Microsoft Company’s Competitive Strategy

Table of Contents

Buyer power
Supplier power
The threat of substitute products or services
The threat of new entrants
Rivalry among existing competitors
References

A firm’s competitive strategy aims to enhance its ability to modify the rules of competition to its favor. According to Porter (1985), for a firm to remain competitive, it needs to influence the threat that new entrants pose, the threat presented by substitutes, the bargaining power of buyers, suppliers’ bargaining power and the competitive rivalry in the industry (Porter, 1985, p. 4). This paper evaluates the competitiveness of Microsoft following the entry of Geyser into the market for developing operating systems. Through the analysis, the paper will determine whether continued investment in Microsoft is prudent.

Buyer power

The bargaining power of buyers in Microsoft’s market is considerable. The availability of a variety of choices including free programs such as Linux that are compatible with customers’ systems lessens their switching costs to alternative operating systems. However, for the consumer market, partnerships with hardware manufacturers who pre-install Microsoft operating systems (Microsoft Corporation, 2011) reduce buyers’ bargaining power. For the corporate clients, aspects such as the investment required to train staff on changing to a new system reduce buyer’s bargaining power.

Supplier power

The suppliers’ bargaining power for the software industry is low. For Microsoft, the core suppliers are its workforce whom it needs to create new features and programs. The bargaining power for such employees is low since Microsoft has been able to avoid unions that would otherwise enhance employee bargaining power (Thibodeau, 2010). Additionally, the capability to outsource some of its labor to low-wage countries (e.g. Dudley, 2006), reduces Microsoft’s susceptibility to high-wage demands in its American and European markets.

The threat of substitute products or services

The threat posed by substitutes for Microsoft products is low. There are no clear substitutes for operating systems since most devices require such systems to run other programs such as browsers and word processors. Potential substitutes in Microsoft product categories such as e-mail clients include postal mail and telephone. However, the effect of these substitutes is low since they do not offer the efficiency or privacy accorded by computer-based communications.

The threat of new entrants

New entrants affect an industry’s attractiveness by creating pressure on prices and costs as they attempt to gain a considerable market share (Porter, 2008). In the operating systems market, the threat of new entrants is low since new entrants would require high technical expertise to keep up with program updates needed to support changes in technology. New entrants may also not achieve adequate distribution since existing players such as Microsoft have formed partnerships with hardware manufacturers to pre-install their operating systems. Further, new entrants would need to engage in aggressive marketing to achieve comparable brand awareness to that of existing industry players.

Rivalry among existing competitors

The Rivalry among existing players is very high. Players such as Google and Apple offer better alternatives to Microsoft concerning operating systems for mobile devices (Rivlin, 2011). Other players such as Linux offer free operating systems thus putting pressure on the prices for commercial operating systems. Due to the high competitive rivalry, players in the industry must innovate constantly to remain competitive. Microsoft’s failure to introduce innovative systems for mobile devices affects its ability to compete effectively in the future since consumers are increasingly adopting such mobile devices for their needs (Rivlin, 2011).

The competitive analysis of Microsoft’s industry indicates that investment in Microsoft remains prudent but challenged by Microsoft’s delay to diversify its operating systems for mobile devices. New entrants, substitutes, buyers, and suppliers pose a mild threat to Microsoft’s competitive ability in the future. However, players such as Apple and Google, who are aggressive on the mobile-devices market, threaten to dislodge Microsoft from its market leadership. The loss of market to such players reduces the ability of Microsoft to offer good returns for its investors.