Microsoft Corporation is a multinational technology company based in the USA in Redmond, Washington. It was established by Bill Gates and Paul Allen in 1975 in New Mexico. It manufactures, develops, licenses, sells, and supports consumer electronics, computer software, personal computers, and other services. It is most famous for its operating system Microsoft Windows, Microsoft Office suite, Internet Explorer and the Edge web browsers. Its renowned hardware products include the Xbox game console and tablet lineup Microsoft Surface. It is the world’s largest software maker with respect to revenue and is also one of the most valuable companies in the world. Microsoft has progressed rapidly since its inception and also made a large number of acquisitions such as Skype and LinkedIn. In 2016, its revenue was more than $85 billion. Microsoft has a workforce of 114,000 employees.
Following is a detailed Porter Five Forces Model Analysis of Microsoft:
Competitive Rivalry – High
Although Microsoft is the pioneer in many of the technologies of personal computers, the today’s electronics industry is very competitive. Many of the products such as operating systems and other software are now also being made by others companies that provide the same level of features that Microsoft does. The competition today in this industry is in the rate of innovation and the marketing campaigns. Players in the industry have made huge investments in the research and development facilities in order to be the most innovative in the industry. There is a certain level of customer loyalty. E.g. the users of Windows operating system MS Office will not easily switch to other software as they have become accustomed to these software and developed proficiency in their use. However, the competitive rivalry is high for Microsoft.
Threat of New Entrants – Medium
In the software business of Microsoft, the threat of new entrants is low. The entry barriers are high. Designing and developing enterprise software is very expensive. Its success takes a lot of time. Also, there is a lack of people who have such proprietary knowledge. The existing players have established absolute cost advantage as a result of their extensive experience and economies of scale. Brand loyalty also plays a role. However, in the hardware sector, many new companies have been able to grow and capture a small share of the market such as in the field of personal computer, video game consoles, tablets, and others. They are still on the small scale but have been successful (Chauhan, 2014). Thus, the threat of new entrants is of a moderate level.
Bargaining Power of Suppliers – Low
Companies in this industry do not have many suppliers. E.g. software is an intangible product that is developed in house. The suppliers supply the components for the making of the hardware products such as tablets, game consoles etc. These suppliers are large in number. Suppliers feel a prestige to be labeled as the suppliers of Microsoft. The supplier switching cost is also low (Weng, 2012). Therefore, the suppliers are not in a position to bargain or influence prices. The bargaining power of suppliers is low against Microsoft.
Bargaining Power of Buyers – Moderate
The buyers which are making use of software made by Microsoft will not easily switch to the software of the competitor, although it performs the same function. The reason is that there is a switching cost as the customers have become fluent with the software of Microsoft and can use them very efficiently. Moving onto new software requires time to adapt which they do not want to give (Littlepage, 2014). Thus, buyers will continue to use them even if Microsoft slightly raises their prices. This is not the case for hardware products. Buyers switching cost is very low, a lot of variety in the market, and ease of adoption of new products makes the bargaining power of buyers high. Overall, the bargaining power of buyers is of a moderate level.
Threat of Substitutes – Low
The substitutes of software are manual writing and record keeping, which have become obsolete now. The substitute of hardware products such as a tablet is to use a writing pad; carry a camera, a counter, and devices that perform the functions a table does. This is impractical. Thus, there is no threat of substitution against Microsoft.
References
Chauhan, C., 2014. Strategic Analysis of Microsoft Corp. (2014). [Online] Available at: https://www.slideshare.net/chinmayschauhan/strategic-analysis-for-microsoft-2014 [Accessed 14 July 2017].
Littlepage, B., 2014. Porter’s 5 Forces. [Online] Available at: https://prezi.com/kh5iio0xr41_/porters-5-forces/ [Accessed 14 July 2017].
Weng, C., 2012. Porter’s 5 Forces Analysis – Microsoft/Xbox. [Online] Available at: https://prezi.com/0dy0okgn4q86/porters-5-forces-analysis-microsoftxbox/ [Accessed 14 July 2017].