Microsoft’s Search Write-up

1. How has Microsoft responded to competitive threats and opportunities in the past? What patterns do you see?

There are four skirmishes that illustrate how Microsoft had responded to competitive threats and opportunities in the past –

1) Application Software (Word perfect and Lotus 1-2-3) – Microsoft typically entered markets when it realized potential of control. The second time IBM asked Gates to build them an OS, Gates saw potential, believing that the OS would become a standard that other manufacturers could use as well. Microsoft bought DOS from another software vendor, modified it and licensed it to IBM. Gates held onto the copyright, and as he predicted he was able to sell MS-DOS to all the other vendors and become the dominant OS developer in the PC market. When Excel and Word failed to compete in the PC market with Lotus and WordPerfect, Microsoft turned its attention to the Apple market where there were fewer competitors. Apple had smaller share in the OS market, so few companies were building software for the Macs. Microsoft benefitted with its time with Apple by learning how to make GUI to improve their products. Eventually, Microsoft returned to take on Lotus and WordPerfect, this time in with a more appealing GUI and user friendliness. They leveraged their financial strength to woo customers to adopt their products by offering discounts or completive upgrades to switch from Word Perfect to Lotus 1-2-3 and by integrating their products with their dominant OS Windows. This also reduced cost of training by more than 100%, making the Microsoft option more cost effective to buyers. Five years later, in 1995, Microsoft became the dominant player in word processing, spreadsheets and presentations market with MS Office.

2) Internet Browsers (Mosaic and Netscape v Others) – The Internet browser war is another good example of how Microsoft was late to the game, but was able to learn from the competition and leverage its weight later on in the battle. In 1993 and 1994, the Mosaic web browser was gaining great momentum. Marc Andreeson from Netscape, taking a page from Bill Gates, knew that winning market share meant eventual profits and eventually winning it all. Andreeson had the foresight to see the importance of the web browser looked for mass integration between the user and servers. He wanted to conquer market share in a two prong approach he had Netscape Navigator at completive price below $50 and “free” to the public via downloadable evaluation copies and for server just above $1000. At such prices market place adoption of their product was exponential and they soon had 70% market share in one year by May 1995. Bill Gates alarmed at Netscape had the lion’s share of the browser market and potential threat to his core business wrote a 9 page memo to his directors and itemized actions to counteract Netscape’s dominance. In Bill Gates memo he assigns the highest level of importance to the internet browser, and as a result Microsoft released Internet Explorer in May 1995. Microsoft copied Netscape tactics of free distribution to users and gathering support from servers. Microsoft leveraged their distribution power as the most popular OS to freely bundle their web browser Internet Explorer with their operating system Soon versions of IE were also made available for Apple and UNIX to increase market presence. They also made deals with rival internet service provider AOL to promote IE. Netscape tried to compete by increasing innovations but the cost of developments stripped the company of cash and it was sold to AOL for just stock and no capital. This prompted the U.S. Department of Justice to file an antitrust case against the company in 1998, for which a settlement was reached in 2001, which also banded the company from bundling other applications with Windows in the future. By late 2002, Microsoft’s browser market share went above 95%.

3) Java (Microsoft licensed Java &