PORTER’S FIVE FORCES ANALYSIS OF MICROSOFT
Key Facts:
| Name | Microsoft Corporation. |
| Industry | Technology company. |
| Founded | 4th April 1975. |
| Headquarters | Redmond, Washington, USA. |
| CEOs | Satya Narayana Nadella. |
| Revenues | US $ 198,270 million for year ended 30th June 2022. |
| Profit/(loss) | US $ 72,738million for year ended 30th June 2022. |
| Year end | 30th June. |
| Competitors | Apple (AAPL), Google (GOOG), SAP SE (SAP), IBM (IBM) and Oracle (ORCL) |
Company Overview
Inspired by the January cover of Popular Electronics magazine, friends Bill Gates and Paul Allen started Microsoft , for microprocessors and software – to develop software for the Altair 8800, an early personal computer. Microsoft do business worldwide and have offices in more than 100 countries.Microsoft products include operating systems for personal computers (“PCs”), servers, phones, and other intelligent devices; video games; and online advertising. They also design and sell hardware including the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 accessories, and Microsoft PC hardware products.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School.
Microsoft Rivalry among Existing Competitor
Microsoft Business Segments: Microsoft operatesits business in five segments: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices.Microsoft do business worldwide and have offices in more than 100 countries.The company generate revenue by offering a wide range of cloud-based and other services to people and businesses; licensing and supporting an array of software products; designing, manufacturing, and selling devices; and delivering relevant online advertising to a global audience.Microsoft operates in 190 countries and is made up of more than 220,000 passionate employees worldwide. The regional center in Ireland supports the European, Middle Eastern, and African region; the center in Singapore supports the Japan, India, Greater China, and Asia-Pacific region; and the centers in Fargo, North Dakota, Fort Lauderdale, Florida, Puerto Rico, Redmond, Washington, and Reno, Nevada support Latin America and North America.
Microsoft Global Operations Year 2022: In addition to the operations centers, Microsoft also operate data centers throughout the Americas, Europe, and Asia regions. Office 365 is used by over a million companies worldwide, with over 879,851 companies in the United States alone using the office suite software. Microsoft’s market capitalization in 2022 amounts to $1.91 trillion. Almost 70% of organizations use Microsoft Azure for their cloud services worldwide. More than 95% of Fortune 100 companies trust Microsoft Azure. Four out of every five Fortune 500 companies use Microsoft Office 365.In August 2022, Windows occupied 28.79% of the Operating System market share worldwide. Windows runs on 1.6 billion active devices in 2022.About 100 million gamers use Xbox in 2022.In 2022, 158 million people used Microsoft Edge.
Apple (AAPL) is a major competitor, the Company posted a September quarter record revenue of $90.1 billion, up 8 percent year over year, and quarterly earnings per diluted share of $1.29, up 4 percent year over year. Annual revenue for year ended September 2022 was $394.3 billion, up 8 percent year over year, and annual earnings per diluted share were $6.11, up 9 percent year over year.
The company continued to invest in long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to its shareholders during the quarter. This quarter capped another record-breaking year for Apple, with revenue growing over $28 billion and operating cash flow up $18 billion versus last year.
The Americans are Apple’s largest regional market, bringing in net sales of 39.81 billion U.S. dollars in the fourth quarter of the company’s 2022 fiscal year. Europe and Greater China are two other major markets for Apple. The U.S. also has the highest concentration of Apple stores, which is Apple’s own chain of retail stores that showcase and sell Apple’s various products including the iPhone, iPad, Apple Watch, among others.
Oracle (ORCL)is also proved to be one of key players by giving total quarterly revenues up 5% year-over-year in USD and up 10% in constant currency to $11.8 billion. Cloud services and license support revenues were up 3% in USD and up 7% in constant currency to $7.6 billion. Cloud license and on-premise license revenues were up 18% in USD and up 25% in constant currency to $2.5 billion. These consistent increases in their quarterly revenue growth rate typically have been driven by market, leading Fusion and NetSuite cloud applications, Oracle Corporation reported its 2023 Q2 results, indicating that “revenues were up 18% year-over-year in USD and up 25% in constant currency to $12.3 billion.” This is an astounding accomplishment, especially in the context and background of economic uncertainty and recession headwinds. Notably, Cerner contributed $1.5 billion to the total revenue, denoting it as a significant source of sustainable profit.
Investment in Research & Development: Microsoft’s success is based on their ability to create new and compelling products, services, and experiences for their users, initiate and embrace disruptive technology trends, to enter new geographic and product markets, and to drive broad adoption of their products and services. It is necessary to invest in a range of emerging technology trends and breakthroughs that can offer significant opportunities to deliver value to customers and growth for the company. Advances in AI, machine learning, robotics, and other technologies have increased the pace of change tenfold.
Microsoft Threat of New Entrants
- Global Tech Industry The global information technology market grew from $8179.48 billion in 2022 to $8852.41 billion in 2023 at a compound annual growth rate (CAGR) of 8.2%.Hence tech industry is growing rapidly.
- High Capital Investment- Trained Human Resources The new entrant will be requiring high capital investment, since the industry is very intensive on research and development which requires specialized workers and is capital intensive. Projects have high capital requirement and significant amount of investment for training the staff is required.
- High Research & Development Cost : High research and development cost is required for launching any new product in the current tech industry.
- Technological Advancement:In this era of technological developments like AI, machine learning, robotics, and other technologies only high technological advance companies or groups can enter such a market.
Microsoft Bargaining Power of Suppliers
- Suppliers Industry Influence:The bargaining power for suppliers is very low and since high-standardization exists, there is little scope of suppliers having any clout. The suppliers consists of IT Infrastructure providers (Servers, computers etc.), Recruitment firms, Office Space Suppliers etc..
- Suppliers Collaboration:Microsoft requires all suppliers to join the Microsoft Supplier Security and Privacy Assurance Program (SSPA). This program is designed to standardize and strengthen the handling of data, and to ensure supplier business processes and systems are consistent with those of Microsoft.Hence having strong collaboration with suppliers.
Microsoft Bargaining Power of Buyers
- Product Awareness and Availability: By using search engines customers can easily obtain information about rival productsand can switch to any other product without any difficulty.
- Customer Satisfaction – After Sales Services:Microsoft offers an excellent customer service with availability of contacting to customer help for 24/7. Sales teams help Microsoft customers reach their business potential by accelerating organizational agility with connected technologies and solutions. These forward-thinking, collaborative teams enable digital transformation and solve mission-critical technology issues for clients.
Microsoft Threat of Substitute Products or Services
- In-House IT Services:There are no substantial substitutes to IT services apart from Internal IT departments. However; over time there has been a steady decrease in in-house IT development and maintenance with more and more being outsourced and the internal IT staff has settled into a supervisory (program management) role.
References
- https://www.microsoft.com/investor/reports/ar12/financial-review/business-description/index.html
- https://www.microsoft.com/investor/reports/ar12/financial-review/business-description/operating-segments/index.html
- https://www.microsoft.com/investor/reports/ar12/financial-review/business-description/operations/index.html
- https://abc.xyz/investor/static/pdf/2022Q3_alphabet_earnings_release.pdf
- https://www.investing.com/academy/statistics/microsoft-facts/
- https://www.apple.com/newsroom/2022/10/apple-reports-fourth-quarter-results/#:~:text=Cupertino%2C%20California%20October%2027%2C%202022,4%20percent%20year%20over%20year.
- https://www.statista.com/statistics/983321/worldwide-office-365-user-numbers-by-country/
- https://www.statista.com/statistics/382175/quarterly-revenue-of-apple-by-geograhical-region/
- https://www.forbes.com/sites/carlieporterfield/2023/01/13/prince-harrys-spare-breaks-guinness-record-for-fastest-selling-nonfiction-book-and-he-hints-theres-much-more-he-left-out/?sh=756449574e6b
- https://www.microsoft.com/investor/reports/ar12/financial-review/business-description/research-development/index.html