Case Study: PowerPoint presentation (12-13 slides with notes)

Instructions: It is the attached case study. You are required to read the case and answer the case questions at the end of the text.

Competing on Business Models: Google vs. Microsoft RIVALS OFTEN USE different business models to compete with one another. Because of competitive dynamics and industry convergence, Google and Microsoft progressively move on to the other's turf. In many areas, Google and Microsoft are now direct competitors. In 2014, Microsoft had $90 billion in revenues and Google $66 billion. Although Google started as an online search and advertising company, it now offers software applications (Google Docs, word processing, spreadsheet, e-mail, interactive calendar, and presentation software) hosted on the cloud (Google Drive), and also operating systems (Chrome OS for the web and Android for mobile applications), among many other online products and services. In contrast, Microsoft began its life by offering an operating system (since 1985, called Windows), then moved into software applications with its Office Suite, and later into online search and advertising with Bing as well as gaming with Xbox One. Both also compete in mobile devices by offering smartphones. The stage is set for a clash of the technology titans. In competing with each other, Google and Microsoft pursue very different business models, as detailed in Exhibit MC15.1. Google offers its applications software Google Docs and hosting service Google Drive for free to induce and retain as many users as possible for its search engine. Although Google's flagship search engine is free for the end user, Google makes money from sponsored links by advertisers. The advertisers pay for the placement of their ad on the results pages and each time a user clicks through an ad (which Google calls a "sponsored link"). Many billion mini-transactions add up to a substantial business. Exhibit MC15.2 shows how advertising revenues account for some 90 percent of Google's total revenues. Breakdown of Google's Revenues by Business Breakdown of Microsoft's Revenues by Business Segment, (\$ millions) 2012-2014 Segment, (\$ millions) 2013-2015 recent years. Roughly 60 percent of Microsoft's profits are tied to the Windows franchise. Moreover, PC users are locked into a Microsoft operating system that generally comes preloaded with the computer they purchase; they then want to buy applications that run seamlessly with the operating system. The obvious choice for most users is Microsoft's Office Suite containing Word, Excel, PowerPoint, Outlook, and Access. But they need cloud-based Office 365: It costs either $99.99 a yeaf: to pay several hundred dollars for the latest standalone or $9.99 a month. Exhibit MC15.3 details Micrusoff version. More recently, Microsoft offers "rental" of its revenues by business segment. Google's - a free product for the end user. Given Bing's The first is that people and businesses are buying fewer and fewer PCs (including both desktops and laptops) Gendous cogle, does not make any money from its as personal and business computing move increasingly sott, unlike Coogering; rather, it is a big money loser. to mobile devices. The second is the increasing use of cloud-based rather than standalone PC-based computThe logic behind Bing is to provide a countervailing ing. The demand for Microsoft's Office is driven by its power to Google's dominant position in online search. installed base of Windows. The gross margin for the The logic behind Google Docs is to create a threat to "classic" Office sitting on your computer is 90 perMicrosoft's dominant position in application software. cent, while that for the cloud-hosted Office 365 is only The computing industry is undergoing a shift away some 50 percent. To maximize the number of users from personal computers to mobile devices and cloudthat will upgrade from Windows 7 and the disappointbased computing. Although Microsoft set the standard ing Windows 8 to Windows 10 launched in summer and dominates the industry with Windows, Google 2015 , users of current versions of the operating sys holds some 75 percent market share in mobile operating tem will get a free upgrade. (Microsoft did not offer a systems software with Android, while Microsoft's marWindows 9 version.) On top of the aforementioned ket share is less than 3 percent. These tactics create mulproblems, Microsoft just wrote off almost $8 billion tipoint competition between the two technology firms. of its $9.4 billion ill-fated acquisition of smartphone Taken together, Google and Microsoft compete with maker Nokia, combined with cutting some 8,000 jobs. one another for market share in several different product categories through quite different busincss models. sidize its search engine Bing, which is-just like Google's business model much more highly. Since profits from its application software business to sabAs shown in MC15.4, the stock market has valued its initial public offering in 2004, Google's stock has 3. Identify other examples of companies that were appreciated by more than 1,200 percent (or 12x ), not competing in the past but are becoming comwhile Microsoft's stock has increased 72 percent over petitors. Why are we seeing such a trend? the same period. Also noteworthy is that Google has 4. What recommendations would you give to Satya outperformed the tech-heavy NASDAQ-100 stock Nadella, CEO of Microsoft, to compete more market index by a wide margin, while Microsoft has effectively against Google? To engineer a turnunderperformed it. Google was able to gain and susaround at Microsoft? tain a competitive advantage over Microsoft. 5. What recommendations would you give to Sundar Under its new CEO, Satya Nadella, Microsoft is Pichai, CEO of Google, to compete more effec- attempting to reinvent itself with a new "mobile first, cloud first" strategy. Microsoft is shifting quickly from tively against Microsoft? To continue to sustain its being a Windows-only firm to a company offering divercompetitive advantage? sified online services to its customers via the cloud, supported by its strong network of data centers. Nadella Sources: This MiaiCase is based oa: "Mierosoft at michle age: Opening windows," The Ecpaontist, April 4, 2015: "Mictosoft to cut 7,800 jobs on Nakia realizes that as more computing moves toward the cloud, wese," The Wall Street Jearnel, July 8, 2015; "Google takes strieter approach Microsoft's tried-and-tested model of tightly integrating to costs," 7ite Wali Sreet Josirnal, July 13, 2015; "Google"s share price hits atl-time high," The Wall Sireer Journat, July 17, 2015; "The quest for a thend standalone software with hardware is no longer working. mobile platform." The Wail Street Sountal, May 6, 2013; Adner, R. (2012), The absence of a sole focus on Windows in Microsoft's The Wide Leas A New Srrategy for Intowation (New York: Portolib); Levy, S. (2011), in the Plex: How Google Thinks, Wovks, and Shapes Oue Lives new mantra is evidence of where the new CEO sees the (New York: Simon \& Schaster),Anderson, C. (2009). Free: The Farare of a future of computing. Nadella is also looking to transform Radicat Price (New Yark: Hyperioa); Gimeno, 1. (1999). "Recipeocal threats in multimarked rivalry: Staking out 'spheres of infleence' in the U.S. aidine Microsoft's culture into one that is more entrepreneurial. industry," Srrategic Management Jowmal 20: 10!-128; and Gimeno, 1., and Whether Nadella can engineer a turnaround at Microsoft, C.Y. Woo (1999), "Mutsimarket competition, economies of seale, and firm. performanec," Acadeny of Manegement Journal 42 : 239259; Clen, M. . which is entering its fifth decade, remains to be seen. (1996); "Compotitor anilysis and interfirm rivalry; Towant a theoretical integration," Acaderey of Aenagement Rewicw 21:100-1.34; and various Geogle DISCUSSION QUESTIONS 1. How is a strategy different from a business model? How is it similar? 2. Why are Microsoft and Google becoming increasingly direct competitors