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Microsoft Distribution Policies Report Example

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  • 1. University of Kassel European Master in Business Studies Winter semester: 2008/2009 Course: Distribution policies Select a company/ an industrial area, describe/evaluate strengths and weaknesses of their distribution approach and make suggestions for their future development
  • 2. Table of contents Pages Introduction 3 I - Company presentation I – 1.1 Microsoft corporation 3 I – 1.2 Microsoft Windows: Operating System 4 I – 1.3 Microsoft Live Search: Search engine 5 II - Distribution channels II – 1.1 Distribution channel for Microsoft Windows 6 II – 1.1.1 Individual distribution 6 II – 1.1.1.1 Strengths and weaknesses 6 II – 1.1.2 Included with the purchase of the hardware 8 II – 1.1.2.1 Strengths and weaknesses 9 II – 1.2 Distribution channel for Live Search 11 II – 1.2.1 Strong points/Weak points 13 III - Conclusion: future development 14 Glossary 16 Sources 17
  • 3. Introduction Who never heard about Microsoft? The successful company which started by the work made by a young student called Bill GATES who in some decades became the richest man in the world. Microsoft is like we want it or not a part of our life. Nowadays it is almost impossible to live without technology. Behind it there is a terminal or more commonly called a computer which is in 90-95% of the cases running by Microsoft products. It could seems at the first sight that studying the distribution channels of such a company is a work without an end but actually it is not. The reason is that Microsoft makes most of its benefits through only two products: the Operating System Microsoft Windows and the Microsoft Suite Office. Studying the distribution channels of such software within the distribution policy course at the University of Kassel is a great opportunity to discover the position of a company which has a monopole on a market. It shows the rare case when a company can affords ways of distribution that other competitors do not have or cannot use in order to keep leader's position and to keep it for a very long time. I chose as well to introduce another product: the Microsoft's search engine “Live Search” which help me for my personal research on my master thesis and also to show distribution channels of new products which are nowadays very fashionable: the free web applications. I – Company introduction I – 1.1 Microsoft Corporation Microsoft has been created in April the 4th 1975 by Bill GATES and Paul ALLEN. It is nowadays a multinational computer technology corporation which develops, manufactures, licenses, and supports a wide range of software products for computing devices. Its best selling products are:
  • 4. - Microsoft Windows(Operating System); - Microsoft Suite Office; Microsoft is also present on the hardware market with some accessories for computers such as mice and keyboards as well as in the video game market since 2001 with the Xbox. Xbox 360 In 2008 Microsoft counts 89,809 employees over the world located in 105 different countries. The famous Bill GATES has been the CEO of the company from his creation until 2000 when he decided to take some distance by taking the position of chairman. The current CEO of Microsoft is Steve BALLMER. Bill GATES Steve BALLMER As we can imagine Microsoft has a wide range of products and services. In order to make this presentation as focused as possible on the topic I decided to choose two products provided by this company: – One is the famous Operating System: Microsoft Windows, all versions included: Windows 2000, XP, Vista... as well as editions for example: Windows Vista Starter, Windows Vista Home Basic, Windows Vista Home Premium, Windows Vista Business, Windows Vista Enterprise, Windows Vista Ultimate... – and the other one is the Microsoft web search engine: Live Search. I chose Microsoft Windows in order to have a product which fits well the requirement for the examination of the Distribution Policies course and Live Search because I needed to continue my research regarding the world of search engines for my final master thesis. I – 1.2 Microsoft Windows: Operating System Microsoft Windows is the famous Operating Microsoft Windows logo System(cf. Glossary) which made the success of Microsoft. This product is dominating the market of computers(desktop and laptops) with an incredible 90% of market shares(2008).
  • 5. Economist are speaking about a monopole of the market. This situation is moreover enforced by the fact that his two main competitors are not really playing on the same market: Mac OS(from Apple) seems to be focus on a niche and The 90% Microsoft market shares Linux(specialized in Web Server Operating System) according to Net Applications is more targeting advanced users. In order to understand better this monopole we have also to take into consideration that most of the computers sold in the world are sold with Microsoft Windows. In customers mind it is even sometimes unthinkable(unfortunately for its competitors) that a computer cannot be sold without Microsoft Windows. I – 1.3 Microsoft Live Search: Search engine Before November 2004 Microsoft was dependent on other companies technologies regarding http://www.live.com/? scope=web&mkt=en-US their search engine. But after this period Microsoft developed his own product by itself. Live search is an online web search engine available at http://www.live.com/ . It is a service which is in direct competition with other big search and worldwide well known engines such as Google(created in 1998), Yahoo(created in 1994) and Baidu(created in 2000). Microsoft Live Search is the fourth most used search engine in the world after Google, Yahoo and Baidu. What makes this search engine very interesting to study is that it is definitely not following his competitors for its distribution channels. Which actually is quite amazing because Microsoft has for reputation to be a follower regarding innovations on technology(except for the operating system). II - Distribution channels II – 1.1 Distribution channels for Microsoft Windows
  • 6. The Operating System Microsoft Windows can be sold in two different ways: – Individually; – Included with the purchase of the hardware; If the first one seems obvious the second one is a bit unexpected and actually illegal according to the law. II – 1.1.1 Individual distribution I do not have the exact figures regarding how much does the individual distribution of Microsoft Windows is regarding to the one including with the selling of the software. But taking in account that the change of an operating system is driven by the obsolescence of the hardware and that the operating system has always been sold with the computer, then there are good chances that individual selling are representing only a small piece of the whole cake. Regarding this individual distribution it can be divided into three parts: – You can buy the product at any stores which is distributing the Operating System(specialized stores, supermarket...). Contrarily to Apple with the Apple stores Microsoft does not have his own physical outlet; http://www.bestofmicro.com/actualite/25967-Microsoft-Apple-Store.html – You can buy it online. For information Microsoft online personal stores just opened, it seems that it is the way Microsoft prefer instead of providing physical stores http://windowsteamblog.com/blogs/windowsexperience/archive/2008/11/13/i ntroducing-the-microsoft-store.aspx https://emea.microsoftstore.com/de/ – You can receive it as a donation, this is the case for Microsoft in Africa for example; http://online.wsj.com/article/SB122332198757908625.html? mod=googlenews_wsj II – 1.1.1.1 Strengths and weaknesses of individual distribution
  • 7. Weakness: As I said previously selling individually this product has a very low demand because the operating system is always sold with the computer and will maybe cover the whole life of the hardware. The problem is that Microsoft has to provide this solution anyway to its customers. A small market but divided a bit everywhere means a lot of money to allocate to a marketing campaign and of course a strong repercussion on the final Windows Vista price of the product. Advertisement on a skyscraper in China If price is high then(and moreover in the software industry) people will look for substitute products which means in some cases: Piracy. The best example we can find on the Internet is the one of the introduction of Windows Vista in China. Two weeks after his introduction in China only 244 copies have been sold whereas Microsoft spent millions and millions of dollars in advertisement. http://keznews.com/2726_Microsoft_Only_sold_244_copies_of_Genuine_Windows_ Vista_in_China The reasons of this small amount of those copies sold are in fact two: - The first one is the price of the software. Microsoft sold it initially to 201$ but then discounted until 66$ and this for two reasons: Chinese people cannot afford a such price and in Chinese culture Chinese people are ready to pay a high price for the hardware but not for the software(notion of service is different); http://www.pcworld.com/article/135463/microsoft_cuts_vista_price_to_66_in_china.h tml http://www.mydigitallife.info/2007/08/06/microsoft-annouced-windows-vista-price- slashing-for-china-market/ A Chinese copy of DVD copies outlets in the street in China Windows Vista - The second one is the Chinese copy culture, a recurrent economic problem.
  • 8. In most of the streets you can find a copy of the operating system. http://news.softpedia.com/news/Windows-Vista-On-Sale-in-China-45008.shtml Strength: As Microsoft's chairman says “let them pirate software developed by Microsoft -that increases the overall number of Microsoft software users and some of them may eventually convert into paying customers.” It is even profitable to Microsoft in one way because “Indeed, in China's back alleys, Linux often costs more than Windows because it requires more disks.” so Piracy is in one hand giving less profit to Microsoft Windows but on the other hand is making rid off one of his main competitor. http://labnol.blogspot.com/2007/07/we-love-microsoft-software-piracy-in.html II – 1.1.2 Included with the purchase of the hardware The most distribution channel used by Microsoft in order to sell the Operating System is through hardware(desktop or laptop computers as well as mobile devices such as cell phones). You have of course here then several ways of distributing the final product but it depends of the partnerships you made with the hardware manufacturer. For example the final product can be sold through: supermarket, special stores, online, partnership with public institutions such as schools etc... It may surprise you but the way Microsoft is distributing his Operating System is totally illegal because in fact when you buy a computer it is always sold with Microsoft Windows included in the price. The distributor is hardly ever giving you the possibility to opt for a different Operating Systems. The only way to do so is to build your own computer, to go to court or to find very specific computers. We could think that this distribution is fair because there is no alternative for the consumer but what about: – if you want to go for Linux rather than Windows, why should you pay 179€ more for a software that you do not want and/or that you do not need, Linux being free that is a chance but in some cases it is not so you are paying for two Operating Systems; – if you already paid an Operating System, the classic example is when you have another computer that you do not use anymore, you could
  • 9. easily uninstall your software from one to install it in the new one; – if you receive the software from a donation or if you only want the hardware for any kind of reason; As you can see the way Microsoft is distributing his product is very special and should be analyzed very well in order to understand how Microsoft can be nowadays so profitable. I mentioned previously a very interesting distribution channel that I would like to emphasize, the one of government and public administration such as schools. This is a very strategical way of distribution. People have two ways to be familiar with the operating system: or they buy/use the computer or the product within their own circle(family, friends)or they are familiar to the computer/product outside their own circle(companies, schools...). In the first case they have more or less the choice they want but in the other case it is more or less imposed by the company or institution. As I said this is a very strategical approach because the strength of the operating system is the dependence it is going to provide on the long run. More particularly if you have been raised with this technology. For example when Microsoft has a partnership with a school and sell 500 computers with Microsoft Windows on it, it is not only 500 licenses that it is selling but the number of students who will use those computers and so raised with this technology who will buy Microsoft products and be dependent of them. The more people use the technology the more they get addicted and the least they are going to be ready to try another one. II – 1.1.2.1 Strengths and weaknesses of grouped distribution Weaknesses: This distribution channel burst for Microsoft last year because of the introduction of low cost new products such as netbooks and mobile devices(such as some cell phones which require an OS in order to work) which brought new competitors. The problem of these new products for Microsoft is that it makes cross the telecommunication software providers with the software computer providers. The most recent serious competitor Microsoft has to face with on the mobile market is Google which comes into the market with his Operating System
  • 10. called Android. Google speaks about getting a market share of 4% on cell phones with this technology in the US market before the end of year 2008.http://www.cellular-news.com/story/33726.php. Another weakness for Microsoft is the introduction of these low cost products(netbooks) which based their marketing policy on low cost(less than 300€). If Microsoft wants to enter in this market it has to cut his price of Operating System if not the price of the netbook comes to be the same as the first prices laptop. Microsoft is looking too much about profit. Recently it lost a very huge market share in Africa regarding the one laptop per child project which consists in selling computers to African children at the cost of 100$. Microsoft did not see the interest to go for this market so his competitor Linux took it. So sometimes you have to go for market shares rather than profit. The major weakness of Microsoft Windows is that the way it is distributing himself is totally illegal. http://fr.wikipedia.org/wiki/Vente_li %C3%A9e#Fabricants_d.27ordinateurs_pratiquant_la_vente_li.C3.A9e In English it is called “Bundled Sale” and consist in selling in an all pack including only one price, several products without giving the possibility to sell them separately. The legislation forbid the “bundled sale” is most of the countries with however some different interpretations of the word product and a laxity regarding the application of the law. In France several consumers went to court in order to complain and won the process. http://www.aful.org/communiques/court-paris-ufc-darty Each computer or laptop sold in the world with Microsoft windows includes in fact two products. The normal price of any laptop in the market is in fact from 150€ to 210€ below. So Microsoft is then theoretically under the risk of an incredible process for illegal distributions and partnerships. Strengths: Microsoft is currently almost unmovable regarding the distribution of his operating system through computers. The last example in mind is the market of netbooks. Those computers came out in 2007 and was a total new market based on low cost. Microsoft thought that this market was not profitable and did not get into it and let his main competitor Linux entered in the market. However it seems that people were sending back most of the netbook after seeing that Linux did not fit with their requirements http://www.thestandard.com/news/2008/11/09/netbooks-opportunity-windows-and- threat-linux
  • 11. finally Windows is taking back more and more the market shares that it was losing at the beginning on this market. So I would say that one of their main strength is that they are almost unmovable because people are so dependent some customers even do not know that a computer cannot be sold without Windows. A computer is very often sold with Microsoft Windows even in countries such as China. As an example you can give a check at Fujitsu website in China, even if everything is written in Chinese the name of Windows Vista appear in the characteristics of the computer. This information has been confirmed by local Chinese people that I know who told me that they never saw a computer sold without an Operating System. They even thought that it was a gift...and actually they are not the only ones. So Microsoft is losing profit regarding the individual pieces of Windows sold in China but actually has “real market shares” because on his main distribution channel everyone is buying it at the price fixed by Microsoft. http://www.fujitsu.com/cn/services/hardware/pc/lifebook/s/ Even if a hypothetical trial can make Microsoft goes bankruptcy can we imagine the consequences that it will have on all Microsoft users(90% of the world computers and all companies are based on computers data process), a such scenario is economically unthinkable. II – 1.2 Distribution channel for Live Search: The distribution of a Web Search engine is for sure far different that the one of an Operating Systems. Firstly because this is a technology which is available to anyone who has an Internet access and because his use is totally free. His economical model is based on the advertisement it will provide to the company in exchange and the revenues which come from the ads which are posted in. What is very interesting to see with “Live Search” is that it has a technology which is far more recent that its three main competitors which concretely means that it has a technology which is below the others. Microsoft often played the follower position regarding R&D. It however has 4th comfortable position whereas other competitors such as Lycos or Ask(two other small competitors) have better technologies, the reason is because Microsoft is not using the main distribution channel. So the distribution channel examples I am going to give you are very interesting because they show how to distribute a bad product to the all world, how avoiding competitors and how to force people to use a product they do not want.
  • 12. I until now counted 5 distribution channels for Live Search: The first one which comes into my mind is Internet. You can use it in an indirect way(you go to a website which have a link toward it: catalog, blog, websites) or you can directly type the Internet address. The second one is through Web applications: Last one in date is the partnership with Facebook the number one social web network application. Microsoft invested in 2007 240 millions of dollars in Facebook shares. It seems that this large investment contribute to the acceptation of this partnership. So now concretely when people are using the Facebook application on Internet they can look for information through the web without leaving the application. http://www.readwriteweb.com/archives/facebook_integrate_microsof_live_search.ph p This partnership has been sat up in July 2008. Facebook is only one example among others. This is a channel which is very fashionable for example you can see on the portal of the university of Kassel that it is Google search engine which is included. The Kassel university website is then a distributor of Google. Through his own products and services: Here is a very interesting channel because it is not that used by its competitors. The reason is that you need for this to have a wide range of products and services and that they produce a dependence on you. For example Hotmail(Free Microsoft Webmail services) which has more than 260 millions users includes Live Search. http://en.wikipedia.org/wiki/Hotmail#cite_note-users-2 Same thing if you launch some research from Microsoft Office. We can imagine the impact of such a channel when you have as Microsoft a huge number of users of his products and services which of course do not end here because Microsoft provide a very wide range of other software and services such as blog(space.live), instant mail exchanges(MSN). So even if you are not providing the best service you can get an important audience.“No matter what are the characteristics of the product it is before all a question of how you can show you off.” The fourth Channel is the one of software. The last example in date is the one of the Java software("Java is installed on 800 millions of computers in the world, then 91% of the computers which have an Internet connection"), November the 10th 2008. Which one download users will have the possibility to download what we call the Microsoft research bar http://benefice-net.branchez- vous.com/actubn/2008/11/le_moteur_de_recherche_de_micr.html
  • 13. The last one is the hardware distribution. This is as well a very important distribution channel which is moreover very dynamic with the rising up of the mobile technology. Two years ago Live Search made a partnership with Nokia the cell phone maker in order to include his technology as default search engine: http://www.numerique.ca/production-site-internet/actualite-160-live-search-sur-les- telephones-nokia.cfm Of course such partnerships have already been developed with computers, for example recently Microsoft did a partnership with Hewlett Packard to set up their search engine by default on the computers they sold in the USA and in Canada: http://benefice-net.branchez- vous.com/actubn/2008/06/lengin_de_recherche_de_microso.html "According to a Microsoft analyst, 40% of Internet users use the search engine installed by default on their computer” even if by reputation Microsoft statements have for reputation to not be that accurate it is for sure a distribution channel that we cannot deny is strongly efficient. What is very important to highlight is that the four last distribution channels are imposed whereas for the first one you are free to choose it or not. II – 1.2.1 Weaknesses and Strengths of Live Search distribution Weaknesses: Not giving the choice to people can increase their unsatisfaction. Let's imagine that they are forced to use Live Search and that they discover that the results coming from one of his competitor is better then they will really have the feeling that Microsoft is cheating them by not giving them the possibility to change. So Microsoft has to provide an equal or a better technology in order to handle this problem. It can jeopardize his image and moreover provide general unsatisfaction. Strenghts: Microsoft has a definitely strong advantage on some distribution channels: it can afford very large investments so strategical partnerships, it has a wide range of well known software and applications. He can go above unavoidable barriers that its competitors cannot overcome such as nationalism like in Russia or China. Here it is his channel of his own products that it will use. You can avoid Google but you cannot avoid Microsoft. III- Conclusion: Suggestions for future developments
  • 14. Regarding Microsoft Windows: It is hard to say something because Windows is the world leader regarding this product. They however made some mistakes regarding the launch of the netbooks. They taught that it was not a profitable market which actually is right but it should not be Microsoft priority. They should better think about their image and market shares rather than profits. Since some years Mac OS and Linux distributions are getting more and more market shares. Mac OS does not seem to jeopardize Windows because they do not play on the same market. However with the netbook market(low cost computers) gave a great opportunity for Linux to be known. I do not think that customers are ready to switch from Windows to Linux, on a short term period Linux has no chance, but the thing is if Linux came to be more and more known then people will be curious and then Microsoft could lost more market shares. The recent example of the Eee PC. Equipping Linux on a computer costs about $5, compared with $40 to $50 for XP and about $100 for Vista, according to estimates by Jenny Lai, a Taipei-based analyst at CLSA Ltd.' according to http://mobile.slashdot.org/article.pl?sid=08/11/08/1842212 Regarding Live Search: Here I find that the distribution channels are perfect, actually Microsoft has the reputation to be very good tactician. I however really think that it is time now for them to care about quality and image. They are for me by using their lock in strategy focusing too much more on dependence profiting of their monopolistic position and they have to be very careful about it. Because once a customer feels cheated if you let him one opportunity to escape he will took it. And this reverse situation could happen far faster than we think because Google is coming on Microsoft market with a far more better image on customer's point of view. In order to conclude I would like to use two sentences that one told me one day about Microsoft: “Bill Gates was not the best computer programmer but a genius of marketing.” “I do not think that a company such as Microsoft can think one day to close” Those two sentences that I got from my elder brother and from an
  • 15. employee at my last internship company(both computer programmers) are the reflect of nowadays Microsoft's situation. All here is about distribution channels. Microsoft is leader and will stay the leader during a long time because it has a monopole on this distribution and because it can afford ways that others cannot. I however think that Microsoft should start to think about his image for a long term strategy.
  • 16. Glossary Operating System: An operating system (commonly abbreviated OS and O/S) is the software component of a computer system that is responsible for the management and coordination of activities and the sharing of the limited resources of the computer. Microsoft Suite Office: Microsoft Office is a set of interrelated desktop applications, servers and services, collectively referred to as an office suite, for the Microsoft Windows and Mac OS X operating systems. The most famous applications it contains are: Excel, Word, Access and PowerPoint. Netbook: A netbook is a small to medium sized, light-weight, low-cost, energy- efficient laptop, generally optimized for internet based services such as web browsing and e-mailing.
  • 17. Sources http://www.microsoft.com/france/windows/products/windowsvista/buyorupgrade/win dowsanytimeupgrade/overview.mspx http://en.wikipedia.org/wiki/Operating_system http://en.wikipedia.org/wiki/Microsoft_Office http://en.wikipedia.org/wiki/Windows_Vista#Editions http://en.wikipedia.org/wiki/Ubuntu http://en.wikipedia.org/wiki/Live_Search#cite_note-0 http://en.wikipedia.org/wiki/Netbook http://en.wikipedia.org/wiki/Bill_Gates http://hardware.slashdot.org/article.pl?sid=08/10/04/1827200 http://www.thestandard.com/news/2008/11/09/netbooks-opportunity-windows-and- threat-linux http://laptop.org/en/index.shtml