PORTFOLIO LINKS MBA Résumé : English CV : en français Teaching experience Study abroad Research projects Literary analyses Contact information	Industry Analysis: Microsoft Corporation Prepared under the direction of: Dr. Mary Tucker in Management 691. Authors: Jonathan Leal, Sonya Faust, Kiesha Gasparac, Kumi Takimoto Date submitted: August 1, 2000
Introduction	Microsoft Corporation is in a dominant position in the marketplace, a situation which is perceived as both an advantage and a disadvantage. As a global corporation, the company has numerous unique opportunities it could explore to improve and strengthen its already strong position. As the company looks to the long-term, trends within the industry can give it some direction for changes in its approach and specializations. The technology industry is one of the fastest-evolving areas, and a careful study of competitors as well as new technology can give Microsoft a good idea of where it must head in order to maintain its strong position.
Detailed recommendations	We have performed a carefully study of the company and of the industry (see Appendix A), and would therefore like to formally present the following recommendations: A major PR campaign would improve Microsoft's public image. Being at the top of its field both technologically and financially can be a mixed blessing. (See Appendix D for current financial information and Appendix E for information on major competition.) Recent antitrust lawsuits and the court's breakup order have only served to reaffirm the public's view of the company as overly aggressive, and have also antagonized the government, which has declared all-out war on Microsoft. These circumstances require the company to soften its aggressive image and re-establish its representation through an aggressive public relations campaign. Some steps have already been taken in this direction. Following the breakup order, Microsoft launched an advertising campaign featuring executives of the company. The ads stressed Microsoft's humanity and contribution to the development of the software market (Marchall, 2000). One ad spotlighted Microsoft's support for innovation; Bill Gates talked about how the power of the PC has changed and improved people's lives and how Microsoft is continually improving its services. In another, President Steve Ballmer stated the commitment of the company to continuous innovation and value. According to the research, this advertising campaign has succeeded in evoking a warmer and more accessible Microsoft image (Elkin, 2000). In terms of spin control, most analysts seem to agree that Microsoft can no longer exert effective spin control because the antitrust case has been in the news for more than two years. We believe, however, that an aggressive PR campaign over an extended period will make a dramatic difference in the public's perception of the company. The PR campaign should include the following areas:  Focusing on the achievements and contributions of the company while clearly stating it will move forward in a responsible way to develop new products and solutions. Research shows that a strong customer commitment is the best way to build a strong reputation (Elkin). This commitment to product improvement will re-establish Microsoft's corporate image as an innovative company.  Focusing on "real people" in the ad campaign would be an effective way to evoke familiarity and realism, thereby softening the "aggressive" corporate image. Several options are already under review; we strongly support those which feature people offering testimonies. In terms of humanity and familiarity, these "real people" would evoke the sympathy of public and help the company reach not only the minds of the consumers but also their hearts.  Developing a trademark image would make the company's image more concrete. For Wendy's, Dave Thomas personifies the humanity and down-to-earth qualities of the company in a non-threatening way. Hiring an ad agency and developing (and market-testing) several options would be a good place to start in developing a more complete public corporate image. (See Appendix C for a current organizational chart of the company.)  Spotlighting the company's charitable involvement would have a strong positive impact on public opinion. A specific ad campaign showing how the company's charitable funds are used would increase awareness of Microsoft as a caring global citizen, interested in more than just the bottom line and fighting government lawsuits. Bill Gates has already begun such spots emphasizing the company's role in giving minority scholarships, but a more comprehensive campaign would show more of the company's involvement. A similar campaign by RJ Reynolds shows the company's emergency help for disaster victims - a public relations campaign that comes in the midst of unprecedented financial awards to smokers. We recommend that Microsoft increase its focus on the hardware market. As a result of the monopolistic attitude perceived by competitors, these same companies have begun issuing their own hardware with pre-installed versions of their own software. Because Microsoft is not a hardware company (see Appendix B for a brief history of the company), it must rely on manufacturers to pre-install its hardware, and in fact, the company has been aggressively investing billions of dollars in telecommunications, cable, and other infrastructure companies to increase the likelihood that their software (Windows CE and Mobile Explorer browser, for example) will be used in devices served by those firms ("Computers: Software," 2000). This is on top of the strong on-going commitment Microsoft has from leading PC manufacturers who have agreed to pre-install the Windows series as the basic operation and application system. Personal computer demand is strong today as well. A resurgent Asian economy and consumer demand for the Internet boosted growth in worldwide sales by 15 percent last quarter, and a 17 percent increase is forecasted for the next quarter (Mathew, 2000). Personal computer ownership is predicted to increase 60 percent this year, due in large part to interest in the Internet. Nonetheless, the personal computer has been challenged in recent years by less complex, more affordable alternatives. To date, the personal computer has managed to meet these challenges by becoming simpler, sleeker, more stylish, faster, and less trouble-prone (Olenick, 2000). Nonetheless, the market is being increasingly flooded with "wireless" products that do not require Microsoft software. Despite predicted short-term growth in personal computers, new technological devices cannot be discounted (Meyer & Stone, 1998). Several new devices which allow easy Internet access are being developed and introduced to the market. Intel Corporation (a long time Microsoft partner) announced in early 2000 its plans to create and sell its own Web devices as well as to develop related software using a form of the operating system Linux rather than Windows CE ("Computers: Software," 2000). Also, in May 2000, Gateway and America Online debuted their $500 portable device, which accesses the Internet without relying on an Intel processor or Windows. Microsoft's rival, Netscape, contributed the Internet browser, known as Gecko (Bickers, 2000). We believe the best way to counter this trend is for Microsoft to engage itself more heavily in the personal hardware market. A careful study of the industry has led us to make the following recommendations for implementation:  Creating an alliance with several of the major mobile phone manufacturers would give Microsoft a foothold in this growth industry. A good beginning was already made in December 1999 by partnering with Swedish wireless phone giant Telefonak-tiabolaget, LM Ericsson, to develop software to enhance a wireless Internet (Standard and Poor's Industry Analysis, 1999). The mobile-phone manufacturers and the makers of personal digital assistants are launching an attack on personal computer domination, transforming their simple products into powerful tools that can accomplish difficult tasks and also access e-mail and the World Wide Web (Bickers, 2000). Sony is licensing an operating system from a software company formed by an alliance of mobile-phone companies that it will use for new mobile-phone products.  Creating a hardware division at Microsoft would allow the company to take advantage of the explosive growth in game consoles, television sets, and other personal entertainment devices. Presently, Microsoft excels in none of these areas. Although the company has already entered into more than 100 licensing agreements with manufacturers of "intelligent appliances," the market is far from saturated. Instead of focusing exclusively on partnerships, Microsoft could easily create a new hardware division and directly profit from this major growth area. This conclusion is reinforced by the company's strong R&D budget. We recommend that Microsoft focus energies and efforts toward improving the applications division. Since Microsoft currently holds only five percent of the $120 billion software applications market share, significant steps can be taken to improve their position in this area. The applications division can enlarge its market share by offering products to other operating systems. Presently, Microsoft gives away an enormous number of products that, if sold, could bring greater profit (Chernoff & Fulman, 2000). Although the competition in this area is stronger than the operations systems market, the software applications division offers higher potential for growth than Microsoft's current emphasis on the operating systems division. In addition, Microsoft's software applications can compete vigorously without fear of antitrust scrutiny (Veverka, 2000). We believe the best ways to achieve the greater market share is through implementation of the following recommendations:  Microsoft can begin by making strides toward improving the universality of their applications. Because the world is getting smaller, effective global communication is necessary to compete and survive in virtually every business industry. Microsoft can take advantage of this necessity through increased concentration on videoconferencing that could dominate its market.  Another method to increase its market share is through creating special versions of its applications software tailored specifically to individual companies.  A final way to implement growth strategies is accomplished by separating the web browsers and selling them independently, as opposed to selling them as part of a complete package. This will give consumers more options and flexibility, thus increasing the possibility of a larger profit margin. We recommend that Microsoft concentrate on enhancing conduct relations in the operating systems division. Due to the fact that the antitrust lawsuit was initiated because of Microsoft's control of 86 percent of the operating systems market, we believe that if necessary steps are enacted, the suit could be settled out of court (Fach, 1998). This would enable Microsoft to continue operations as a whole entity - not requiring a move out of the country, whereby the antitrust rulings would still be upheld if sales of software were continued in the United States. Moreover, relocation would completely eliminate Microsoft's share of the U.S. market because of extraterritorial application of the United States antitrust laws (Cheeseman, 1992). By taking the following crucial measures, further litigation could be prevented, thus saving valuable time and money for the company. We believe the best ways to enhance conduct relations is through implementation of the following recommendations:  Microsoft could begin action of these steps by divulging the source codes for their Windows operating system. Because Windows is such a monumental program, allowing rival computer makers the ability to modify Windows, especially the desktop default screen, could improve company relations and networking with competing software companies. By allowing cheaper, alternative versions of Windows, customer satisfaction and loyalty could extend to new venues and depths.  Additionally, Microsoft could allow the purchase of new products without making the Windows license conditional.  Also, we recommend that Microsoft allow the licensing of Windows to others on discretionary terms. Through cooperation with other companies, specifically with the combination of Microsoft's products and other companies' products, greater cohesion could be achieved and innovation could be advanced. This could also bring outstanding unity to the computer industry as a whole.  Finally, it is our belief that improving simplification and innovation of operating systems could significantly broaden consumer relations and sales.
Conclusion	The future of Microsoft looks to be vastly different than what exist today. Antitrust rulings aside, Microsoft will almost certainly be in a different position in the months and years to come. The reasons for this extend beyond Microsoft itself to general trends in technology and new directions in the Internet. The Internet promises to create a world in which no firm will have the power of Microsoft or IBM. The root of this lies in the Internet's shift from the personal computer to consumer-electronic devices, which duplicate the functions of computers. These devices are becoming increasingly more sophisticated and accessible. Some of these devices may use Microsoft for their operating systems, but the majority will not ("Business: Denouement," 2000). This will mean that operating systems, for once, will no longer be a central issue. Furthermore, most of these standards are already in place and are essentially open, considering that countless devices from thousands of companies will be Internet-capable ("Business: Denouement," 2000). This revolution will place Microsoft in a position closer to its high-tech competitors - forcing it to prove the worth of its products to consumers in a world where the options will be enormous and the success of any one company or protocol will not be guaranteed.