins. Its pragmatic acquisition philosophy has helped it to efficiently deploy investment in opportunities with high potential growth. In another field, artificial intelligence and machine learning its consumers extract and visualize data without needing technical expertise. While Microsoft is investing in new markets, products, acquired businesses, and innovation, it is also working towards improving its customer experience.
References
CB-Insights. (2018). Microsoft strategy teardown: Cloud, AI, & subscriptions and the next trillion-dollar company. https://www.cbinsights.com/research/report/microsoft-strategy-teardown/
Nejstgaard, G. 2016. Microsoft Corporation: New CEO and new strategy. Management U.K. pp 1-15. https://mgmt.au.dk/fileadmin/Business_Administration/ICOA/Microsoft_case_final_ver_2.pdf
Warner, J. (2019). Microsoft: A strategic audit. University of Nebraska – Lincoln . Pp 1-22. https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1153&context=honorstheses
