Microsoft's Search

MICROSOFT'S SEARCH

1. THE MAIN ISSUE OF THE CASE

Microsoft was slow to understand the web's implications and adjust its product lines accordingly. The world's most thriving software company failed to predict the rise of the Internet and, as a consequence, in 2008, Microsoft's executives must decide how to compete against Yahoo and Google in the industry of Internet search and advertising.

2. EXTERNAL ENVIRONMENT ANALYSIS

i) EXTERNAL SEGMENTS OF THE GENERAL ENVIRONMENT

∗ Global:

Microsoft is free from geographic dependence since Internet search is applicable to most cultures around the world. Computers become more affordable, and fact that the world is becoming more connected will help Microsoft to gain more users and thus increase its revenues.

∗ Demographics:

Internet is not a gender-specific issue. However, Microsoft's search market is driven by passive searches. These passive searches can impact Microsoft's strategy by decreasing the corporation's revenue forcing the company to invest in marketing.

∗ Economic:

During 2008, the United States and the rest of the world were in a period of a great recession and shares were trading at 52-week lows. The recession did not leave Microsoft untouched, obliging the company to lay off employees and impacting the company's Net Income.

∗ Socio-cultural:

As Internet use increases among all age groups and cultures, people become more dependent on Internet search. This phenomenon will help Microsoft's strategy by increasing its revenues and market share.

∗ Political and Legal:

Microsoft has been frequently sued with regards to antitrust violations. The plaintiffs argued that Microsoft abused its monopoly power in selling operating system and web browsers when it bundled its Internet Explorer with the Microsoft Windows operating system. This can affect the company's image forcing the company to invest in publics relations.

ii) INDUSTRY ANALYSIS

∗ Threat of New Entrants:

The barriers to entry in the Internet search market are high. The current competitors have expensive servers located all over the globe in which they have spent billions of dollars. Also, the current competitors have accumulated many years worth of data about their users and their habits. Therefore, a new entrant will need large sums of capital in order to establish the same centers as Microsoft and Google. A new entrant would need to provide better search results at very fast speeds to compete in this market and will have to expect a large retaliation from the current competitors. Therefore, threat of new entrants is low.

∗ Bargaining Power of Suppliers:

The suppliers of Microsoft Corporation are not mentioned in the case, however one can deduct that the company has in-house suppliers where it builds its own search capabilities. Thus, the bargaining power of suppliers is non-existent.

∗ Bargaining Power of Buyers:

The buyers of Microsoft search engine are the end-users and the advertisers. Microsoft is using the Price-per-Click (PPC) in order to generate traffic, which translates to revenue. PPC is an Internet advertising model used to direct traffic to websites, where advertisers pay the hosting service when the add is clicked by the end-users. Therefore, the bargaining power of buyers is moderately high, since both Microsoft and the buyers need each other.

∗ Threat of Substitute Product:

The Internet search has become the new standard to demand and retrieve information by millions of people all over the world. Hence, there really is no appropriate substitute for search.

∗ Intensity of Rivalry Among Competitors:

Google controls 63.5% of Internet searches. Yahoo and Microsoft lag behind with 20.4% and 8.3% respectively. The competitive rivalry is intense in the search industry because large amounts of advertising dollars flow to the website that has captured the largest volume of searches.

iii) THREATS

∗ Competitors:

Microsoft is losing market share while its biggest competitor, Google, is gaining market share. By looking at exhibit 3 from the case, since July 2007, Google has gained 8.3% of market share while Microsoft lost 4%.

∗ Economy:

Economic slowdowns in the U.S. and global market impact personal computer equipment sales and their need for operating systems.

∗ Public Image:

Different lawsuits and condemnations against the company being made by various programmers and software developers. These lawsuits exhaust the financial resources of the company and promote negative publicity.

iv) OPPORTUNITIES

∗ Telecommunication:

Cheaper global telecommunication costs open new markets as people connect to the Internet. Thus, Microsoft can promote its search navigation tools via telecommunication products.

∗ Entertainment and Devices:

With the introduction of Xbox 360, Microsoft entered the entertainment industry. With its Xbox 360, the company can promote its search engines within the gaming console.

v) CONCLUSION: EXTERNAL ENVIRONMENT

Microsoft must be aware of the bargaining power of buyers and the rivalry among the competitors since these factors can pressure the operating margins of the company. Microsoft is not the market leader in the search industry, which leaves them dependent on its buyers since the latter can always use and advertise via Google's or Yahoo's search engines.

The intense rivalry in the search industry leaves Microsoft with a small market share, which results in small revenues. Microsoft should be conscious of its external threats that can hurt its bottom line as well as its image. However, the company should use its opportunity within the telecommunication and entertainment industries to promote its Internet search engine.

3. INTERNAL ANALYSIS

i) STRENGTHS

∗ Brand:

Microsoft has a strong brand name. It is