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Presentation on the state of Microsoft circa 2004

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  • QDOS written by Tim Patterson
  • Sales—about 32 billion
    Net income—approx. 10 billion
  • Annual Sales-for Microsoft, approximately 32 billion USD, as compared to IBM’s 89 billion.
    Market capitalization-total value of the company’s stock (=total number of shares*current price per share), the value placed on the company by investors. This perceived value is largely due to the expectations for the company’s future, not the size of the company. Microsoft’s market cap is approximately 298 billion USD. All of these 4 companies are “large-cap” companies—their stock is valued at over 10 billion.
  • Bill Gates: The term Digital Nervous System talks about a company taking the approach of getting all their information to be easily available and really empowering their workers. It combines the latest PC, Internet and communications technologies, but far more important than that is the processes you build around digital activities. For example, capturing all the information about customers and taking full advantage of that. For example, being able to allow teams to come together even when they're in different locations or even if they don't work for your company but they're a partner company. That kind of capability can only come with a comprehensive plan for the company to build a Digital Nervous System.
  • Virus attacks damage Microsoft in two ways: they drive customers to rival software and pull resources away from the development of Longhorn (an OS).
    Antitrust: US government prosecuted Microsoft, and the initial ruling (to split Microsoft into two companies) was struck down. Under the terms of the tentative settlement between Microsoft and the US Justice Department Microsoft agreed to license its Windows OSs, cease to offer exclusive contracts with manufacturers, and allow competing software to be included with its OSs. Microsoft also reached settlement agreements with Netscape and Sun. There’s still an ongoing investigation with the European Union.
  • briefly talk about the first 4, move to the next few slides to discuss “rivalry among competing firms”
    1. Threat of new entrants—not very high, since the barriers to entry are significant. New entrants would have to compete with the existing firms’ scale economies, as well as customer loyalty to existing firms’ products. Moreover, the switching costs needed to induce the consumers to try the new product would probably be high, and the existing competitors can be expected to retaliate.
    2. Bargaining power of suppliers—not very significant. Microsoft is relatively self-sufficient in producing its software. As for its non-software products, although Microsoft has to rely on other entities such as chip manufacturers for its networking equipment and Nvidia for its X-box, the supplier bargaining power is not high because of the competition for Microsoft’s business (firms engage in price competition to be Microsoft’s supplier).
    3. Bargaining power of buyers: Relatively high because of the intense competition among the firms in the industry (ex: Linux). However, for specific products—operating systems, for example—the switching costs for the buyers may be such as to prevent them from selecting a competing product (this reduces the consumers’ bargaining power). The switching costs would be higher for larger companies.
    4. Threat of substitute products: High, especially in this industry where technology is changing extremely rapidly, a release of a new product may trigger a wave of release of similar or improved products by competing firms. Microsoft actually used it as an argument in the antitrust cases.
  • Apple making fun of Microsoft’s latest version of Windows (Longhorn).
  • Goal of diversification: to transform from a software provider company into a broader technology services and media company
  • LOS ANGELES, July 14 /PRNewswire/ -- IBM, Intel Corporation, Microsoft, Panasonic (Matsushita Electric), Sony, Toshiba, The Walt Disney Company, and Warner Bros. Studios today announced the formation of Advanced Access Content System License Administrator (AACS LA), a cross-industry effort that develops, promotes and licenses technology designed to enhance digital entertainment experiences. This technology will facilitate the ability to enjoy exciting, new, flexible entertainment experiences for consumers in stand-alone, networked home and portable devices.
    AACS LA is developing ADVANCED ACCESS CONTENT SYSTEM, a specification for managing content stored on the next generation of prerecorded and recordable optical media for consumer use with PCs and CE devices. ADVANCED ACCESS CONTENT SYSTEM will complement new innovations in the next-generation of optical discs, and enable consumers to enjoy next-generation content, including high-definition content.
    Today, Microsoft's Automotive Business Unit and European automaker Fiat Auto announced a long-term strategic partnership to design a high-quality, affordable telematics system for Fiat cars. The largest in-car computing deal in Microsoft's eight-year automotive history, the partnership marks an important step in the evolution of the company's work with automakers. For the first time, Microsoft will work directly with an OEM (original equipment manufacturer) for the development of a complete in-car computing solution while continuing to supply its core Windows Automotive operating system to the telematics industry worldwide.
    Telematics technology, which connects cars and their occupants to off-board information services by means of wireless communication technologies and the Internet, is integrated into a growing number of cars on the road today. Imagine being able to listen to digital music from your Windows Mobile device or media player, knowing the traffic conditions ahead, or pulling into a gas station with the lowest prices in town -- every time. This kind of telematics technology transforms the vehicle into a mobile extension of real life, not a cocoon that insulates drivers from the world around them.
    As a result of their co-development efforts, Fiat and Microsoft plan to introduce the first vehicles with the new telematics system in 2005. Soon, more drivers and passengers will be able to experience hands-free calling, GPS navigation, in-car entertainment and enhanced diagnostics. In addition, Bluetooth connectivity and advanced speech technology will allow motorists to command the systems, as well as their phones and PDAs, hands-free using the power of their voice. Fiat Auto plans to integrate Microsoft's Windows Automotive technology across all Fiat, Lancia and Alfa Romeo models.
  • Microsoft

    1. 1. Microsoft: Strategy and Position Brian Wells, MPH
    2. 2. The Early Computer Environment • “I think there is a world market for maybe five computers” - Thomas Watson, chairman of IBM, 1943 • “There is no reason anyone would want a computer in their home” - Ken Olson, President, Chairman and Founder of Digital Equipment Corp., 1977
    3. 3. Company History • Founded as a partnership in 1975 and incorporated in 1981 • 1980 - Microsoft purchases Seattle Computer’s SC- DOS (QDOS) and renames it MS-DOS • Microsoft and IBM helped start the modern PC era • Introduced Windows in the mid-1980s to challenge Apple’s GUI • Went public in 1986 • 1993 - Microsoft introduces Windows NT • Early 1990s - Monopoly charges against Microsoft and prevented a $1.5B acquisition of Intuit
    4. 4. Company History • 1995 - Microsoft’s launched MSN • 1997 – Sun sues Microsoft for creating an incompatible version of Java • Microsoft responded by dropping Java from Windows XP • 1997 – Microsoft purchases WebTV • 1998 – US Justice Department and 18 states file antitrust charges against Microsoft • 1999 – Microsoft invests $5B for a stake in AT&T to help acquire MediaOne – Microsoft also buys Visio for $1.3B
    5. 5. Company History • 2000 – Gates resigns as CEO and appoints longtime friend Steve Ballmer • 2001 – Federal Appeals Court struck down an order to break up Microsoft • 2002 – Netscape files suit against Microsoft for antitrust • 2003 – Microsoft settles suit with Netscape and agrees to pay AOL $750M
    6. 6. Microsoft Today Company Mission: To enable people and businesses throughout the world to realize their full potential. Microsoft Advertising Campaign
    7. 7. Microsoft Today • World’s largest producer of software for PCs and other devices – Microsoft develops, manufactures, licenses, and supports its broad line of products – Microsoft has offices in more than 80 countries • Key people: – William H. Gates III (Chairman and Chief Software Architect) – Steven A. Ballmer (CEO and Director)
    8. 8. Microsoft Today • Some of Microsoft’s products: – Access – Excel – MS Office – FrontPage – Outlook – Project – Microsoft Network (MSN) – Flight Simulator – Many, many more
    9. 9. Microsoft Today • Company Financials – Sales for 2003: $32,187 mil. • 72% in US • 28% in other countries – Net Income in 2003: $9,993 mil. • Company Personnel – In 2003, Microsoft employed 55,000 people
    10. 10. Microsoft Today • Microsoft and its top competitors – Annual sales • Microsoft-$32B • IBM-$89B • Oracle-$10B • Time Warner-$38B – Market Capitalization • Microsoft-$298B • IBM-$141B • Oracle-$56B • Time Warner-$79B Microsoft IBM Oracle Time Warner Microsoft IBM Oracle Time Warner
    11. 11. Core Competencies and Competitive Advantages • Microsoft performs many operations well • Employee empowerment and compensation • Customer Support – Microsoft Knowledge Base • Digital Nervous System • Large installed product base
    12. 12. Core Competencies and Competitive Advantages • No close competitors for the desktop operating system market • Microsoft’s Active Directory provides functionality throughout its server products thus simplifying management • Many of its products are considered the standard by information technology managers (Office, Exchange, SQL, etc.) • $50B+ cash reserve
    13. 13. Business Strategy • Development and introduction of a wide variety of new software products • Achievement of market acceptance of these products • Constant enhancement of existing products • Focus on satisfying customer requirements
    14. 14. Strategic Problems • Slower growth and stagnant stock price— Microsoft’s core markets are maturing • Anti-trust cases – Microsoft has to tread lightly with future strategy and acquisitions • Microsoft often represents a target for viruses • Microsoft software remains plagued by security problems • No clear solution to the emerging Linux problem “It’s not a bug, it’s a feature!”
    15. 15. Strategic Problems • Microsoft is often seen as an imitator, not an innovator Win95 “Innovation” Actual Origin Icons on desktop Xerox (1981) Long File Names UNIX (1979) Taskbar HP Vue Right-button menus Sun SunView DCOM Xerox Alto; RPC (1981) Internetworking TCP/IP UNIX (1982) Start Menu Apple Menu (1982)
    16. 16. Five Forces Model of Competition
    17. 17. Competitive Landscape • Main competitors: – IBM – Oracle – Time Warner • Other competitors: – Apple Computers – Hewlett-Packard – Novell – Logitech – Sun Microsystems – etc
    18. 18. Competitors • Linux represents a rising threat – More companies using threat of Linux when negotiating with Microsoft – Key advantage for Microsoft – switching costs – Linux may be more cost-effective for small companies but the switching, training, and software costs for large companies could be prohibitive – Linux advocates support for Microsoft’s anti-Linux strategy as it increases Linux awareness
    19. 19. Competitors • Apple – Rival platform to PC and thus rival OS • Apple plans to release its latest, advanced OS Tiger in the first half of 2005, a year before Longhorn – Apple targeted less by viruses and malware than Windows – Apple has far smaller market share (~5%) – Apple has been very successful in the online music and portable music markets
    20. 20. Competitors
    21. 21. Emerging Business Strategy Response to Competition • Diversification of its core software business – “We’re taking everything we know about the PC and applying it to smart, mobile devices, to the Internet, and to gaming.” - Bill Gates • Aggressive pursuit of equity investments, joint ventures, and strategic alliances
    22. 22. New Ventures: Products • New Windows Operating system (“Longhorn”) and applications • Emerging mobile PC market (smartphones, PDAs) • New X-Box – console and online gaming • Advanced Access Content System License Administrator • Continued Research and Development - .NET architecture • Tablet PC—full-featured, powerful, highly mobile laptop, with applications such as pen and speech capabilities
    23. 23. New Ventures: Alliances, etc • Microsoft and Fiat Auto Partner for Major Telematics Deal • Microsoft invested $5 billion in AT&T • To promote MSN Mobile, Microsoft bought 16.67 million shares of Nextel Communications • Microsoft formed joint ventures with NBC – It now owns 50% of MSNBC Cable L.L.C. and 50% of MSNBC Interactive News L.L.C.
    24. 24. New Ventures "One thing I love about this [decade] is this is a period where the reality is driving the expectation.” - Bill Gates, 2004 International Consumer Electronics Show Keynote
    25. 25. Concluding Thoughts • Microsoft remains in an excellent position to dominate the market • Emerging threats and competitors remain a concern • Legal problems continue but seem to be subsiding “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.” - Bill Gates, The Road Ahead
    26. 26. “It’s tough to make predictions, especially about the future” - Yogi Berra
    27. 27. Sources • Research under fire in Microsoft/Linux Debate: news/article.php/3297361 • Interview with Steve Ballmer: %27take+Sony%27/2008-1082_3-5268571.html?tag=nefd.lede • Microsoft PressPass: 15MSABUFiat.asp • Cross-Industry Alliance to Facilitate Compelling New Consumer Entertainment Experiences: • Microsoft Case Study: Anderson, Jamie. “Microsoft.” London Business School. April 2002. • Microsoft Corporation: • Microsoft News: • BusinessWeek Online Technology Commentary: action=FilterSearch&filter=bwfilt.hts&QueryText=microsoft&x=10&y=11
    28. 28. Questions? Comments? Observations?