Case Study MS Office Business Model Environment

INDUSTRY Forces

MS Office is the dominant player in its sector. However, competitors are offering substitute products that are free and easy to get either by downloading like Open Office or by free access on-line to web based applications like Google Docs and Zoho.

The force of these substitute products rely on their availability and multi-platform adaptability, in some cases, and mainly of course on their free cost for the final user.

Nevertheless, the change resistance experienced by most users has allowed MS Office to remain the leader in its sector. According to different surveys (i.e. Forrester), most companies are planning to upgrade to the newest versions of Office and do not plan to move to an alternative application fearing, among others, lack of seamless interoperability with other applications and user’s resistance.

MS Office’s partners OEM, play an important role in the business model installing and distributing MS Office software. By doing this, they initially capture users that later will highly probably stick to the product. The same will probably happen with users of Office Web Apps for Facebook.

KEY Trends

MS Office’s market is world wide.

When regulations are created and applied to protect the brand and limit the use of the software to legal customers, it influences the business model by increasing the company’s control over the use of the product and hence increasing revenues. In the same way, by increasing or decreasing taxes on the buying of the product, there will potentially be more or less customers.

Higher revenues in a country will give as a result a higher legal use of the product. The demographic distribution between urban and rural areas also impacts the sales of the product.

Piracy is a trend that strongly influences MS Office’s market. People’s tendency to use the product illegally has extended to all societies and all income levels, because of the easy access to it, restricting then the control on the use of the product.

Tactile and online tools are invading the technology market. People don’t necessarily have to use MS Office suite to produce a beautifully-designed presentation. That threatens MS Office market.

MARKET Forces

The main market issues are that competitors will offer cheaper products with similar quality, or offer it with a higher quality at the same price like Live Document. Another issue is that customers are constantly demanding lower prices.

Microsoft Office users are mainly business and individuals. But revenues largely come from business, and even though most business presently using MS Office prefer not to move to an alternative product, Microsoft needs to be aware of competitors, who are constantly trying to conquer a bite of the market.

We find that there is a growing segment of elderly people that are starting to work with computers, so in the future, Microsoft might want to develop a strategy to target this do not segment by creating a simplified version of the Microsoft Office package.

Even though some geographical regions such as Latin-America or Africa are experiencing a big growth, there are also some areas such as China, where sales do not necessarily increase, due to the illegal software download market.

Customers want to increase the efficiency and maximize their productivity. In order to achieve that, customers need to have a more user-friendly version of the MS Office package with an extended problem solving tool.

Moreover, they want a program in which they can have all the information, their agenda, etc.
There are rather switching efforts than switching costs because a lot of people are used to work with the Microsoft operating system.

Microsoft also has a strong brand, enough reason for the customers to stick to MS Office. However, the company needs to be aware of the illegal downloading trend and free software from competitors. Revenues mainly come from high margins of licenses, because right now the customers have no influence on the software price. In the future, Microsoft will have to take into account that customer's power might increase.

MACRO ECONOMIC Forces

Due to the global recession that hit the market two years ago, the market, in general, is starting to slowly recover. However, market conditions (GDP, unemployment rate, etc.) strongly depend on the geographical region. An example of this fact is that the USA has a lower unemployment rate and is more rapidly recovering from the recession than other countries, such as Spain, Italy, Greece or Latin-America.

The economic infrastructure also depends on the region Microsoft is selling their products to. There are wealthier areas with good public services, good supplier access, high life quality, high taxes, etc. that can have easier access to MS Office, but there are also poorer regions that experience difficulties in reaching it.

As a consequence of the global recession, banks have limited the credit availability. Because of this, companies have had difficulties to obtain funds. However, Microsoft as an established brand, and has managed to survive.

The main resource of MS Office is software developers. Therefore, the main costs are labor and intellectual property costs. These costs can be reduced by outsourcing.

INFLUENCE ON THE BUSINESS MODEL in the Future


Activities:

• enhance marketing activities, to maintain the market share
• extend the customer support
• integrate new technology trends into the product development, in order not to lose segments of the market

Value proposition:

• Lower prices and higher quality software

Resources:

• Software developers that are skilled at the new technologies (headhunting + training)

Partners:

• More alliances with strong technology leaders (as with Facebook)
• Reinforce relationships with governments in order to world widely approve laws against illegal downloading

Segments:

• target a new customer segment: the elderly people
• less developed geographical areas