SPOTLIGHT—MICROSOFT
Microsoft was founded in 1975, when Bill Gates left Harvard at age 19 to work with high school friend
Paul Allen on a version of the BASIC programming language. After moving the company from
Albuquerque, New Mexico, to Seattle in 1979, Gates and Allen began writing operating system
software. What happened to the company since it's founding is a well-known and oft-told story. Here
we highlight a few of the key strategies that enabled Microsoft to achieve such remarkable growth in the
competition-laden computer industry:
Product innovation: Microsoft achieved early success because of a single product innovation. In 1980,
IBM contracted Microsoft to write the operating systems for its new PCs, which led to the creation of
Microsoft Disk Operating System (MS-DOS). Since other PC manufacturers desired compatibility with
IBM machines, Microsoft was soon adopted as the standard PC operating system. Another, even
bigger innovation followed. In 1983, the company introduced the now-ubiquitous Windows, based on a
graphical interface common to Apple's Macintosh system. Since it was the first "windowing" software to
work on PCs from any brand, Windows—like DOS before it—became the standard for personal
computers.
While Windows enabled the company to vault to unforeseen heights, it continued to develop innovative
software and other products. Microsoft's current big project is a next-generation operating system called
Microsoft .Net (pronounced "dot-net"), designed to merge Windows with the Internet directly. Microsoft
.Net will allow multiple devices—PCs, wireless phones, pagers, digital cameras, PDAs, and other "smart
devices"—to work together over Web connections with unprecedented ease.
Brand-extension strategy: Microsoft uses its strong brand name to launch new software products.
Some examples include Microsoft Word, Microsoft Office, and Microsoft Internet Explorer. In 1989,
Microsoft passed Lotus to become the world's largest seller of software worldwide. At that time, the
company boasted the broadest array of software products and applications as well as the highest profit
margin in the industry, at close to 25 percent.
Launching a new product under a strong existing brand name gives the new brand instant recognition
and credibility with much less advertising outlay.
Heavy advertising: In the early years, Microsoft used advertising sparingly. In the mid-1990s, however, it
began to advertise aggressively. In 1994, the company made two major moves: it hired the head of
marketing and advertising from Procter & Gamble and developed its first global advertising campaign.
The campaign doubled the company's ad budget to $100 million, and the following year that figure
ballooned to $200 million for the Windows 95 launch. Today, it is common for the company to spend $50
million marketing a single product. Its global marketing budget for 2001 exceeded $500 million.
Competitive toughness: Microsoft's aggressive competitive practices enabled the company to establish a
leadership role in many product categories, but also led to legal battles. In one of the most publicized
antitrust suits ever, the U.S. Justice Department filed antitrust charges against Microsoft, claiming that it
had limited consumer choice and stifled competition in part by bundling software, such as Internet
Explorer, with its operating system. The presiding judge ruled to split Microsoft into two separate
companies—an operating system company and an applications company, but the company continues to
operate as a whole while its appeal is pending.
Product expansion: Microsoft was quick to expand its business beyond operating systems into software
applications for home and business PC users, educational software, and computer games. The
company also expanded its operating system business. In 1993, the company introduced its Windows
NT operating system, which was designed to compete with UNIX as the operating system of choice for
large networks. After overcoming initial reluctance to embrace the Internet, Microsoft developed the
Internet Explorer Web browser as an answer to Netscape, and developed the Web portal Microsoft
Network (MSN) to compete with the likes of Yahoo! and AOL. MSN was not successful and endured
major alterations before being reborn as MSN.com. The company also expanded into media
development in the 1990s. It formed a joint venture with NBC to create the cable station MSNBC, which
featured news, financial, and talk show programming. The company added another television venture in
1997 when it bought the set-top box system WebTV (later to become UltimateTV). The company rolled
out a video game console called Xbox intended to compete with advanced game systems from Sony
and Nintendo.
Sources: Rebecca Buckman, "About Advertising: Microsoft Ad Campaign Touts Its Software for Big Business."
Wall Street Journal Europe, January 23, 2001; "Windows of Opportunity." Marketing Week, December 9, 1994;
"Microsoft Hires P&G Marketer." Marketing Week, November 18, 1994; www.microsoft.com
Questions
1.
Could Microsoft be considered one of the best and worst examples of marketing success in
America during the 1980s and 1990s? Discuss.
2.
The Marketing Spotlight notes some of the effective competitive marketing strategies that
Microsoft has exhibited in a short but very successful history. Could a similar firm entering the
market today operate in the same manner?
3.
Do any of the Microsoft strategies belie future issues that Microsoft and other technologyoriented firms should prepare to deal with in coming years?