Microsoft made its name by building two monopolies, its Windows operating system and its Office suite of personal productivity software, that are used the world over. Windows, for example, runs on about 94 percent of the world’s personal computers. Despite its global dominance, however, Microsoft has found it difficult to get traction in many developing nations. India is a case in point. Although the country has a well-educated middle class, and although India is home to some of the world’s most successful information technology outsourcing companies, the vast majority of Indians do not have access to a personal computer. India has only 25 PCs per thousand people compared to 997 per thousand in the United States. The main reason for this is cost! Most Indians are simply too poor to afford a PC. Also, Microsoft’s Windows franchise faces two major competitors in India: pirated versions of Windows, and the free open source product Linux, which can be found on many servers and also is making its way onto desktop PCs in India.

Dealing with these issues has forced Microsoft to rethink its global strategy of one-size fits all. In many ways, India has become a test case for Microsoft’s efforts to customize its offerings to the realities of emerging markets. To help develop local offerings, Microsoft invested heavily in an Indian R&D center in Hyderabad, which today employs 1,500 people and is the company’s largest software development center outside the United States.

To protect its Windows franchise against lower-cost competitors (pirates and Linux), Microsoft developed a special version of Windows, Windows XP Starter Edition. This sells for less than half the price of Windows XP, which is itself cheaper than its recent operating systems, Windows Vista and Windows 7. Windows XP Starter Edition has limited functionality—it can run only three programs at once and is not configured for computer networking—but the low price is more appealing in the Indian market. Starter Edition comes in 10 local Indian languages, plus Hindi and English, significantly broadening its appeal.

Instead of selling packaged software, which is too expensive for many small businesses, Microsoft is selling monthly online access to some of its other offerings, such as Office and SQL Server (Microsoft’s database product), for a low subscription fee. The programs are hosted on Microsoft servers. Not only does this strategy help Microsoft gain incremental sales that would not otherwise occur, bit it also is proving to be an effective response to pirates, who cannot offer a similar service. Ironically, this strategy may ultimately be one that is favored in developed markets, such as the United States, where competitors such as Google are already starting to gain traction with similar online offerings.

Questions

1. Why does Microsoft’s traditional strategy of “one size fits all” not work well in emerging markets such as India? What is different about these markets? How do customers differ both in their characteristics, and in the way they use technology?
2. What steps did Microsoft have to take to develop products that are customized to Indian consumers?
3. How does Microsoft vary the marketing mix of its existing product offerings to gain traction with Indian customers?
What else has Microsoft done to make headway in India?
4. What general lessons can be derived from Microsoft’s experience in India?