ASSIGNMENT

Miscrosoft
Submitted To:
Mam Shehzadi Sattar
Submitted By:
Shehroz Ayaz
Syed Fahad siraj
Subject:
Strategic Management
Registration No:
M1F13MBAM005
M1F13MBAM020
Program:
MBA (5th Semester)

UNIVERSITY OF CENTRAL PUNJAB

Introduction of Microsoft:
Microsoft Corporation is an American multinationaltechnology company headquartered in
Redmond, Washington, that develops, manufactures, licenses, supports and sells computer
software, consumer electronics and personal computers and services. Its best known software
products are the Microsoft Windows line of operating systems, Microsoft Office,office suite,
and Internet Explorer and Edgeweb browsers. Its flagship hardware products are the Xbox
game consoles and the Microsoft Surface tablet lineup. It is the world's largest software
maker by revenue and one of the world's most valuable companies
Microsoft was founded by Paul Allen and Bill Gates on April 4, 1975, to develop and sell
BASICinterpreters for Altair 8800. It rose to dominate the personal computeroperating
system market with MS-DOS in the mid-1980s, followed by Microsoft Windows. The
company's 1986 initial public offering, and subsequent rise in its share price, created three
billionaires and an estimated 12,000 millionaires among Microsoft employees. Since the
1990s, it has increasingly diversified from the operating system market and has made a
number of corporate acquisitions. In May 2011, Microsoft acquired Skype Technologies for
$8.5 billion in its largest acquisition to date.
As of 2015, Microsoft is market dominant in both the IBM PC-compatible operating system
(while it lost the majority of the overall operating system market to Android) and office
software suite markets (the latter with Microsoft Office). The company also produces a wide
range of other software for desktops and servers, and is active in areas including Internet
search (with Bing), the video game industry (with the Xbox, Xbox 360 and Xbox One
consoles), the digital services market (through MSN), and mobile phones (via the operating
systems of Nokia's former phones and Windows Phone OS). In June 2012, Microsoft entered
the personal computer production market for the first time, with the launch of the Microsoft
Surface, a line of tablet computers.
With the acquisition of Nokia's devices and services division to form Microsoft Mobile Oy,
the company re-entered the smartphone hardware market, after its previous attempt,

Microsoft Kin, which resulted from their acquisition of Danger Inc.

Bill Gates
Co-founder of Microsoft Corp.
Founded: 1975

Bill Gates as a Strategic Leader:

"Ultimately, the PC will be a window to everything people are interested in-and everything
we need to know."-Bill Gates
Some see him as an innovative visionary who sparked a computer revolution. Others see him
as a modern-day robber baron whose predatory practices have stifled competition in the
software industry. Regardless of what his supporters and detractors may think, few can argue
that Bill Gates is one of, if not the most successful entrepreneur of the 20th century. In just 25
years, he built a two-man operation into a multibillion-dollar colossus and made himself the
richest man in the world somewhere along the way. Yet he accomplished this feat not by
inventing new technology, but by taking existing technology, adapting it to a specific market,
and then dominating that market through innovative promotion and cunning business savvy.

Gates' first exposure to computers came while he was attending the prestigious Lakeside
School in Seattle. A local company offered the use of its computer to the school through a
Teletype link, and young Gates became entranced by the possibilities of the primitive
machine. Along with fellow student Paul Allen, he began ditching class to work in the
school's computer room. Their work would soon pay off. When Gates was 15, he and Allen
went into business together. The two teens netted $20,000 with Traf-O-Data, a program they
developed to measure traffic flow in the Seattle area.
Despite his love and obvious aptitude for computer programming, and perhaps because of his
father's influence, Gates entered Harvard in the fall of 1973. By his own admission, he was
there in body but not in spirit, preferring to spend his time playing poker and video games
rather than attending class.
All that changed in December 1974, when Allen showed Gates a magazine article about the
world's first microcomputer, the Altair 8800. Seeing an opportunity, Gates and Allen called
the manufacturer, MITS, in Albuquerque, New Mexico, and told the president they had
written a version of the popular computer language BASIC for the Altair. When he said he'd
like to see it, Gates and Allen, who actually hadn't written anything, starting working day and
night in Harvard's computer lab. Because they did not have an Altair to work on, they were
forced to simulate it on other computers. When Allen flew to Albuquerque to test the program
on the Altair, neither he nor Gates was sure it would run. But run it did. Gates dropped out of
Harvard and moved with Allen to Albuquerque, where they officially established Microsoft.
MITS collapsed shortly thereafter, but Gates and Allen were already writing software for
other computer start-ups including Commodore, Apple and Tandy Corp.
The duo moved the company to Seattle in 1979, and that's when Microsoft hit the big time.
When Gates learned IBM was having trouble obtaining an operating system for its new PC,
he bought an existing operating system from a small Seattle company for $50,000, developed
it into MS-DOS (Microsoft Disk Operating System), then licensed it to IBM. The genius of
the IBM deal, masterminded by Gates, was that while IBM got MS-DOS, Microsoft retained
the right to license it to other computer makers.

Much as Gates had anticipated, after the first IBM PCs were released, cloners such as
Compaq began producing compatible PCs, and the market was soon flooded with clones.
Like IBM, rather than produce their own operating systems, the cloners decided it was
cheaper to purchase MS-DOS off the shelf. As a result, MS-DOS became the standard
operating system for the industry, and Microsoft's sales soared from $7 million in 1980 to $16
million in 1981.
Microsoft expanded into applications software and continued to grow unchecked until 1984,
when Apple introduced the first Macintosh computer. The Macintosh's sleek graphical user
interface (GUI) was far easier to use than MS-DOS and threatened to make the Microsoft
program obsolete. In response to this threat, Gates announced that Microsoft was developing
its own GUI-based operating system called Windows. Gates then took Microsoft public in
1986 to generate capital. The IPO was a roaring success, making Gates one of the wealthiest
people in the country overnight.
When Windows was finally released in 1985, it wasn't exactly the breakthrough Gates had
predicted. Critics claimed it was slow and cumbersome. Apple wasn't exactly pleased either.
They saw Windows as a rip-off of the Macintosh operating system and sued. The case would
drag on until the mid-1990s, when the courts finally decided that Apple's suit had no merit.
Meanwhile, Gates worked on improving Windows. Subsequent versions of the program ran
faster and froze less frequently. Third-party programmers began developing Windows-based
programs, and Microsoft's own applications became hot sellers. By 1993, Windows was
selling at a rate of 1 million copies per month and was estimated to be running on nearly 85
percent of the world's computers.
Microsoft solidified its industry dominance in the mid-1990s by combining Windows with its
other applications into "suites" and persuading leading computer makers to preload their
software on every computer they sold. The strategy worked so well that by 1999 Microsoft
was posting sales of $19.7 billion, and Gates' personal wealth had grown to a phenomenal
$90 billion.

But with success has come scrutiny. Microsoft's competitors have complained that the
company uses its operating system monopoly to retard the development of new technology -a claim Gates soundly refutes. Nevertheless, the U.S. Justice Department filed an antitrust
lawsuit against the company in 1998 over its practice of bundling software with Windows.
In November 1999, a U.S. District Court ruled that Microsoft indeed had a monopoly in the
market for desktop-computer operating systems. The court also found that Microsoft engaged
in tactics aimed at snuffing out any innovation that threatened its dominance of the
multibillion-dollar computer industry. A court settlement was approved in 2002 with
Microsoft consenting to curb some of its objectionable practices. Microsoft has since been the
focus of antitrust actions from the European Commission and private litigants.
Attempting to explain his tremendous success, industry experts have pointed out that there
are really two Bill Gateses. One is a consummate computer geek who can "hack code" with
the best of them. The other is a hard-driven businessman who, unlike most of his
fellow Silicon Valleysuperstars, took readily to commerce and has an innate instinct for the
marketplace. This combination enabled Gates to see what his competitors could not. While
they were focusing on selling software, Gates was focusing on setting standards, first with
MS-DOS and later with Windows. The standards he helped set shaped the modern computer
industry and will continue to influence its growth well into the next century.
Dead Giveaway
As a child, Bill Gates' two favorite games were "Risk" (where the object is world domination)
and "Monopoly."
Microsoft's Other Billionaire Bill Gates has become the singular face of Microsoft, but the
company wouldn't be what it is today without Paul Allen. It was Allen who primarily wrote
Microsoft's first program, and according to Microsoft veterans, he championed the company's
biggest successes, including MS-DOS, Windows and Microsoft Word. But Allen reached a
turning point in 1983, when he was diagnosed with Hodgkin's disease.
Forced to rethink his priorities, Allen resigned from his day-to-day duties at Microsoft and
resolved to spend more time enjoying the luxuries his great wealth could afford. He pursued

the good life for two or three years, during which time the cancer went into remission. Rather
than return to Microsoft, however, he plunged into another start-up, founding Asymetrix in
1985, and has since gone on to become one of the country's most successful high-tech
venture capitalists.

Microsoft History
197284: Founding and company beginnings:
Paul Allen and Bill Gates, childhood friends with a passion for computer programming,
sought to make a successful business utilizing their shared skills. In 1972 they founded their
first company, named Traf-O-Data, which offered a rudimentary computer that tracked and
analyzed automobile traffic data. Allen went on to pursue a degree in computer science at
Washington State University, later dropping out of school to work at Honeywell. Gates began
studies at Harvard. The January 1975 issue of Popular Electronics, which Allen bought at Out
of Town News, featured Micro Instrumentation and Telemetry Systems's (MITS) Altair
8800microcomputer. Allen suggested that they could program a BASICinterpreter for the
device; after a call from Gates claiming to have a working interpreter, MITS requested a
demonstration. Since they didn't actually have one, Allen worked on a simulator for the Altair
while Gates developed the interpreter. Although they developed the interpreter on a simulator
and not the actual device, the interpreter worked flawlessly when they demonstrated the
interpreter to MITS in Albuquerque, New Mexico in March 1975; MITS agreed to distribute
it, marketing it as Altair BASIC. They officially established Microsoft on April 4, 1975, with
Gates as the CEO. Allen came up with the original name of "Micro-Soft," as recounted in a
1995 Fortune magazine article. In August 1977 the company formed an agreement with
ASCII Magazine in Japan, resulting in its first international office, "ASCII Microsoft". The
company moved to a new home in Bellevue, Washington in January 1979.
Microsoft entered the OS business in 1980 with its own version of Unix, called Xenix.
However, it was MS-DOS that solidified the company's dominance. After negotiations with
Digital Research failed, IBM awarded a contract to Microsoft in November 1980 to provide a
version of the CP/M OS, which was set to be used in the upcoming IBM Personal Computer
(IBM PC). For this deal, Microsoft purchased a CP/M clone called 86-DOS from Seattle
Computer Products, branding it as MS-DOS, which IBM rebranded to PC DOS. Following
the release of the IBM PC in August 1981, Microsoft retained ownership of MS-DOS. Since
IBM copyrighted the IBM PC BIOS, other companies had to reverse engineer it in order for
non-IBM hardware to run as IBM PC compatibles, but no such restriction applied to the
operating systems. Due to various factors, such as MS-DOS's available software selection,
Microsoft eventually became the leading PC operating systems vendor. The company

expanded into new markets with the release of the Microsoft Mouse in 1983, as well as with a
publishing division named Microsoft Press. Paul Allen resigned from Microsoft in 1983 after
developing Hodgkin's disease.

198494: Windows and Office:

While jointly developing a new OS with IBM in 1984, OS/2, Microsoft released Microsoft
Windows, a graphical extension for MS-DOS, on November 20, 1985. Microsoft moved its
headquarters to Redmond on February 26, 1986, and on March 13 the company went public;
the ensuing rise in the stock would make an estimated four billionaires and 12,000
millionaires from Microsoft employees. Due to the partnership with IBM, in 1990 the Federal
Trade Commission set its eye on Microsoft for possible collusion; it marked the beginning of
over a decade of legal clashes with the U.S. Government. Microsoft released its version of
OS/2 to original equipment manufacturers (OEMs) on April 2, 1987; meanwhile, the
company was at work on a 32-bit OS, Microsoft Windows NT, using ideas from OS/2; it
shipped on July 21, 1993, with a new modularkernel and the Win32application programming
interface (API), making porting from 16-bit (MS-DOS-based) Windows easier. Once
Microsoft informed IBM of NT, the OS/2 partnership deteriorated.
In 1990, Microsoft introduced its office suite, Microsoft Office. The software bundled
separate office productivity applications, such as Microsoft Word and Microsoft Excel.On
May 22 Microsoft launched Windows 3.0 with a streamlined user interface graphics and
improved protected mode capability for the Intel 386 processor. Both Office and Windows
became dominant in their respective areas. Novell, a Word competitor from 19841986, filed
a lawsuit years later claiming that Microsoft left part of its APIs undocumented in order to
gain a competitive advantage.
On July 27, 1994, the U.S. Department of Justice, Antitrust Division filed a Competitive
Impact Statement that said, in part: "Beginning in 1988, and continuing until July 15, 1994,
Microsoft induced many OEMs to execute anti-competitive "per processor" licenses. Under a
per processor license, an OEM pays Microsoft a royalty for each computer it sells containing
a particular microprocessor, whether the OEM sells the computer with a Microsoft operating
system or a non-Microsoft operating system. In effect, the royalty payment to Microsoft
when no Microsoft product is being used acts as a penalty, or tax, on the OEM's use of a
competing PC operating system. Since 1988, Microsoft's use of per processor licenses has
increased."

19952007: Internet and the 32-bit era:

Following Bill Gates's internal "Internet Tidal Wave memo" on May 26, 1995, Microsoft
began to redefine its offerings and expand its product line into computer networking and the
World Wide Web. The company released Windows 95 on August 24, 1995, featuring pre-

emptive multitasking, a completely new user interface with a novel start button, and 32-bit
compatibility; similar to NT, it provided the Win32 API. Windows 95 came bundled with the
online serviceMSN (which was originally planned to be a competitor to the Internet), and for
OEMs Internet Explorer, a web browser. Internet Explorer was not bundled with the retail
Windows 95 boxes because the boxes were printed before the team finished the web browser,
and instead was included in the Windows 95 Plus! pack. Branching out into new markets in
1996, Microsoft and NBC Universal created a new 24/7 cable news station, MSNBC.
Microsoft created Windows CE 1.0, a new OS designed for devices with low memory and
other constraints, such as personal digital assistants.In October 1997, the Justice Department
filed a motion in the Federal District Court, stating that Microsoft violated an agreement
signed in 1994 and asked the court to stop the bundling of Internet Explorer with Windows.

In 1996, Microsoft released Windows CE, a version of the operating system meant for
personal digital assistants and other tiny computers.
Bill Gates handed over the CEO position on January 13, 2000, to Steve Ballmer, an old
college friend of Gates and employee of the company since 1980, creating a new position for
himself as Chief Software Architect. Various companies including Microsoft formed the
Trusted Computing Platform Alliance in October 1999 to, among other things, increase
security and protect intellectual property through identifying changes in hardware and
software. Critics decry the alliance as a way to enforce indiscriminate restrictions over how
consumers use software, and over how computers behave, a form of digital rights
management; for example the scenario where a computer is not only secured for its owner,
but also secured against its owner as well. On April 3, 2000, a judgment was handed down in
the case of United States v. Microsoft, calling the company an "abusive monopoly"; it settled
with the U.S. Department of Justice in 2004. On October 25, 2001, Microsoft released
Windows XP, unifying the mainstream and NT lines under the NT codebase. The company
released the Xbox later that year, entering the game console market dominated by Sony and
Nintendo. In March 2004 the European Union brought antitrust legal action against the
company, citing it abused its dominance with the Windows OS, resulting in a judgment of
497 million ($613 million) and to produce new versions of Windows XP without Windows
Media Player, Windows XP Home Edition N and Windows XP Professional N.

200711: Windows Vista, mobile, and Windows 7:

CEO Steve Ballmer at the MIX event in 2008. In an interview about his management style
in 2005, he mentioned that his first priority was to get the people he delegates to in order.
Ballmer also emphasized the need to continue pursuing new technologies even if initial
attempts fail, citing the original attempts with Windows as an example
Released in January 2007, the next version of Windows, Windows Vista, focused on features,
security, and a redesigned user interface dubbed Aero. Microsoft Office 2007, released at the
same time, featured a "Ribbon" user interface which was a significant departure from its
predecessors. Relatively strong sales of both titles helped to produce a record profit in 2007.
The European Union imposed another fine of 899 million ($1.4 billion) for Microsoft's lack
of compliance with the March 2004 judgment on February 27, 2008, saying that the company
charged rivals unreasonable prices for key information about its workgroup and backoffice
servers. Microsoft stated that it was in compliance and that "these fines are about the past
issues that have been resolved".
2007 also saw the creation of a multi-core unit at Microsoft, as they followed in the steps of
server companies such as Sun and IBM.
Bill Gates retired from his role as Chief Software Architect on June 27, 2008, while retaining
other positions related to the company in addition to being an advisor for the company on key
projects. Azure Services Platform, the company's entry into the cloud computing market for
Windows, launched on October 27, 2008. On February 12, 2009, Microsoft announced its
intent to open a chain of Microsoft-branded retail stores, and on October 22, 2009, the first
retail Microsoft Store opened in Scottsdale, Arizona; the same day the first store opened,
Windows 7 was officially released to the public. Windows 7's focus was on refining Vista
with ease of use features and performance enhancements, rather than a large reworking of
Windows.
As the smartphone industry boomed beginning in 2007, Microsoft struggled to keep up with
its rivals Apple and Google in providing a modern smartphone operating system. As a result,
in 2010, Microsoft revamped their aging flagship mobile operating system, Windows Mobile,
replacing it with the new Windows Phone OS; along with a new strategy in the smartphone
industry that has Microsoft working more closely with smartphone manufacturers, such as
Nokia, and to provide a consistent user experience across all smartphones using Microsoft's
Windows Phone OS. It used a new user interface design language, codenamed "Metro",

which prominently used simple shapes, typography and iconography, and the concept of
minimalism.
Microsoft is a founding member of the Open Networking Foundation started on March 23,
2011. Other founding companies include Google, HP Networking, Yahoo, Verizon, Deutsche
Telekom and 17 other companies. The nonprofit organization is focused on providing support
for a new cloud computing initiative called Software-Defined Networking.The initiative is
meant to speed innovation through simple software changes in telecommunications networks,
wireless networks, data centers and other networking areas.

2011present: Rebranding, Windows 8, Surface and Nokia devices:

Start screen on Windows 8.1

Surface Pro 3, part of the Surface series of laplets by Microsoft

Following the release of Windows Phone, Microsoft underwent a gradual rebranding of its
product range throughout 2011 and 2012the corporation's logos, products, services, and
websites adopted the principles and concepts of the Metro design language. Microsoft
previewed Windows 8, an operating system designed to power both personal computers and
tablet computers, in Taipei in June 2011. A developer preview was released on September 13,
and was replaced by a consumer preview on February 29, 2012.On May 31, 2012, the
preview version was released.
On June 18, 2012, Microsoft unveiled the Surface, the first computer in the company's history
to have its hardware made by Microsoft. On June 25, Microsoft paid US $1.2 billion to buy
the social network Yammer.On July 31, 2012, Microsoft launched the Outlook.comwebmail
service to compete with Gmail. On September 4, 2012, Microsoft released Windows Server
2012.

In July 2012, Microsoft sold its 50% stake in MSNBC.com, which it had run as a joint
venture with NBC since 1996. On October 1, Microsoft announced its intention to launch a
news operation, part of a new-look MSN, at the time of the Windows 8 launch that was later
in the month. On October 26, 2012, Microsoft launched Windows 8 and the Microsoft
Surface. Three days later, Windows Phone 8 was launched. To cope with the potential for an
increase in demand for products and services, Microsoft opened a number of "holiday stores"
across the U.S. to complement the increasing number of "bricks-and-mortar" Microsoft
Stores that opened in 2012.
On March 29, 2013, Microsoft launched a Patent Tracker.The Kinect, the motion sensing
input devices by Microsoft, which was first introduced in November 2010 was upgraded for
the 2013 release of the eighth-generation Xbox One. Its capabilities were revealed in May
2013. The new Kinect uses an ultra-wide 1080p camera, it can function in the dark due to an
infrared sensor, it employs higher-end processing power and new software, it can distinguish
between fine movements (such as a thumb movements), and the device can determine a user's
heart rate by looking at his/her face. Microsoft filed a patent application in 2011 that suggests
that the corporation may use the Kinect camera system to monitor the behavior of television
viewers as part of a plan to make the viewing experience more active. On July 19, 2013,
Microsoft stocks suffered its biggest one-day percentage sell-off since the year 2000 after its
fourth-quarter report raised concerns among the investors on the poor showings of both
Windows 8 and the Surface tablet; with more than 11 percentage points declining Microsoft
suffered a loss of more than US$32 billion. For the 2010 fiscal year, Microsoft had five
product divisions: Windows Division, Server and Tools, Online Services Division, Microsoft
Business Division, and Entertainment and Devices Division.

Xbox One console

Xbox 360Kinect sensor

John W. Thompson has been appointed the chairman of Microsoft, taking over from Bill
Gates.
On September 3, 2013, Microsoft agreed to buy Nokia's mobile unit for $7 billion. Also in
2013, Amy Hood became the CFO of Microsoft.
The Alliance for Affordable Internet (A4AI) was launched in October 2013 and Microsoft is
part of the coalition of public and private organizations that also includes Facebook, Intel and
Google. Led by Tim Berners-Lee, the A4AI seeks to make Internet access more affordable so
that access is broadened in the developing world, where only 31% of people are online.
Google will help to decrease internet access prices so that they fall below the UN Broadband
Commission's worldwide target of 5% of monthly income.
In line with the maturing PC business, in July 2013, Microsoft announced that it would
reorganize the business into four new business divisions by function: Operating System,
Apps, Cloud and Devices. All previous divisions will be diluted into new divisions without
any workforce cut.
On February 4, 2014, Steve Ballmer stepped down as CEO of Microsoft and was succeeded
by Satya Nadella, who previously led Microsoft's Cloud and Enterprise division. On the same
day, John W. Thompson took on the role of chairman, with Bill Gates stepping down from the
position to become more active within the company as Technology Advisor.
On April 25, 2014, Microsoft acquired Nokia Devices and Services and formed a new
subsidiary, Microsoft Mobile Oy.
On September 15, 2014, Microsoft acquired the video game development company Mojang
for $2.5 billion, best known for its wildly popular flagship game Minecraft.
On January 21, 2015, Microsoft announced the release of their first Interactive whiteboard,
The Surface Hub (Part of the Surface family)
In Q1 2015, Microsoft is the third largest maker of mobile phones selling 33 million units
(7.2% of all), while a large majority (at least 75%) of them do not run any version of
Windows Phone those other phones are not categorized as smartphones by Gartner in the
same time frame 8 million Windows smartphones (2.5% of all smartphones) where made by
all manufacturers (but mostly by Microsoft).

 Corporate Diversification Strategy of Microsoft

Microsoft has been in the news for a lot of different reasons lately. Whether it was the naming
of the new CEO, Satya Nadella. Satya Narayana Nadella is an Indian-American business
executive. He is the current chief executive officer of Microsoft. He was appointed as CEO
on 4 February 2014, succeeding Steve Ballmer the release of the new Xbox, their purchase of
Nokia, or, most recently, their move to put Office on the iPad, Microsoft has to make a lot of
very important decisions, but how do that do that? Major decisions like the ones described in
the news recently need context. Why should Microsoft buy Nokia? What do they gain?
Should they go into the handset market? All of these questions depend on how the company
sets up its corporate diversity strategy. Below is my corporate diversification strategy analysis
of Microsoft. Note it was written prior to the release of Office on iPad.
Analysis:
Microsoft is a software, services, and solutions provider based in Redmond, Washington.
They are a $77 billion company with almost 100,000 employees (Microsoft, 2014). Microsoft
is mostly known for its Windows operating system and Office products featuring Word,
Excel, and PowerPoint. Microsoft has five major strategic business units: Windows Division,
Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment
and Devices Division. Appendix A lists principle products for each segment.
Corporate-level activities for Microsoft include broad-based sales and marketing, product
support services, human resources, legal, finance, information technology (IT), corporate
development and procurement activities, research and development (R&D), costs of
operating retail stores, and legal settlements and contingencies. The total cost of corporatelevel activities in 2013 was $6,665 million (U.S. Securities and Exchange Commission,
2014). While there is no public information regarding allocation of these costs, many of the
activities are apparently not allocated specifically to segments (e.g. broad-based sales and
marketing, human resources, legal, costs of operating retail stores, and legal settlements and
contingencies). For example, legal settlements and contingencies would arise unexpectedly
and then be billed at the corporate-level. For activities like information technology and
research and development, it is assumed that the segments would need to request these funds
during their corporate budgeting cycle. The general amount spent towards R&D, for example,
is most likely determined prior to the start of the fiscal year by taking into account previous
spending, upcoming projects, R&D emphasis changes, and available funds. From the amount
allocated to each activity, there would be a process for each segment to obtain resources.
In order to understand the interplay of Microsofts business segments, the operating incomes
of all segments were plotted for the previous four years (Figure 1).

Figure 1: Microsoft Business Segments Operating Income

Based on the products described in Appendix A and the incomes from each segment in Figure
1, an understanding of where each segment belongs on Boston Consulting Groups unrelated
diversification matrix (Appendix B) can be arrived at. The matrix applied specifically to
Microsoft is shown in Figure 2.
The Microsoft Business Division and the Windows Division are cows. These segments have
high income for Microsoft that they can milk. Additionally, they operate in industries that
have low market growth and the products in these segments have high market share with the
exception of a few products.
Currently there are no stars for Microsoft, but they are investing in certain products like
OneDrive, the Surface tablets, and entertainment devices in hopes of finding a star. The subsegment diversifcation strategy should be noted. Xbox is within the Entertainment and
Devices Division, another cow type product, that is most likely being used to fund more
questionable products like the Windows phone. A similar sub-segment diversification strategy
is the Windows operating system supporting the OneDrive and tablet products. Unfortunately,
there are no public figures regarding each specific segment, which would allow for a deeper
analysis to be done.
In terms of the dogs, the Online Services Division and the Server Tools Division are great
examples. Both of these divisions have low market share (e.g. Bing(1/3) vs Google(2/3)
(MadWire Media, 2013) or Windows server(14%) vs Linux(65%) (Netcraft, 2014)) and have
low market growth as both industries have matured.

Figure 2: BCG Matrix Applied To Microsoft*

*Bold=Business segments
non-bold=notable exception products (i.e. their segment is categorized differently)
Based on the the BCG matrix, Microsoft is correctly taking from cows and investing in
question marks. They are not following the BCG principles by allowing the dogs to continue
to survive. The ownership test provides some insight as to why this may be. If the Server and
Tools segment was an independent company, it would not perform near as well because of the
synergies with the Windows Division. Additionally, this demonstrates a good example of the
better off test for the Server and Tools segment. They are better off under the Microsoft
umbrella for the same synergies. Neither test would pass for the Online Services Division.
How does having Bing or MSN help Microsoft? The potential answer to this question is
discussed in more detail later in the paper.
Company wide there is a lot of collaboration. For example, all of the software is designed to
work together. The Windows operating system lets clients work with Microsoft servers, but
the Windows operating system also lets clients collaborate together through the Office suite.
The Xbox is the most independent product because it doesnt integrate with the Windows
operating system for most users, although it can be used to stream media from a Windows
operating system. All of these segments use the corporate-level functions described
previously. Each segment can use corporate-level resources like legal, human resources, IT,
and R&D, but how much they use each function varies. Overall, Microsofts diversification
strategy is related.
The major result of this collaboration amongst segments is a synergy. Imagine a large
corporation that uses all Windows PCs. As an IT purchaser, there is a push to also purchase
Windows servers, because they are designed to work flawlessly with each of those PCs. This
same synergistic principle can be applied to all of the business division products (e.g. Office).
This has a huge synergistic value when 91% of PCs run windows (NetMarketShare, 2014).
Another example is OneDrives (i.e. like Dropbox) recent integration with Office to allow
documents to be stored in the cloud for enhanced collaboration with teams.

The integration of Microsoft products can also have negative synergies. A great example is
related to OneDrive and Office. By Microsoft forcing only the integration of OneDrive for
corporate reasons, they are not allowing Office to integrate Dropboxs 200 million users
(Constine, 2013). This hurts Offices ability to grow, but helps the company form a corporate
ecosystem.
Microsoft is a very vertically integrated software company. It does all of its design in house,
because that is its intellectual propertythe code. Other services are outsourced like internal
IT (Thibodeau, 2010) and commoditized legal services (Mintzer, 2013). These services are
not core competencies for Microsoft. Microsoft should stay with the same level of vertical
integration. They should only outsource elements of the business that are not a core
competency for them, because this will ensure no other company can imitate them.
One of the major advantages that comes with massive vertical integration is a parenting
advantage for Microsoft. An example of the parenting advantage is their R&D department. In
2012, Microsoft spent more than Oracle, Google, IBM, Apple, and HP on R&D to the tune of
$8.7 billion (Banerjee, 2012). This large R&D department can be utilized by any Microsoft
segment and gives each segment an advantage. Another parenting advantage for Microsoft is
the brand. Being such a well-known name in the technology industry places any of
Microsofts products at an advantage. A third parenting advantage is the bundle. Currently
Microsoft has a very large Rolodex of companies that it does business with. If Microsoft
releases a new product, it can bundle the product in with others to gain market share. They
did this so impressively with Internet Explorer that it got them deemed as a monopolist by a
federal judge (Wilcox, 1999).
Ultimately, Microsoft creates value at the corporate-level for most segments. The Online
Services Division is the only mystery. Bing only has 33% of the search engine market share
(MadWire Media, 2013) and MSN.com is ranked 33rd globally behind Google.com (1st) and
Yahoo.com (3rd) (Alexa, 2014). This lack of market share and losses shown in Figure 1 would
lead anyone to believe the segment should be sold. With that said, having knowledge of what
your customers are doing online through searches and how they configure their personal
MSN.com homepage is valuable information that is difficult to acknowledge without inside
information. These intangibles seem to be the only business case for the Online Services
Division. If there is no insider information that would demonstrate value otherwise, my first
recommendation would be to divest the Online Services Division.
Additionally, I think the Surface tablet should be moved under the Entertainment and Devices
Division. While the tablets run versions of Windows, I feel these products are questions like

the other Windows phones and there would be many synergies of having the mobile phone
developers work with the Surface developers. The problem trying to be solved by Microsoft
is that people want to be productive on the go. The Windows phone and Surface tablet are
Microsofts answer to that question and therefore should be developed together under the
same division. Having the Surface tablet under the Windows Division does not add any
apparent synergistic value.
Thirdly, a current major issue for Microsoft is the lack of stars. Microsoft does not have any
products that have high market growth with relatively high market share. This is a major
concern, because that means there is nothing to become the next cow. What happens when the
Windows Division or the Microsoft Business Division stops producing cash to invest into
question marks? While this may not be relatively soon with Windows still holding a lions
share of the PC market, the executives at Microsoft must plan for that now. This problem
could be solved with acquisition, but I would recommend heavier investment into Microsoft
Ventures, the venture capital (VC) group within Microsoft. Investment in this group with
continued high investment in R&D will give Microsoft the best chance to come up with the
next star. I do not recommend using acquisition and not just because 1 in 5 M & As fail. I
recommend it mostly because Microsoft has the human capital that should know a star when
they see it through either R&D or VC. This will allow them to grow the idea from an early
stage to fit it into the Microsoft ecosystem that provides the many synergies already
discussed.
Finally, I recommend that Microsoft not move into the hardware arena. In September of
2013, Microsoft purchased Nokias devices and services business, license Nokias patents,
and license and use of Nokias mapping services (Microsoft, 2013). This acquisition should
be used to grow a star, but it may tempt Microsoft into entering the hardware business
through Nokia devices. This would be an inferior idea, because Microsoft has always been a
software company and they would have too much to learn to compete in hardware.
Ultimately, Microsoft should sell off the Nokia devices business.
In conclusion, Microsoft is in a difficult situation now without any stars. Fortunately, they
have cash cows that look healthy. In order to continue to be the worldwide leader in software,
services, and solutions that help people and businesses realize their full potential they should
make the four recommendations outlined in this analysis.

Satya Nadella:

Satya Nadella is Chief Executive Officer of Microsoft. Before being named CEO on February
4, 2014, Nadella held leadership roles in both enterprise and consumer businesses across the
company.
After joining Microsoft in 1992, Nadella quickly became known within the company as a
leader who could span a breadth of technologies and businesses to transform some of
Microsofts biggest product offerings.
Prior to his role as CEO, Nadella was executive vice president of Microsofts Cloud and
Enterprise group, one of the companys fastest-growing and most profitable businesses.
While Nadella was there, the groups revenue increased by 22 percent, and its profits by 33
percent. Previously, Nadella led R&D for the Online Services Division, guiding the
development of one of the largest cloud infrastructures in the world, to support products
including Bing, Xbox and Office.
Before joining Microsoft, Nadella was a member of the technology staff at Sun
Microsystems.
As Microsofts third CEO (succeeding Steve Ballmer and Bill Gates), Satya Nadella brings a
relentless drive for innovation and a spirit of collaboration to the role. He says he joined
Microsoft 22 years ago because he saw how clearly Microsoft empowers people to do
magical things and ultimately make the world a better place. Many companies, he explains,

aspire to change the world. But very few have all the elements required: talent, resources
and perseverance. Microsoft has proven that it has all three in abundance.
Originally from Hyderabad, India, where he was born on August 19, 1967, Nadella now lives
in Bellevue, Wash. He holds a bachelors degree in electrical engineering from Mangalore
University, a masters degree in computer science from the University of Wisconsin
Milwaukee and a masters degree in business administration from the University of Chicago.
Nadella is married and has three children. In his spare time, he loves to read poetry and
follows cricket, a sport he played in school as a child.

Microsoft's (MSFT) main competitors and Analysis:

Microsoft Corporations (MSFT) primary competitors include some of the most prominent
technology companies in the industry. The list includes well-known brands such as Apple
(AAPL), Google (GOOG), SAP, IBM (IBM) and Oracle (ORCL), among others. Because
Microsoft is a diversified corporation that offers many types of products and services, the
company faces stiff competition in several key areas of the technology sector.
Microsoft got its start by focusing on software, and although the company has branched out
into other areas, it still has a strong emphasis on this sector. Some of the most successful
software corporations in the world, such as Oracle and the German firm SAP, compete
directly with Microsoft for the lucrative business services market.
The extremely popular Windows operating system is perhaps the most prominent Microsoft
product. In this area, the company competes with a number of smaller firms, such as Red Hat,
that distribute open-sources operating systems such as Linux.
Microsoft is also an important player in the hardware field. Its products includes tablets
designed to compete with similar devices made by other companies, such as Apple. The
company makes a variety of computer accessories as well, which brings it in direct
competition with several firms that specialize in this area, such as Logitech.
Microsoft is also a major force in online search with its Bing search engine. The main rival
company here is Google, along with various other firms with smaller engines.

Microsoft faces competitive pressures in all areas of its operations. The pressure comes from
a diverse mix of technology companies, both large and small.