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With the boom of Google, the management of Microsoft must come up with a decision on how to compete in the internet search and advertising industry. This case study looks into what Microsoft failed to do in order to capture the market share and what it can improve on to stay with the competition.
Jan W. Rivkin and Eric Van Den Steen
Harvard Business Review (709461-PDF-ENG)
January 15, 2009
Case questions answered:
- Why did Microsoft fail to capture market share beyond Windows and software?
- What other alternatives will Microsoft have to look for to improve its position in the market for internet searches?
- Compare Microsoft’s strategy from 2000 to the current scenario (2000).
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Case answers for Microsoft's Search
Why did Microsoft fail to capture market share beyond Windows and software?
Microsoft’s core business was generating revenues by licensing operating systems (Windows) and software. Before the core business matured, MS couldn’t built capabilities to grow new businesses. Microsoft lagged behind Google’s search engine and advertisement business.
Additionally, Microsoft (MS) was myopic, more into short-term vision. MS was milking the maximum cash out of its operating system (OS) and software business. It was slow to go for offensive diversification like competitors.
Google had captured these capabilities by diversifying into businesses such as mail, Youtube, Chrome, and Andriod well before time (In the future, they’ll focus on ‘Other Bets’– Waymo, self-driving car, Healthcare, Verily, etc.). It just didn’t focus on its core – search business. It diversified into Youtube (made it a video search engine) and generated revenues using an advertisement platform.
Google gained market share by developing the Chrome browser to reduce its dependence on other web-browsers (through Chrome users could use Google’s search engine. This strategy was way ahead of its time since Microsoft had a major market share and internet explorer was the default browser. Google would have been replaced with Bing/Live on internet explorer).
When a business matures, the only way to extract profits is by reducing costs and investing in process improvement. Ultimately, the competition will force the company to push down the selling price.
Microsoft should have learned from this strategy of innovating or diversifying since it was in the technology sector. To be the market leader, MS had to disrupt itself before others could. That could have happened via acquisitions or investments in R&D.
Also, MS made a mistake in the initial stages by focusing on revenue maximization rather than user satisfaction. MSN lost out in this arena since it focused on displaying more advertisements to compensate for falling revenues by cluttering MSN with further advertisements.
Second, Microsoft lost out as first movers’ advantage in many products and markets due to its myopic vision. The products included…
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