Business Growth Strategy: Microsoft
Introduction
Microsoft stands out as one of the most respected and largest technology companies globally. Founded by Bill Gates in 1975, the company has managed to remain relevant, experiencing stellar growth over the years owing to the tech industry’s growth, which has increased demand for the company’s offerings – particularly its Windows operating system (Eitzman, 2019). The stiff competition within the tech industry has meant that Microsoft constantly has to compete against an ever-growing number of rivals, whereby the most prominent ones are Amazon and Google (Bort, 2009). To retain its relevance in the 21st century, Microsoft has invested extensively in new technology offerings, especially cloud computing using Microsoft Azure. Such a move is critical since, despite holding a commanding market position within the personal computer segment, specifically through its Windows products, the company’s focus for the future needs to align with the market needs, which are increasingly in cloud computing (Eitzman, 2019). To that effect, the current study aims to highlight the key strategic issues that Microsoft faces, with a view to devise a suitable approach to ensure the company remains one of the top technology brands globally.
Strategic Challenges Faced By Microsoft
Cloud Wars
As the world advances towards fully embracing the fourth industrial revolution (Industry 4.0), the relevance of cloud computing to the transition has become more prominent. That is the case since the main principle of Industry 4.0 is based on more connectivity of systems through tools such as Artificial Intelligence (AI) and the Internet of Things (IoT). Cloud computing offers businesses in all industries an avenue for quickly adapting to the rapidly changing technology through the integration of AI, and automation, without losing valuable data (Edgy Labs, 2021). It is thus not a wonder that the largest technology companies have decided to invest in cloud solutions. At present, the key cloud service providers include Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and Oracle, among others. Therein lies Microsoft’s first strategic challenge: the extensive cloud wars that are playing out currently and are expected to intensify as demand rises and the number of providers increases. Microsoft has grown its cloud services businesses to its level currently, where it holds the second-place position in the market, behind a formidable opponent in Amazon, through its AWS.
According to Synergy Research Group, Amazon currently commands about 40 per cent of the market for public cloud services. The industry is growing significantly whereby, for instance, from the reports on enterprise spending on cloud infrastructure services in 2020, the fourth-quarter spending was a little over $37 billion. That represented a $4 billion increase from the third quarter, and a 35 per cent year-on-year (YOY) increase, from 2019, which was the second successive year that such significant growth had been experienced (Synergy Research Group, 2021). Amid the growth, Microsoft’s share of the ‘pie’ was just short of 20 per cent, and there is growing optimism among the company’s investors on the growth of Azure, considering that it managed to beat AWS to a large contract for the Pentagon (Gaus, 2021). That said, Azure registered slower growth in 2020, compared to 2019, i.e., 59 per cent, compared to 76 per cent. As such, there is cautious optimism among Microsoft executives regarding the future success of Azure, with an acknowledgement that Microsoft has plenty to prove before it can topple AWS from its dominance in the cloud services industry.
Developing a Culture Fit for Future Dominance
The previous CEO of Microsoft – Steve Ballmer, championed market dominance by improving its existing businesses and keeping them alive. As a result, Windows remained the company’s mantra for years, and any invention that the company made, was geared towards enhancing that specific business (Guppta, 2015). To that effect, despite extensive investments in its research and development (R&D) arm, which have yielded certain successes such as Xbox, and some collaboration services like SharePoint, none have achieved the success of Windows. The vision projected by the current CEO when she was assuming the role was to have windows as just one of the many components within Microsoft’s experience (Guppta, 2015). One of the main challenges that the company will face is in altering the winner-takes-all mentality, which has hampered its effective collaboration with other players in the industry in developing great technologies. An illustration of the mentality at work is how Microsoft opted to develop its hypervisor, as opposed to purchasing VMware, when it was just a start-up or partner to integrate VMware, into the Windows Server, both of which would have been cheaper than the amount spent developing an in-house solution from scratch (Bort, 2009).
Another illustration of the mentality is the decision to create the Xbox, whereas it could have sold millions of copies of high-profit games on other more popular platforms. Interestingly, even in the PC segment where the company commands a significant foothold, it has managed to extend its winner-takes-all mentality, where despite not owning the hardware on which its windows software is installed, Microsoft has so severely dictated the hardware requirements that its partners are constantly looking to highlight their innovative ideas to rival platforms with Acer’s android Notebook being a good case in point (Bort, 2009). As such, Microsoft runs the risk of being a victim of its success unless it can effectively alter its hostile winner-takes-all and me-too ideologies moving forward.
SWOT Analysis of Microsoft
The outlook of the coming years is extremely uncertain, and that poses significant challenges for Microsoft in its quest to retain its dominance in the technology industry. It is on that basis that a suitable strategy is needed to ensure that Microsoft bolsters its position at the pinnacle of the technology industry, and that can only be accomplished by undertaking an extensive analysis of its internal strengths and weaknesses, as well as external opportunities and threats.
Strengths
Microsoft has several important strengths that have ensured the company’s survival thus far, despite being one of the oldest players in the technology industry. For a start, Microsoft enjoys a top-of-the-mind brand recall, particularly among users of personal computers all across the globe. Indeed, both Microsoft and its legendary founder – Bill Gates- remain well known by all who possess even the remotest comprehension of computing (Eitzman, 2019). The result has been the company’s ability to get ahead of its rivals, as the Windows operating system remains a household name in personal computing, which illustrates its popularity. Furthermore, the company’s loyal customer base has acted as an excellent advertising tool, whereby vouching for the company’s products, others who are joining the computing world, effectively join the Windows craze, thus sustaining the brand equity.
Another key strength for Microsoft and one that has endeared it to millions of users across the globe is that its products – particularly its software solutions, are easy to use, and that has remained a significant driver of new customer acquisitions and the retention of existing ones. There has been a sustained argument that Bill Gates, and by extension Microsoft, was the key enabler of the digital revolution by ensuring computing was available to the masses. In addition, one of the key strengths for Microsoft is its strong financial position which it has built over years of success in the technology industry (Eitzman, 2019). The company’s financial might has enabled it to invest heavily in its R&D, making it possible to develop new products, and improve existing offerings, thus remaining ahead of its competitors in the industry, especially in the PC segment. Another benefit that has resulted from its financial might is the fact that Microsoft has been able to dictate key elements in the different partnerships that it has entered, such as in detailing the hardware features for the PCs on which Windows OS is running. As Microsoft continues to perform exemplary in terms of its financial metrics such as revenue and profitability, the expectation is that it will continue to leverage its financial might to develop new products and expand its brand portfolio.
Weaknesses
Despite having several critical strengths, Microsoft has many weaknesses, threatening its continued dominance in the industry. For a start, Microsoft’s significant growth into the mammoth organisation has resulted in extensive bureaucracies in its operations which have hampered the agility needed for it to be successful in the industry (Bort, 2009). It is thus no wonder that Google blindsided Microsoft at the onset of the mobile computing revolution in the late 2000s and early 2010s. As Microsoft banked on Nokia, as the company through which it would launch its Windows phone, the rest of the world gravitated towards Google’s android, making the Nokia deal one of the most significant miscalculations by Microsoft (Warren, 2016). Furthermore, the bureaucracies have had a significant negative effect on Microsoft’s ability to innovate. That could be credited with the company deciding to stick with Windows as its main revenue source. In contrast, it could have developed cloud computing way before AWS and capitalised on the emerging market with the capital available. Another weakness is the Windows OS, which has been plagued by many ubiquitous security flaws, which malicious operators often capitalise on. It has thus been commonplace for Windows users, regardless of the version they are using, experiencing software crashes.
Opportunities
Despite Microsoft failing to read into the emergence of the internet age and being completely blindsided by the mobile evolution, there is plenty of hope for the company in cloud computing through its Azure offering. That view is backed by the fact that over the past year, Microsoft Azure has clawed back a sizeable customer base at the expense of AWS, ending the fourth quarter of 2020, with a 20 per cent market share, thus cementing its second position in the industry (Synergy Research Group, 2021). Furthermore, having a cloud computing expert as its CEO means that Microsoft is well placed to capitalise on its extensive resources to develop a competitive cloud computing business, which will compete effectively with AWS and could even lead the marketplace. In addition, through its vast financial might, Microsoft can grow either normally through extensive R&D to release new products into the market or inorganically through the acquisition of smaller companies, particularly start-ups, offering unique disruptive technologies.
Threats
One of the main threats to Microsoft remains its size, which in addition to being an asset, can very easily hamper its capacity to be nimble in the marketplace, thus preventing it from seizing emerging opportunities through the successful evaluation of the market indicators. In addition, considering that the software business remains a key source of Microsoft’s revenue, a key threat is in open-source software, which in certain cases offers as good functionality as Microsoft’s products, but for free (Eitzman, 2019). Furthermore, Microsoft’s revenue streams have been decimated by the onslaught of pirated software on the software front, such as in Asia, where the pirated copies of Windows software are more than the original copies. Another threat emanates from potentially damaging lawsuits, particularly in Europe, whereby regulators and policymakers have not taken too kindly to its monopolistic business practices that have inadvertently hampered the growth of the smaller industry players.
A Suitable Strategic Option
The technology industry’s future lies in the adoption of cloud computing technologies, and that is an area that Microsoft should invest extensively in. That means leveraging its financial might to create unique cloud offerings that will stand out in the increasingly crowded marketplace and make customers opt for Azure in place of other providers (Eitzman, 2019). Furthermore, considering that Microsoft appears to be struggling to remain innovative, especially in developing unique software offerings for PCs, one way to address the innovation gap is to partner with other technology companies more equitably. That could help Microsoft develop unique technology solutions that will disrupt the market, such as was the case with the Windows OS when it was launched. The number of PC sales has been declining over the past five years except for 2020, with the Covid-19 pandemic, and especially remote working arrangements being credited with the increase. That means the best strategy for Microsoft to continue increasing its revenue would be to increase the revenue it obtains per user instead of getting new users – who seemingly do not exist. A suitable approach would be to use a subscription-based model for Windows, as it currently does with Office 365 (ars Technica, 2017; Keizer, 2016). Through such an approach, Microsoft could be obtaining a consistent income from the user, as opposed to a one-time purchase fee, when a customer purchases a computer.
Conclusion
Microsoft stands out as one of the most iconic technology brands, and it remains a household name particularly due to its Windows operating system. That said, the past few years have presented significant challenges in the company’s quest to remain atop the technology industry. Competition, coupled with poor predictions on the technology to invest in, has meant that Microsoft has lost out on the financial windfall brought about by the internet revolution, and the mobile evolution. For its future, some of the key strategic issues that Microsoft faces include cloud wars with other technology brands especially Amazon, and the need to develop a culture that is fit for future dominance in the industry. That is the case since some of the organisational cultural elements that have seemingly hampered Microsoft’s progress, include an apprehension towards partnering, and corporate bureaucracies that have curtailed innovation. To that effect, in order to succeed in the future, Microsoft needs to embrace partnerships to bridge the innovation gap with its competitors. That is in addition to prioritising the revenue obtained from each user, through a subscription-based model for its windows offerings.
List of References
ars Technica, 2017. Microsoft 4Q17: Office 365 revenue surpasses traditional licenses. [Online] Ars Technica. Available at: <https://arstechnica.com/information-technology/2017/07/microsoft-4q17-office-365-revenue-surpasses-traditional-licenses/> [Accessed 12 October 2021].
Bort, J., 2009. Six reasons why Microsoft struggles with innovation. [Online] InfoWorld. Available at: <https://www.infoworld.com/article/2631572/six-reasons-why-microsoft-struggles-with-innovation.html> [Accessed 12 October 2021].
Edgy Labs, 2021. Why Cloud Computing is Crucial for Industry 4.0. [Online] EdgyLabs.com. Available at: <https://edgy.app/cloud-computing-industry-4-0> [Accessed 12 October 2021].
Eitzman, A., 2019. A Strategic Audit of Microsoft. University of Nebraska-Lincoln, pp.1 – 23.
Gaus, A., 2021. Microsoft’s 3 Biggest Challenges for 2020. [Online] TheStreet. Available at: <https://www.thestreet.com/investing/microsoft-3-biggest-challenges-2020> [Accessed 12 October 2021].
Guppta, K., 2015. What We Can Learn From Microsoft’s Strategic Challenges. [Online] Strategyzer.com. Available at: <https://www.strategyzer.com/blog/posts/2015/8/10/3-challenges-facing-microsoft-what-we-can-learn-from-them> [Accessed 12 October 2021].
Keizer, G., 2016. Pssst! Office 365 customers pay Microsoft up to 80% more over the long haul. [Online] Computerworld. Available at: <https://www.computerworld.com/article/2919935/pssst-office-365-customers-pay-microsoft-up-to-80-more-over-long-haul.html> [Accessed 12 October 2021].
Synergy Research Group, 2021. Cloud Market Ends 2020 on a High while Microsoft Continues to Gain Ground on Amazon | Synergy Research Group. [Online] Srgresearch.com. Available at: <https://www.srgresearch.com/articles/cloud-market-ends-2020-high-while-microsoft-continues-gain-ground-amazon> [Accessed 12 October 2021].
Warren, T., 2016. Microsoft wasted at least $8 billion on its failed Nokia experiment. [Online] The Verge. Available at: <https://www.theverge.com/2016/5/25/11766540/microsoft-nokia-acquisition-costs> [Accessed 12 October 2021].