Microsoft Vs. Google Case Study

Microsoft vs. Google Case Study

Cristiana Cooper

John Brown University

Prepared for Professor Kirk A. Jackson

BUS 7223 – Managerial Economics

April 6, 2018

Executive Summary

        Microsoft is of the most well-known computer software companies in the world. Not only are they known for their successful operating system, Windows, but they are also known for their competition with Google and their many products that fail to compete on the market. Though Microsoft is still one of the leading companies in the computer industry, they are losing market share due to their lack of product innovation and inability to focus on consumer needs. The primary recommendation for Microsoft is to split the company into separate operations. This would help Microsoft solve their problems and reduce the threat of Google.

Background

        Microsoft was founded in 1975 by Bill Gates and classmate Paul Allen after successfully creating a new BASIC computer language for the Altair personal computer (Bellis, 2018). The company was founded as an operating system company and in 1980 released their first product. The CEO, Bill Gates became a billionaire after they released the first Microsoft Windows operating system in 1983. In 1995, Microsoft released the web browsing system called Internet Explorer. The company offered the search engine for free which drove some of their competitors out of business and moved Microsoft to dominate the market (Ross, 2015). Since then, the company has moved into new markets, producing products like the Xbox gaming console and the Microsoft Surface tablets (Bellis, 2018). Microsoft, today, is still one of the top leading companies in the computer industry.

        Microsoft has been facing increasing competition in the operating system and computer industry, especially by Google. Microsoft’s business model began with producing an operating system then advanced into software devices and search engines. Google’s business model works in the opposite direction. Google started as a search engine then moved into software development and an operating system. Google has been diversifying their business model into software development which has created a direct challenge for Microsoft. For several years, Microsoft has been working to combat Google’s threat. In 2008, Microsoft offered to buy Yahoo!, but the proposal was rejected. However, in 2009, they reached an agreement where Yahoo! would use Microsoft’s search engine, Bing, on their website and would also handle Microsoft’s advertisements. In 2011, the company also bought Skype, a well-known video communication company (Hall & Pascal, n.d.). Though Microsoft is acting against Google, the threat is still increasing and is shedding light to the many problems Microsoft is facing.

Problem Identification  

Google has done to Microsoft what Microsoft did to Netscape in the late 90’s. Everything that Netscape was selling, Microsoft would offer for free. This essentially ran Netscape out of business and they were acquired by another company (Baye & Prince, 2017). “Since Google began offering a free operating system and computer software, sales for Microsoft Windows and Office have slowed and, in the long term, threaten to die out” (Ross, 2015, para. 16). Competition is a leading problem for the company because they are failing to produce products that customers want. Microsoft has confirmed the failure of several products. The Xbox Kinect, Groove Music, and the Windows Phone are just a few (Warren, 2018). This leads into Microsoft’s problem with product development. The company is lacking in innovation and focus of consumer needs.

Finally, as stated by Brandon (2016), a major problem Microsoft is facing is a “crisis of confusion” (para. 2). The number one reason consumers do not switch between operating systems is because they are so different. Consumers are often confused when trying to use any other system than the one they have become accustomed to. This was a main reason why people weren’t switching to the new Windows 10 when it was released in 2015 (Prokaza, 2016). Microsoft changed their operating system so much that even consumers who have been using Microsoft Windows their whole lives didn’t know how to use all the applications or how to access many features (Brandon, 2016). This is a big problem for Microsoft because consumers will always be comparing products in the computer industry. They want what is new, easy to use, and the product that offers the most at an affordable price. If Microsoft does not focus on helping consumers understand their operating system, those consumers will most likely switch to another product, despite what ever loyalty they may have for Microsoft.

Decision Alternatives

        For Microsoft to fix their problem with product innovation and consumer confusion they must invest more time and money into product development, analyzing that consumers want out of the product, and customer support. If Microsoft could not invest in both product innovation and customer support, it would be wise for them to choose customer support. Although this wouldn’t solve the advantage competitors have, it may keep them from loosing any more market share. If consumers get frustrated trying to use Microsoft products or don’t know how to use them, those consumers will be less likely to purchase any other product from the company.  

        The main alternative for Microsoft is to split off into separate smaller companies. This solution is not mutually exclusive to any others that have been presented because they are incorporated into the reason why splitting the company should be considered. Splitting off the company would also help solve all the major problems Microsoft is facing. According to Fortune Editors & Rivlin (2011), ex-employees, including Charles Fitzgerald, a product manager who left the company in 2008, said that it would be a good idea for Microsoft to separate:

Let Windows lick all the cookies it wants as its own freestanding company. Unleash Office so that it can create apps for the iPad and Android without having to put Windows first. If it were on its own, a business-software company could be more platform-agnostic and better challenge Oracle and SAP (SAP, +0.90%) for the enterprise customer; those in charge of products like Bing or Xbox would need to learn to survive on their own… (para. 24).

If Microsoft chose to split off the company, they would be able to focus on management, product innovation, and maximizing shareholder value. The way products are managed can vary. They have different clients and sales cycles. By splitting off, Microsoft would be able to focus on both their operating system and consumers businesses, separately. They would be able to detach from their slower-growth businesses which would allow for more rapid growth of other products (Baer & Feloni, 2014).