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.
- 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);
- Ali F. Farhoomand, Microsoft’s Diversification Strategy (Asia Case Research Centre, University of Hong Kong, 2006);
- Richard Gilbert and Michael Katz, “An Economist’s Guide to U.S. v. Microsoft,” Journal of Economic Perspectives (v.15/2, 2001);
- Benjamin Klein, “The Microsoft Case: What Can a Dominant Firm Do to Defend Its Market Position?” Journal of Economic Perspectives (v.15/2, 2001);
- Daniel Lyons, “Media by Microsoft,” Forbes (v.180/5, September 17, 2007);
- Microsoft, “Going Beyond Timeline,” www.microsoft.com (cited March 2009);
- William H. Page and John E. Lopatka, The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (University of Chicago Press, 2007);
- Brent Schlender, “Gates After Microsoft,” Fortune (v.158/1, 2008).
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