Microsoft Essay

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Microsoft is a multinational information  technology company  that  manufactures,  licenses, acquires, and supports  a range of software for use on computing devices. Its portfolio  of interests  also includes publishing, computer  hardware, and a cable TV channel. The history of Microsoft is, to a great extent, the history of its products. Due to the manner  of the development  of its product  portfolio  and  the  strategies behind it, Microsoft is often portrayed  as aggressive and  predatory; an innovator,  rather  than  a creator. However, the same evidence can also be construed  as demonstrating a vigorous competitor that has benefited the global marketplace  by supplying innovative, integrated products, enhancing the productivity of businesses and the lifestyles of consumers,  and promoting  corporate  philanthropy  while meeting  new threats to profitability.

Microsoft was founded  in 1975 by Bill Gates and Paul Allen in Albuquerque, New Mexico, to produce a programming  language for the popular Altair 8800 computer.   The  pair  had  met  at  Seattle’s Lakeside School over their interest in computers, and together they had dropped out of Harvard to pursue the Altair opportunity.  In 1981 Microsoft won the contract  to produce  an operating  system (OS) for the IBM personal computer (PC). For this, Gates purchased an OS from Seattle Computer  Products, developing and rebranding it as MS-DOS. This gave them a pricing and a first mover advantage over competing products.  In a masterstroke of contracting,  Microsoft was allowed to license the operating  system to other  PC manufacturers,  essentially becoming  a premium  paid  to Microsoft on sales of all PCs as the market exploded. For most of the 1980s, MS-DOS accounted for 40–50 percent of revenues.

Although a usable OS was significant, it was “productivity” application  software such as the VisiCalc spreadsheet  that established the PC as an office tool. As users became accustomed  to the possibilities offered by these kinds of software, a need for multitasking between applications and increased usability became apparent. A “windowing” graphical user interface (GUI) was seen as the solution, such as Apple had produced  in 1984. In 1985 Microsoft released Windows as a GUI to the MS-DOS. This set the ground for Microsoft’s growth in the 1990s from integrated productivity applications for office workers. Bundling MS  Word,  Excel, and  PowerPoint  into  MS  Office allowed Microsoft to build the cash reserves necessary to take on established one-application specialists such as WordPerfect  and Lotus.

In the mid-1990s, after a momentary error in reading the strategic opportunity of the internet, Gates moved Microsoft strongly in that direction with MS Internet Explorer (IE), a Web browser that began as a separate application but became an integrated part of the Windows OS. The major  controversies  over Microsoft’s strategies became apparent in this phase of its development—first over MS Windows, where Apple Computer claimed copyright infringement of their GUI, and then with MS Internet  Explorer with charges of bundling and monopoly leveraging. This second charge included tactics in the so-called Browser Wars against the competitor Netscape, such as bundling IE with Windows. These various strategic  moves and legal/commercial consequences contributed to a growing anti-Microsoft sentiment in popular culture.

On April 3, 2003, following the antitrust  case brought  against  Microsoft  by the  U.S. government, Microsoft  was  broken  into  two  divisions:  operating systems and software. It has subsequently  been divided into the platform  product  and services division, the  business  division, and  entertainment and devices division. How U.S. action will reduce Microsoft’s monopoly on the personal computing market is unclear. It is likely that the divisions will exploit their commonality  and Microsoft’s users will continue  to seek integrated  products.  Despite  the  breakup,  for the fiscal year ended 2007, Microsoft revenues saw a 15 percent increase over the previous year. However, Microsoft profits have been built on charging for OS and productivity software that runs on PCs. Such software is increasingly available as a free online service, developed by open communities of programmers. It is often OS-independent, representing  a double threat to Microsoft’s traditional  sources of profit. Microsoft has been successful due to its founders’ ability to discern opportunity.  The diversification represented by its business units demonstrates Microsoft’s response to threats  to its core business. As Bill Gates leaves to  pursue  philanthropic activities, new generations of leadership  will be required  to sustain that  ability across an increasingly diverse set of activities.

Bibliography:    

  1. Martin Campbell-Kelly et al., “Not Only Microsoft: The Maturing  of the Personal Computer  Software Industry, 1982–1995,” Business History Review (v.75/1, 2001);
  2. Ali F. Farhoomand, Microsoft’s Diversification Strategy (Asia Case Research Centre, University of Hong Kong, 2006);
  3. Richard Gilbert and Michael Katz, “An Economist’s Guide to U.S. v. Microsoft,” Journal of Economic Perspectives (v.15/2, 2001);
  4. Benjamin Klein, “The Microsoft Case: What Can a Dominant Firm Do to Defend Its Market Position?” Journal of Economic Perspectives (v.15/2, 2001);
  5. Daniel Lyons, “Media by Microsoft,” Forbes (v.180/5, September 17, 2007);
  6. Microsoft, “Going Beyond Timeline,” www.microsoft.com (cited March 2009);
  7. William H. Page and John E. Lopatka, The Microsoft Case: Antitrust, High Technology,  and  Consumer  Welfare  (University  of  Chicago Press,  2007);
  8. Brent  Schlender,  “Gates After  Microsoft,” Fortune (v.158/1, 2008).

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