Microsoft Case

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Important Microsoft Business Drivers 1985-2000
Between 1985 and 2000, Microsoft established a monopoly in several software markets that enabled it to grow and maintain superiority over its competitors for many years. The vital drivers that contributed to Microsoft’s leading strategic position were its strong, positive network effects, its relationships with original equipment manufacturers and independent software vendor, and its ability to reduce consumer switching costs while simultaneously excluding new entrants. Microsoft created strong connections with computer manufacturers, which would pre-install Windows on the hardware prior to retail sales. Microsoft also encouraged software developers to produce applications for Windows to increase the operating system’s user base. After establishing a substantial market share in the OS market, Microsoft lowered consumer switching costs by providing standard interfaces and file formats for applications like Microsoft Office that eased the transition from incumbents such as Lotus, WordPerfect, and Borland.

Why Microsoft Doubled Industry Benchmarks
Microsoft outperformed competitors like IBM and Sun Microsystems throughout the 1990s. Microsoft achieved a large consumer base by attracting customers with an attractive product with moderate switching costs. The marketing strategy of bundling software and offering successive upgrades rather than new annual products also attracted a large following, increasing its market share of applications software to 95% by 1998. This business model reduced Microsoft’s initial investment and marginal costs, allowing it to distribute more software through its various distribution channels at a higher profit. With its large clientele, Microsoft utilized the advantages of an economy of scale, lowering its cost per unit by maintaining strong bargaining power over its manufacturing and distribution partners. It was the only viable operating system with productivity software and...
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