Selling enterprise software with channel partners requires Microsoft to create a separate department just for training, coordination of pricing and product requests, and also define entirely new delivery platforms for the applications as well. The Software-as-a-Service (SaaS) platform has been legitimized by Salesforce.com. Microsoft is reinventing itself to in this area so they can better sell with resellers and partners, and also better capitalize on the growing popularity of the SaaS platform as a delivery option for their software. The catalyst of these major shifts in strategy is a direct result of the global recession drastically slowing down the sales of enterprise software.
Open Source Competition
By far the most strategic threat to Microsoft is open source software. There are many business models that open source software vendors use and rely on, with the most prevalent being the requirement of a one-time price to purchase the application and optional yearly maintenance fee (Bitzer, Schroder, 2007). When the U.S. recession began in 2007 and through 2010 entire companies has chosen to standardize on open source due to its low cost and no yearly license fees, a strategy Microsoft has used for decades in enterprise accounts to ensure recurring revenue streams. Open source accelerated the effects of a bad economy on Microsoft's financial condition and also began to chip away at its leadership in databases as well.
The open source operating systems market is one that has several companies all vying for enterprises, or large businesses, to standardize on them. Taken together all of these open source operating system vendors are targeting the high maintenance fees Microsoft requires as a way to get new business. This continues to be a very effective strategy for the open source competitors globally Microsoft has. In addition, this strategy has also paid off very well for competitors looking to take customers away from Microsoft in the areas of office automation and database applications as well. The strategy of competing not head-on with Microsoft in these markets but with their pricing policies and the complexity of them continues to just amplify the effects of the recession on this area of Microsoft's business (Ebert, 2008).
In response Microsoft initially began antitrust proceedings and attempted to sue their open source competitors alleging copyright infringement and in one case, collusion. When the courts came down on the side of the open source vendors for being a catalyst of more competition that directly benefited to customers, Microsoft backed off their legal strategy and accelerated the development of over 100 different integration modules. The recession also forced Microsoft to begin to re-evaluate their pricing strategies on Microsoft Office and their database applications including SQL Server. As a result of the combined effect of competitive pressure from open source vendors and the economy making open source pricing and simplified licensing approaches more attract to customers, Microsoft had no choice but attempt to integrate to them if they wanted to retain their customer base. This was accelerated over the last twenty four months as it was evident that global economies were headed for a prolonged recession.
Thesis: (Microsoft has drastically accelerated their product development and product introduction plans in three core areas of their business in response to the worsening economic condition globally. These three areas of focus include online advertising, enterprise applications, and open source operating systems including Linux and OpenOffice, an open source and license-free competitor to Microsoft Office.) From the analysis presented in this paper it is clear how dependent Microsoft is on a stable economy for growth. Only a small percentage of the company's many product divisions have long-term recurring revenue stream associated with them, and as a result when the economy worsens it impacts Microsoft exceptionally fast. In the case of the online advertising business models the company has continually tried to implement, the formidable competition from Google has amplified the effects of a down economy. The battle of talented engineers continues with Google winning often due to their culture being more oriented towards freedom to innovate. The global economic slowdown has made Microsoft concentrate on partnerships in this area; a strategy the company rarely took on during more economically stringer times. A second area where the economic conditions globally have hit Microsoft particularly hard is in enterprise server and application software sales. As the credit crunch has forced many businesses to forestall or even eliminate software upgrades, Microsoft's selling strategy in enterprises had been consistently focused on annual license fees. This has been difficult for many companies to afford and as a result, they have chosen to move on to open source applications. Microsoft has initially focused on litigation to attempt to slow down open source competitors, yet has been forced to integrate with them or face the possibility of losing customers. All of these factors taken together have made Microsoft concentrate more on new product development as a priority and continually strive to make the processes included in this area as efficient and customer-focused as possible. Economic conditions amplified these competitive challenges for Microsoft, forcing the software company to a new level of urgency.
(Babu, Dalal, 2006)
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(Bitzer, Schroder, 2007)
Jurgen Bitzer, Philipp JH Schroder. (2007). Open Source Software, Competition and Innovation. Industry and Innovation, 14(5), 461.
Christof Ebert (2008). Open Source Software in Industry. IEEE Software, 25(3), 52-53.
(Gawer, Cusumano, 2008)
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