Econ344
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Microsoft was founded in 1975 and is best known for its Windows operating system and Office software suite. It has struggled in recent years to keep up with competitors as leadership has rejected innovative projects. Some of Microsoft's failed consumer products include the Kin smartphone, which was discontinued just 48 days after launch, and the Courier tablet, which was never released. The company also struggled to gain traction in the mobile space with products like the Zune music player.
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Econ344
- 3. About Microsoft • Created in 1975 by Paul Allen and Bill Gates • Two main products: • Other products:
- 4. Microsoft’s Current CEO Steve Ballmer
- 5. 5W 1H • Who – Microsoft • What – Falling behind its competitors • When – January of 2000 • Where – Worldwide • Why – Leadership that is afraid to take risk • How – Innovative projects are being rejected
- 6. The P’s of Marketing • Product – Windows Operating System • Price – Upgrades start from $130, Full versions start from $230 • Promotion – Not much promotion needed as it comes standard with all PCs; “I’m a PC and Windows 7 was my idea” commercials • Place – Downloaded online, purchased in stores, pre-installed
- 7. BCG Matrix
- 8. The 5 C’s of Pricing • Customers- Customers are very elastic to prices. If set too high, they will get hardware & software through other means. • Costs- High initial cost to develop. Low cost to produce. • Competition- Practically monopolizing in PC operating system. • Channel Members- Relatively consistent between channels, with some special pricing. • Company Objectives- Lowering prices and therefore cutting profit margins ; Offering versions of Office for free to compete with Google's Clouding applications suite
- 9. Porter’s Five Forces 1. Threat of New Entrants • Windows is the standard operating system in PCs • Customer Loyalty to Microsoft • Global brand name recognition • Development costs 2. Power of Suppliers • Not much due to Microsoft monopoly • No substitutes for PC manufacturers • Included in every out-of-the-box PC sold
- 10. Porter’s Five Forces (cont.) 3. Power of Buyers • Not much due to Microsoft’s monopoly on the PC • More buyers = less purchasing power per person 4. Availability of Substitutes • Not many comparable products • Mac OS (Inconvenient to completely change the computer hardware) • Linux (Not user friendly and does not come preloaded)
- 11. Porter’s Five Forces (cont.) 5. Competitive Rivalry • Computer O.S: - Windows vs Mac OS vs Linux • Smartphone O.S: - Windows Phone 7 v iOS(Apple) vs Android (Google) • Web Browsers: - Internet Explorer vs Firefox vs Chrome • Game Consoles: - Xbox 360 vs Sony PS3 vs Nintendo Wii
- 12. SWOT Analysis Strengths: • Pioneers of the computer industry • Global name recognition and strong reputation • One of the most established IT brands in the world • Diverse market of products Weaknesses: • Lack of recent innovation • Bad public perception • Software compatibility issues • Bugs and no open source
- 13. SWOT Analysis Opportunities: • Demand for PCs remains strong • Increasing market of computer users • Smartphone market with Windows Phone 7 • Game design, development, publishing, and production of game consoles Threats: • Apple and Linux • Rapid development of mobile devices replacing PCs • Software piracy • Open source software
- 14. Market Size, Market Penetration, and Market Share
- 15. 1.38% 1.07% Operating System for Computers February, 2012 4.38% 1.75% 6.40% Windows Mac iOS Android 85.01% Linux Other Month Windows Mac iOS Android Linux Other April, 2011 88.91% 5.40% 2.24% 0.66% 0.94% 1.85% August, 2011 86.58% 5.62% 3.38% 1.02% 1.00% 2.41% October, 2011 86.49% 6.54% 3.40% 1.04% 1.12% 1.41% February, 2012 85.01% 6.40% 4.38% 1.38% 1.07% 1.75%
- 16. • Courier • Kin • IE • XBox • Zune • Bing • Skype
- 17. February, 2012 0.51% 1.70% 4.24% 5.92% Google - 11.95% Global Baidu Yahoo - Global Bing 75.68%
- 18. • In both the Mobile OS market and the Mobile Maker market; Microsoft’s attempt’s in Market Pentration have been failures • Microsoft released the Kin in April 2010. • The phones were stylish • at a minimum cost of $70 a month D • Device aimed at – It didn't have instant messaging – it couldn't play YouTube videos – users couldn't buy online games. • Only 48 days after the Kin hit stores, Microsoft discontinued the sales • Spent 1-2 billion on R&D into the Kin
- 20. Consumer Reaction • "There's no chance that the iPhone is going to get any • Xbox significant market share“ • Courier was never launched • Skype • Zune was a commercial failure • MS Word discontinued Oct 2011 • Kin: discontinued just 48 days • MS Windows after launch
Editor's Notes
- IntroductionTo warn investors and the Microsoft board that the company is becoming increasingly more rigid.The company is no longer able to spot technological trends due to a leader that is unwilling to take risk by funding innovative projects. The company has become almost entirely dependent on its Window OS and related services.Who·Microsoft1975 – Started as a partnership when Bill Gates & Paul Allen developed the Altair BASIC - first computer language program for a personal computer. 1976 company grew to 6 people.80s and 90s encountered significant growth, introduced Microsoft Windows, Microsoft Office, internet explorer.What·Microsoft is falling behind in its competitors and losing significant market shares“Our early and clear vision not withstanding, execution [by competitors] has surpassed our own.” - Ray Ozzie, former chief strategy officer, MicrosoftHas not been able introduce any products or services that wowed the consumers like it did in the 80s and 90sStock price has remained tethered to $25 a share, while Apple’s stock is worth 20 times more than it did in 2002When·Since Steve Ballmer became the CEO of Microsoft in January of 2000Where·World wideWhy·Leadership is afraid of taking risk - Only the products favoured by its board (has an Windows OS) are developedEx) “Kin” ($1 billion investment) Microsoft acquired a fast growing mobile-technology company ‘Danger’ in 2008. Initially the Danger team believed that Microsoft will help their business grow, most of them ended up developing a new Windows-based phone called “Kin”. The product was discontinued 48 days after it was launched. How·Innovative projects that deviated away from Window OS are being rejectedEx) “Courier”The Courier was a secret prototype device developed inside Microsoft during 2009.It had it’s own operating system, which was built on top of Windows (similar to the Apple’s take on the iPhone and iPad with a new operating platform based on Mac OS X). When Robbie Bach, the lead for Microsoft’s entertainment and devices division presented the idea to Ballmer, Ballmer denied extra funding and he cancelled the project, deeming a product that could have potentially challenged the iPad, unnecessary.
- Mr. Mo, I know you’ve been particularly interested in Microsoft’s Windows division, and that you’re considering creating a competing product. I’ll be telling you what I know in terms of Microsoft’s marketing specifically for Windows, and maybe you’ll reconsider. Product: The product, I’m sure you’re well educated with, is the Windows Operating system, which is the standard operating system that comes loaded with all PCs. In 2011 generated $18 billion in revenue ($13 billion profits) in 2010. Price: Microsoft offers three different versions of their latest operating system, Windows 7. And these come at different price points. Home, Professional, and Ultimate. To upgrade from Vista to Windows 7 Home edition, one would need to pay $130 for. If one has an older operating system, they will need to buy the full version of Windows 7 which starts at $230.- Priced very high, and sometimes its more worth it to buy a new computer that comes preloaded with Windows 7. If you’re considering releasing an operating system, take note of those prices. Promotion: Not much promotion needed because it comes pre-installed in most operating systems. Windows is also a household name. When a new operating system comes out, Microsoft like to push out on promotions. For example, "I'm a PC and Windows 7 was my idea” commercials were created to teach people about the new features offered in Windows 7.Place: Very convenient for consumers to access and obtain a copy of. There are a variety of methods of distributions.Can be downloaded instantly and legally (free for uWaterloo students) (http://ist.uwaterloo.ca/admin/softwareforstudents.html)Purchased in storesThis convenience really helps with distribution. Someone on the other side of the world can obtain a copy without even leaving their house.
- Now I’m going to move onto Microsoft’s BCG matrix. Here are some of the more famous Microsoft products categorized into four categories. Hopefully this information can help you see where Microsoft excels and where theres opportunity for AppleSoft to enter. Question Marks- The Kinect was introduced towards the end of 2010 (motion sensor device to accompany the Xbox 360 that made games much more interactive and introduced a new way to play). Within the first 60 days of release, Microsoft sold 8 million Kinect Devices. What makes this a Question Mark product for Microsoft is its current market share, which is still small compared to its potential. Microsoft can only sell as many Kinects as there are Xboxs sold, so there is much room for growth for the product. Stars- As of 2011, Microsoft sold 57 million Xbox 360 units. They faced a slight decline in sales over the years prior to release, however the release of Kinect helped Xbox sales surge once. In the US as of June 2011, the Xbox 360 had a 48% market share among current-generation gaming consoles (among Wii and PS3). Cash Cows- Windows and Microsoft Office are both cash cows. In the second half of 2011, Microsoft earned $12 billion in revenue from their Business Division, most of which comes from Office. Windows earned $9.6 billion. In terms of market share, these two products products own a huge share of their respective market. Microsoft is able invest the money they generate from these two products to finance new projects. Dogs- Microsoft’s search engine, Bing, has a huge competitor – Google. Globally, Bing only has around 4.4% of the search engine market share while Google is leading by a huge margin. According to analysts, Microsoft is spending $3 for every $1 they earn from their search engine. (http://articles.businessinsider.com/2011-04-29/tech/29982304_1_bing-search-microsoft-s-bing-traffic-acquisition). The small market share, high costs, in a slow growing industry makes Bing a dog product. Segment Revenues - http://www.microsoft.com/investor/EarningsAndFinancials/Financials/FY12/Q1/SegmentRevenues.aspx
- Pricing strategy for Microsoft's software (not just operating system(Customers-Costs-Competition-Channel Members- Different pricing for different consumers. But common channel members include retailers worldwide, wholesalers worldwide, industrial distributors worldwide. Pricing, and hence revenue variances attached to different channels exist. i.e. Students getting Windows 7 downloaded for free through the school's provided website; wholesalers provide office computing solution to businessesCompany Objectives- http://www.businessweek.com/magazine/content/09_30/b4140051491507.htm
- From April of last year until February, the percentage of Window’s market share drops from 88.91% 85.01%However that is a tremendous market share size for Microsoft
- Now let’s take a look at some other products/services that Microsoft has developed and their successCourier; probably have never heard of this product (attempt to break into tablet market)Was never released by MicrosoftKin; also a failure (get into this later)Products like Zune, Bing didn’t provide to customer needs and lacked innovation (Zune could not read foreign characters [cutting off their market segment]Produdcts with more innovation were much more successful: Skype’s unique video interaction & free calling makes it easier for customers to communicate with people all over the world. Xbox things like Kinect and its m
- Market penetration & Market sizeWhen Microsoft attempted to break into the search engine sector- only 4.24% of market share behind Yahoo, Baidu and of course Google- Google is TOO dominant
- With Microsoft’s innovation in Xbox with features such as Kinect, and variety of games such as great FPS and Halo games their market share in the video console market segment actually have increased in the past year.
- Rather than trying to compete with corporations like Google and Apple in segments that they already dominate such as tablets, smartphones and search engines; Microsoft should focus more on their core competencies like developing software for businessesEven Google and Apple are catching on with Google docs that allows multiple users to edit and stored in the cloudMicrosoft needs to innovate rather than maintaining their current functionalities Because other companies will catch on and build something better off of this and slowly move away from Microsoft CEO Steve Ballmer is not willing to listen to customer & employee ideas;That’s why so many employees have left their jobs at Microsoft and took their ideas Dismissing suggestions with remarks like“the second most crazy idea I have ever heard.”