Microsoft Case Study

1. What are the three or four most important drivers of Microsoft’s business model over the past 10 to 15 years that have accounted for the company’s spectacular results?

Microsoft’s mission of placing a “PC running Microsoft software on every desk and in every home” drove their overall strategy early on. Depending on the business segment within Microsoft, one would see in place very different business models as the strategy for each line of business could vary. In the operating system (OS) segment, Microsoft initially brought in an existing product and modified this (MS-DOS) to work with the Intel microprocessor, which were the “brains” of the IBM PC. Microsoft partnered with IBM to provide the operating system for the IBM PC. In addition to developing Windows, Microsoft during this period was working to write applications for the Apple OS.

Microsoft was able in the OS segment to double their revenue per PC when Windows 3.x emerged which still needed MS-DOS to run. Most of the sales Microsoft made were to OEMs who would take the additional step of installing Windows on a computer’s hard drive. This strategy was effective in that the cost of production was relatively low, as an OEM may only need a single master copy to do the installation. The costs to Microsoft would largely be bore in R&D expense rather than production. As part of the Microsoft business model for this segment, Microsoft designed their OS to need periodic upgrades. The upgrades did come at a cost, and in essence, Microsoft was able to create an “annuity” stream for the Microsoft OS segment. In this segment, Microsoft had a monopolistic structure that allowed them to realize huge returns, especially during such a period of technological growth and rapid obsol...

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...nning pirated versions of Windows, whose owners tried to circumvent the (legal purchasing) system and reduce their costs. Other individuals and in emerging nations have purchased PCs with Windows “Starter” editions in which the cost of software is lower. The items mentioned here are ways Microsoft is trying to deal with the threat of Linux.

In helping avert the threat in the area of development of web services (such as .NET), Microsoft has offered to support partners and developers of programs to the tune of $2 billion. This may provide some incentive to programmers; however, the results remain to be seen. In the search business for Microsoft MSN to compete with Google and Yahoo, Microsoft spent approximately $200 million in advertising. In addition to pure Internet searching, Microsoft is developing the search functionality to take place across the Windows platform.