The Landscape of the IT Industry - Google - Assignment Example

The landscape of the IT industry has changed dramatically in recent years. Gone are the days of Goliaths of the industry like Microsoft dominating the industry with little scope for other companies to challenge its position? Microsoft enjoyed the number one position virtually unchallenged for a long time. The stranglehold it had on all aspects of the IT software market, be it for desktop applications or internet browsers, was so strong that a string of lawsuits were slapped on it for alleged anti-trust practices. It was contemplated that Microsoft would be broken up into smaller units a la Bell and Baby Bells. (Egan, 2008, p.14) It is in this context that the rise of Google as a serious competitor to Microsoft with potential to challenge the latter’s supremacy has to be viewed. Google started off on the web search front and slowly started foraying into desktop applications that could be integrated with the web applications unlike Microsoft that insisted on proprietary and standalone desktop software. Google went farther and started giving away its desktop application software for free as compared to Microsoft that charged a price for its Office suite of applications. The fact that Google has found a ready audience for its applications are as much a reflection on Google’s savvy business strategy as they are about changing customer preferences and tastes. The point about changing customer preferences and consequent shift in the demand patterns is something that would be discussed throughout this case study. (Bodell, 2008, p.145) The key point about the case is that Microsoft that has long enjoyed unprecedented and virtually unchallenged success as the top software maker of choice is now faced with an existential dilemma that threatens to not only to dethrone it from its position but also lead to a much worrisome (for Microsoft Management that is) decline in profits and revenues. There are many reasons for this seemingly precipitous fall from its position. Primary among them is the fact that Microsoft may not have paid heed to the market conditions and changing customer preferences in the same way it did for over a decade. This is surprising for a company that has always prided itself to be “ahead of the curve” when it comes to anticipating customer preferences and doing business at the “speed of thought” that means that it is always on top of the market. (Hassan, 2003, p.138) The other reason could be that Microsoft has become lethargic to change and adaptation given the fact that it has grown into a huge monolith where the inertia of organizational bureaucracy is dragging it down and making it slow to respond to changing market conditions. (Cusumano, 2009, p.27) When contrasted with Google that is nimble and fleet footed when it comes to anticipating the fluid market conditions, Microsoft appears to be a lumbering elephant that is slow to move fast and respond to Google’s moves in the market. (Malcolm, 2010, p.180)This situation is compounded by the fact that Google has a distinctive edge in the market for internet compatible products and it is with this in mind that Google has exploited the market with its offerings of software that integrates into its browser and is fully compatible with the internet. (Kalyanam, 2002, p.485) There have been volumes written about how Microsoft sleepwalked its way in the midst of the Internet revolution and how it missed key opportunities along the way. The succeeding paragraphs would analyze the reasons in detail for the lack of strategy by Microsoft when it concerns the market for software that is compatible with the internet. (Losekoot, 2008, p. 260) The Porter’s Five Forces Model is an excellent tool to aid in the analysis of strategy of the companies being reviewed here. The subsequent paragraph applies the Five Forces to Microsoft and Google (in that order) and lists each of the attributes or forces with a detailed explanation. The Force of Potential Entrants or the Threat of Entrants was traditionally not high for Microsoft because of the way in which Microsoft achieved the economies of scale with its mass production of shrink wrapped software that relied on extensive distribution channels (spanning more than one medium) and because of the high capital requirements for entry into the software market. It is an article of faith that software makers need to dig in their heels for quite some time before they can achieve the critical mass required to market their products on a large scale. This is evident in the way both Apple and Microsoft developed over a period of a decade rather than years. And this can be seen from the way in which small time software makers often remain small either because they do not have the “deep pockets” required (from Venture capital funding) or because their product has not achieved the maturity needed to leverage on the economies of scale. (Hamlin, 2007, p.940) A further aside to this force is that early on Microsoft differentiated its products to a large extent making it virtually impossible for “clones” and “me-too” products to enter the market in a big way and spoil its party. However, Google realized that entering a market where differentiation is needed meant that it needed an entirely different approach towards strategy and hence based its strategy around making its products internet based rather than purely desktop applications like Microsoft Office. (Griffiths, 2007, p.1075) This was the key to its strategy of capturing the market without having access to distribution channels in the extensive way in which Microsoft has. A noteworthy point is that Google offers its products in a downloadable manner i.e. its products can be downloaded over the internet without the customers having to visit POS (Point of Sale) outlets for buying shrink wrapped software that is the case with Microsoft. However, Microsoft did try and provide these services to its customers but given the large customer base and the force of habit for many customers who prefer shrink wrapped software delivered instead of downloaded. (Porter, 2008, p.80) The next force or Threat of Substitutes can be understood in the context of Microsoft as initially not being so much of a threat but which later evolved into a high probability threat because of various reasons. Before going into the reasons for this force becoming a greater threat, it would be pertinent to note that Microsoft did everything right in the decades up to this one with its emphasis on satisfying the need for effortless computing and replicating the physical processes that were being done manually into a automated environment. With its range of products like the Office suite that were designed to automate everyday processes, Microsoft scored big by enticing customers to move away from the manual to the automated. It can be said that Microsoft “created” a market for automated software for official and personal use and the PC (Personal Computer) based paradigm of work sparked a revolution of sorts. (Peattie, 2001, p.140) However, with the passage of time, the attributes that initially made the threat of substitutes low to moderate became high because of the way in which Google and now Apple replicated Microsoft’s strategy on the PC based paradigm to web based computing (Google) and Mobile based computing (Apple). (Scott, 2008) The success of these two rivals of Microsoft indicates that there is tectonic shift underway in the way customers do their work with the web and mobile based paradigms becoming more prevalent. It has to be noted that the key term here is the “substitution of need” and whereas once Microsoft perceived this need for computing accurately and launched its products to suit the customer demand and even creating demand in the process, Google and Apple are redefining this by making customers aware of the potential of the web and mobile applications. (O’Malley, 2008, p. 175) The next force Power of Buyers and Supplier follows the similar trajectory that was described in the paragraph above. As the class discussion on this force shows, “he who controls the prices and outputs can influence competitiveness in the industry”. This was true for Microsoft as it had a vice like grip on the way its shrink wrapped software was being sold to its customers. Microsoft was like a colossus striding on the stage with few peers and hence, it had tremendous power in the way it set prices. (Constantinides, 2006, p.430) The power of buyers was to a great extent nullified because of the lack of choices for the customers when it concerned the specific range of products that Microsoft was selling. Given the fact that Microsoft created the market as well as defined what customers could and could not use, it was a situation where Microsoft had the ultimate power to decide on its pricing without any competitive constraints. (Gilbert, 2004) However, all this changed with the advent of the free software paradigm and the era of web based computing. Once customers realized that competitors like Google were offering the same services and products for free or for moderately priced price points, it was not long before the buyer power came out in full flow against Microsoft. (Stewart, 1990) It can also be argued that it was the latent resentment at Microsoft that fuelled some of the increase in the buyer power towards other applications that were being introduced into the market. Further, the power of suppliers was also in Microsoft’s favour as is evident from its “bundling” of its internet browser along with its operating system that resulted in the famous lawsuit where it was argued that Microsoft was violating the anti-trust provisions with its insistence on the hardware makers to carry its browser along with the operating system. Those were the days when Microsoft could dictate terms to the buyers and sellers and get away with it even in the face of the anti-trust lawsuits that ended without any substantial change in the way Microsoft operated. (Subramanian, 2010, p.250) The last factor or the factor that ties in all these forces i.e. the Competitive Rivalry needs to be examined at some length for an understanding of where Microsoft and the software and hardware industry is headed in the next few years. (Duncan, 2008, p.12) The key factors to be considered here are the product maturity and the fact illustrated in the case that Microsoft’s cash cows are being limited to its operating system and office suite of products both of which are under attack because of the way in which Apple has made strides in mobile based computing and Google is giving away its software for free. (Carr, 2008) As discussed in the class, the market for software products has become commoditized and hence the “law of diminishing returns” has set in for Microsoft in its ability to milk the profits from its flagship products. (Svensson, 2005, p.425) The point here is that strategy, as described in one of the readings given for this module states, is the result of a combination of well thought approach and an ability to respond quickly to changing market conditions. For a company to maintain its leadership status, it needs to have an ability to visualize the future as well as anticipate short term trends. (Sultan, 2009, p.320) As the reading states, ““strategy” is widely used to refer to the plans and actions that firms take to achieve their objectives. It is simultaneously a process by which plans for allocating resources are developed and the actions required to achieve their goals are identified. It reflects managements’ understanding of the firm’s assets and position as well as the external forces it faces. At the most basic level, strategy is about making quality decisions and executing well on those decisions.” (Harreld, 2007, p.30) What makes this process difficult is the way in which events in the real world often trump the drawing room strategies. What was once the exclusive domain of Microsoft in responding to market challenges has now been conceded a bit (or more!) to its rivals like Google and Apple. However, this essay does not make the case that Microsoft’s days are numbered and despite the provocative conclusions reached in the case, it is by no means conclusive that Microsoft is going to fade away or collapse suddenly. (Hoofnagle, 2009) Much like the way in which the US is being thought to collapse suddenly by many doomsters (experts like Niall Ferguson to give an example), Microsoft still has some firepower left and the fact that its software is running on the majority of desktops in the world and that the customer base to a large extent is still loyal is proof enough that it might pull some rabbits out of the hat. (Hax, 1999, p.17) As Alvin Toffler puts it in his book, Power Shift”, there is a shifting of power from the sellers to the buyers because of the way in which the 21st century business paradigm is evolving and it is ironical that much of this shift is powered by the IT revolution and Microsoft being an IT vendor is slow to respond. (Toffler, 1993, p.125) As Toffler’s works have demonstrated, the changing landscape is one where the flexibility and the ability to innovate and adapt determine the winners.(Toffler, 1973, p.40) Another management expert, Michael Malone has put forward his theory about the “rise of the protean corporation” with its shape shifting nature that is nimble to respond to even minor changes in the market conditions. (Malone, 2009, p. 34) Both these authors would definitely agree on the fact that Google’s open culture and its college like atmosphere might be the reason it comes up with “fresh” and innovative ideas ahead of its competitors. This has been discussed to a large extent in the reading on impact of a culture on the organizational capabilities. (Battelle, 2005) As the case that is being analyzed shows, it is the shift in customer preferences as well as the fact that the future might not be “PC Centric” coupled with the introduction of “free apps” that is proving to be the bane of Microsoft. If we apply the Delta model to Microsoft, it appears that it has been a pioneer in the way it has capitalized on the “system economics” part of making and marketing its products. (Jarvis, 2009) For instance, Microsoft built its offerings around the concept of personal computing at the desktop and has added “complementors” to its offerings that enhances its product’s competitiveness.(Mangold, 2009) An example of this would be the way in which Microsoft leveraged upon the hardware makers (Intel) capabilities in increasing the computing power thereby enhancing the effectiveness of Microsoft’s products. Hence, it could be said that Microsoft followed the trajectory from best-product solutions to customer solutions to system lock-in solutions effectively. (Cusumano, 2002, p.55) However, as has been emphasized throughout this essay, when the nature of the system is itself changing in a fundamental way with a shift in the way consumers use computing and derive value from the economic offerings, there needs to be a rethink in the way Microsoft perceives its strategy towards its competitors. (Kotler, 2004) The decade of the 1990’s saw Microsoft setting the de facto standards for software and with the rest of the industry toeing its line; it was considered a fact that the industry for software products and particularly those in the personal computing space could be divided into Microsoft and “the rest”. (Merlo, 2004, p.210) However, Microsoft’s position is not comfortable now with rivals emerging in the way the software industry does its business. Given the fact that open architecture and free software have emerged in their own right, it is indeed a movement away from a single industry behemoth towards fragmentation of the industry. (Sim, 2008, p.472) In essence what we are witnessing now is Web 2.0 and “Next Gen” software that build upon the standalone applications of the 1990’s and early 21st century and instead concentrate on “connected” computing and “anywhere computing” as epitomized by Google and Apple. (Weber, 2007) To take an example, Google promises its connected paradigm as one where the consumers can access its products anywhere and everywhere with the same set of “preferences” being available for them. (Giustini, 2005, p.1480) And Apple promises to make consumers be “on the move” and not location constrained with regards to computing. It is this seismic shift in the way computing is being conceived that Microsoft (for once!) is unable to respond effectively. (Dent, 1999, p. 18) If we look at the financial aspects of Microsoft, it is apparent that its profitability is eroding because of its excessive reliance on its flagship products. Though the case that is being reviewed is alarmist in the way it writes off the company’s future prospects, it is a fact that products even after they mature take some time to decline and fade away. Hence, it can be inferred that Microsoft has some years for its products to enter permanent decline and given the way it is restructuring its office suite of applications around new generation concepts like interoperability and compatibility, it might yet turn out to be a winner. (Chance, 2009, p.475) However, what is clear is that Microsoft has lost the ground to Google and Apple in the areas of web apps and mobile computing. With the introduction of Wi-Fi spots and the coming revolution in bandwidth and improvements to “last mile” connectivity issues, both these rivals of Microsoft are on firm ground as far as their strategies to capture the market are concerned. It remains to be seen whether Microsoft gains traction with its release of Vista (Operating System) and the fact that Google’s apps still need an operating system to run and that Microsoft is entrenched in this position. (Vise, 2005) This essay has attempted to answer the question: “Profitability appears to be migrating around the industry, from where, to whom, and why?” by using the tools and techniques studied in the module as well as by referring to the readings assigned for this module. While this essay has not concluded decisively about the trends or the future direction, it has attempted to take all relevant theoretical frameworks and apply them to the case in question. There is a revolution underway and as Microsoft did to its competitors a decade and half ago, they are doing the same to it now. It is hoped that whoever wins the war for profitability, it is the consumer who wins eventually as happens in any “free market” system where the consumer is supposed to be the ultimate beneficiary of the market forces. References 1. Bodell, L.  & Earle, C.  (2008). `The yin and yang of marketing measurement: Four principles of innovation'. Interactive Marketing 6(2):130+. 2. C. J. Hoofnagle (2009). `Beyond Google and evil: How policy makers, journalists and consumers should talk differently about Google and privacy'. First Monday 14(4). 3. Constantinides, E. (2006). `The Marketing Mix Revisited: Towards the 21st Century Marketing'. Journal of Marketing Management 22(3):407-438. 4. Cusumano, M & Gawer, A. (Spring 2002). ‘The Elements of Platform Leadership’. Sloan Management Review, pp.51-58. 5. D. Giustini (2005). `How Google is changing medicine'. 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