Microsoft's diversification strategy and business expansion

Microsoft Diversification Strategy

Define the competitive rivalry that Microsoft can anticipate in its business units.

Each of the three Microsoft divisions mentioned in the case study, the Platform Products and Service Division, the Business Division responsible for Microsoft Office and Business Solutions, and the Home and Entertainment Division, responsible for managing the Mobile and Embedded Devices and Entertainment Group all have significantly different competitive dynamics confronting their business models. For the Platform Products and Service Division there are competitive pressures both from large-scale enterprise competitors including IBM, Oracle and SAP, both of which through mergers and acquisitions are positioning themselves as the platforms of the future through their use of SOA-based architectures. IBM's WebSphere, Oracle's Fusion, and SAP's NetWeaver SOA architectures are squarely aimed at the Microsoft.NET architecture. The competitive focus of these enterprise software companies is on dominating the Fortune 1,000 purchasing cycles for Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Human Resources Management (HRM) applications. The SOA framework would allow for business processes across the many functional areas of an organization to share data, and once this is achieved there is a very high switching costs for companies to change. To win a given company's SOA business is to win them for a long time, hence the strong competition on this area of each company's competitive strategy. Converse to this, the Platform Products and Service Division is also being assailed by Red Hat and a host of other smaller competitors who deliver licensed versions of the Linux operating system. Many of these competitors are distributing Linux at little or no cost, looking to make money on maintenance over the long-term. Even more fundamental to this dynamic of Linux distributions being provided to customers at little if any charge, there is an egalitarian ethic that pervades open source software. As a quote attributed to George Colony in the case study indicates, CEO and Microsoft Founder Bill gates can compete with other companies who charge for software yet cannot compete with another company that delivers software for free. In that quote is the paradox Microsoft is facing in competing against Red Hat and the host of open source operating system vendors.

The Business Division which is the office automation, or as Microsoft calls it, the personal productivity segments, concentrates on Office and Business Solutions. The competitors that this division faces are coming from Google, Yahoo and other hosted application service providers who see Microsoft Office as a very significant installed base to capitalize on and gain incremental users from. In addition to the Web-based application providers including Google and Yahoo that are looking to extend their services by offering hosted office automation applications present a very formidable competitive threat to Microsoft. There are the open source vendors including Red Hat that have open source office automation applications that also form an entirely different type of competitive threat to Microsoft within this product division. Thirdly, the pervasiveness of Web 2.0 technologies and the advent of social computing also known of as social networking show the potential to re-order how communication and collaboration are achieved both individually and within groups. This presents an even more ominous competitive threat to all packaged applications including Microsoft Office and many others. The Great Plains acquisition in this division also opens it up to competition with enterprise software vendors who also sell enterprise applications as well. These include Oracle and SAP, who are transitioning from stand-alone enterprise applications into a broader SAO platform architecture.

The Home and Entertainment Division which includes the Mobile and Embedded Devices and Entertainment Group is also dealing with fundamental re-orderings of the technologies and industries that support their go-to-market strategies, future product development plans, and most importantly, expectations of customers. The convergence of digital, voice, entertainment and educational content within the context of home and work is a dynamic so large that not single vendor will be able to completely react to it. Competitors including Apple and Sony are challenging Microsoft in both sectors of this division and Yahoo with their focus on DRM on music is mentioned in the context of the case study of attempting to compete with Microsoft in this area as well. The Xbox 360 business model where the hardware platform is the basis for creating strong software sales-through for games is an area that needs more execution focus by Microsoft to make it as effective as possible as well. Thirdly there is the broader dynamic of how social computing is completely re-ordering the competitive dynamics of the two sectors that comprise this division as well.

a. Determine the extent to which Microsoft competes with other companies in its industry by assessing the levels of market commonality and resources similarity for each major competitor.

Microsoft's levels of commonality and resources similarity with other competitors are relegated to those companies who have the ability to scale enterprise-wide with systems, whether those enterprises are companies or state, regional or national governments. The future of Microsoft's competitive strength is in the.NET platform and its scalability, integration flexibility and reliability as an SOA architecture of choice for enterprises. All other aspects of development within Microsoft are centered on.NET as the basis of creating integration links to.NET, so that from any given Microsoft Office document to a wireless connection from a PDA, to the integration of enterprise applications, all can be coordination, synchronized on the.NET SOA architecture. IBM's WebSphere, Oracle's Fusion, and SAP's NetWeaver have comparable levels of scalability, integration potential and reliability. For Microsoft to be challenged corporate wide, any given competitor would need to have this level of integration inherent across all systems, software and functional components and by having this, would challenge Microsoft at the resource level as well. Another way of looking at this is that any given competitor which can produce an SOA architecture and integrate it with enterprise applications has the necessary resources to also support its continual fine-tuning and development.

In terms of market commonality, the most critical business for Microsoft is it Office product line. The market commonality between Office and open source vendors presents the most significant strategic threats to profits that Microsoft is facing today. A secondary factor from a commonality standpoint is the continued development and refinement of server-based applications that run on the Linux operating system. This is a critically important area of competitive commonality for Microsoft as well.

b. Evaluate the drivers that will influence each of the competitors' actions and responses.

Apple

Foremost for this competitor are the drivers of customer loyalty and the need to continually protect its unique iTunes strategy that includes the build-out of music and video editing on its PCs and servers. The secondary factor is the fact that Apple has its down desktop and laptop operating system which has features that put it ahead of Microsoft specifically in the area of graphic design. The continued focus on innovation to keep their customers loyal is the most critical driver for Apple. The secondary concern is how to create greater value at the operating system level compared to Microsoft and extend superiority in this regard.