Microsoft Strategy Analysis

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1Executive Summary
After the successful acquisition of Yahoo!, Microsoft has increased its share on the internet search market and become market leader in web-service subscribers. However, it is still far behind Google in the searching advertising market.

Although Google is by far the leading power in search advertising today, internet search technology is still in its infancy and there are much room for improvement. Microsoft shall invest on the R & D research of search technology and the integration of search with its current products. Meanwhile, it shall also invest in the fast growing display advertising market.

Advancement in technology has enable internet to become a platform in its own right. This brings about the rise of online applications and open-source movement, each offering alternatives to Microsoft software offering. This essay analyses each phenomenon and the threats and opportunities Microsoft is facing.

As the most successful PC software company, Microsoft key strength lies in its ability of creating software that help customers to fulfil their potential. In the up and coming age of internet computing, Microsoft shall keep its focus on being a successful software company. This however requires it to make radical change to its business model, development method and its competition strategy.

In section 4, a SWOT matrix is present consisting the opportunities and threats identified in competitive analysis, and highlight the strategies identified. These strategies are then present in section 5.

2The Story So Far
2.1Acquisition of Yahoo!
Microsoft has successfully acquired Yahoo!, a company renounced for its internet search and media portal services. This takeover bid has been the most talked about IT and business topic in the year of 2008, for its impact on the IT industry in particular the internet searching and advertising sector.

As a result of the acquisition, in the internet searching market, Microsoft and Yahoo! now have a combined market share of 32.7% in the U.S. and 15.7% worldwide, with Google being the market share leader both in the U.S. (58.4%) and worldwide (62.4%)[1]1 below.

In terms of total number of internet service subscribers, Microsoft and Yahoo! has become by far the leading market shareholder in both web-based email (U.S. 74.9% and worldwide 75.5%) and instant messaging (U.S. 57.6% and worldwide 77.2%)[1] .

It is believed that, combining with Yahoo!’s expertise in internet searching and media portal, Microsoft could greatly improve its competitive advantages the online business. In particular, this would put Microsoft in a better position to compete with Google[2][3]. More discussion will be present in following sections regarding the historical, technological and business context of this acquisition.

First of all, let’s have a look at a brief history of Microsoft and Yahoo! to see what path they have taken to arrive in their respective current status.

2.2Company History
Microsoft was founded in 1975 by Bill Gates and Paul Allen after they won a contract to deliver an interpreter for the BASIC language on the Altair 8800 system. In 1981, IBM awarded a contract to Microsoft to use its DOS system as the operating system of IBM’s machines. This bought Microsoft its first major success as a software platform provider [4].

It started to deliver its most iconic product – the Windows operation system in the early 90. Working closely with hardware providers such as Intel, Microsoft established its dominating position as platform provider. By 1993, Windows has become the most widely used GUI operation system [5]. It is widely estimated that more than 90% of the world’s PC run on Microsoft Windows [6].

Microsoft started to expand its business to other sectors of the IT business in the 90s. It was engaged in fiercely business competitions with various competitors in many sectors it tried to enter, most notably with...
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