Bus 590 - Business Strategy

Lesson # 2 Case Studies

Yu Liu

International American University

BUS 590: Business Strategy

Vahick A. Yedgarian

September 10th, 2017

Introduction

Microsoft has been facing many threats and challenges with the Internet helping bring many competitors in the market that provide cheaper or even free products to the customers. Microsoft has implemented many strategies to face these challenges including introducing the new subscription model and the connectivity of the products. By hiring the right leader and launching the right products, Microsoft has defeated their competitors and succeed in new product development.

In the age of the Internet, Microsoft is facing many new competitors because the internet allows the entry of these competitors and they are competing with Microsoft by providing cheaper or completely free products, unlike Microsoft’s expensive products that are making some of its customers to look elsewhere. Pearce has argued that the seriousness of the threat of entry depends on the barriers to entry as well as the existing competitors’ reaction to new comers (Pearce, 2014, p. 102). But the internet has lowered the barriers to entry and this makes Microsoft facing serious threats from competitors. Steve Ballmer, the CEO of Microsoft wants to keep the competence of the company by having customers renting their customers instead of purchasing them. He also wants to leverage the connectivity of Microsoft products to have customers from different locations work on same tasks collaboratively. These are two major conclusions that Steve has come up with to potentially change Microsoft.

The typical way of purchasing Microsoft products is through buying out, which means customers pay and download the software and continue using without any payment until the newer version of the products are released. The subscription model, on the other hand, mean customers pay a monthly subscription fee to use the product and do not have extra cost for new product versions.

The new subscription model is also facing many threats. One of the risks is that, by subscribing, customers do not need to pay for new updates. This makes Microsoft sacrificed the profits from product purchase. Microsoft is taking a bet that the profit from monthly subscription makes up to or outweighs the profit from product purchase. It’s important for Microsoft to figure out which way brings more profit to the company. Another risk Microsoft is facing is that the cost. Unlike the buy-out model where customers keep the software on their own computers, the subscription model and the connectivity function require Microsoft to keep the products on their server and have staff maintain them. Currently, the cost of Microsoft maintaining these products on its own servers is still unknown. Using monthly subscription model means that Microsoft still needs to take this cost.