080_deepak_jangid_brm_proposal.pdf

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Is network theory

going to saveMicrosoft?

Deepak Jangid(PGP/16/080)

Business Research Methodology

Indian Institute of Management Kozhikode


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1Abstract

Table of Contents

Abstract ......................................................................................................................................................... 2

Introduction ................................................................................................................................................... 3

Problem Structure: ........................................................................................................................................ 4Stakeholders map:........................................................................................................................................ 5

Causal Loops:................................................................................................................................................ 6

Literature review ........................................................................................................................................... 7

Research Objective ..................................................................................................................................... 10

Research Questions: .................................................................................................................................... 10

Proposed methodology for research:........................................................................................................... 10

Significance of the Project: ......................................................................................................................... 11

Limitation of the study ................................................................................................................................ 12

References: .................................................................................................................................................. 13


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2Abstract

Abstract

Purpose- This project is to examine the success of Microsofts strategy of leveraging network effect in

the launch of its latest windows 8 which has been launched as an ecosystem instead of just another

operating system for individual devices.

Design/ methodology/approach- The paper considers statistical figures of current market performance of

windows across the major countries in the world. A thorough study of literature has been incorporated to

find the analogues/anti-analogues of Microsofts strategic move of offering the customers a highly

personalized windows-ecosystem experience instead of a limited scoped operating system. The analysis

does not involve much of data-mining and uses relevant examples/theories to come to conclusive

remarks.

Findings- The report finds out that although present performance of Windows 8 can be gauged through

its current market share statistics, a better picture would be obtained by resorting to a primary research

that obtains consumer responses about their acceptance of windows 8 and their extent of dependence

upon windows 8 platform. Greater the dependence, more likely is going to be network effect on the sales

of windows 8.

Limitations/ Implications - Microsoft is the first company to launch a common OS. This strategy is

aimed at using the traditional strength of Microsoft in the OS for PCs to gain market share in tablet and

mobile segments. This research holds high significance in terms of assessing future scope of new

innovations based on the network theory induced by the success/failure of Microsofts strategic move.

Keywords-Network theory, Microsoft, Windows 8, Strategic innovation


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3Introduction

Introduction

Starting its journey in mid-1980s, Microsoft has traversed a long path in transforming the computer era

ever since. While its earlier versions of operating system laid the foundation for its future success, the

subsequent versions maintained its competitive edge over others. As of Dec. 2012 windows covers

around 92.2% of market leaving its nearest competitor iOS (Apple Inc.) far behind in numbers.

A majorpart of Microsofts revenue comes through its operating systems products. In such case it is

imperative for Microsoft to keep bringing innovations in its core product. This series of innovation has

brought Microsoft to the launch of Windows 8 which is targeted to serve as an ecosystem for devices of

all the segments it is present in, for examplePC, Smartphone, tablet etc.

For a giant corporation like Microsoft, it is must to explore new boundaries where it can enter and make

its market. Growing presence of tablet and smartphones were the next target for Microsoft. To capture all

the segments (i.e. PC, tablet and smartphones) together Microsoft envisaged Windows 8.

Windows 8 was launched in October 26, 2012 along with Microsoft surface, followed by the launch of

windows phone 8. Launch of windows 8 was also accompanied by a total makeover of Microsofts

branding. Rebranding efforts were made to change the products, logos, services and websites so as to

make it more contemporary in terms of looks and user interface.

Windows 8 is a step towards developing an ecosystem where all the three devices (PC, tablet and

smartphones) will have a common platform to communicate and interact. Idea of an ecosystem instead of

just an OS is more like a strategically innovative step which has its foundation in the network theory and

network externalities. Motivation comes from the expectation that dependence on anyone of the device is

more likely to influence the purchase of other devices operating on same platform.

Moreover, how much successful would windows 8 be, is a debatable question.


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4Problem Structure:

Problem Structure:

Past years have witnessed a healthy growth in world market share of windows in total i.e. windows

product portfolio- windows xp, vista, windows 7, windows 8. Same trend could be seen for the usage of

Microsofts other service applications such as Microsoft office, skype etc.

However, this does not go true for the market share of windows 8. In countries like US windows 8 has

seen some downfall in market share in ending quarters of 2012 from 3.6% to 2.9 % (smartphone market ).

Growing dependence on windows in PC market was unable to draw sales for smartphone market. This

could lead a rethinking over the strategic move of leveraging network effect.

Windows market share in total

Dependence on Microsoft services

Smartphone market share

MarketShare

Growing PC market


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5Stakeholders map:

Stakeholders map:

Windows

8

Competitors

Microsoft

Employees

App developers

Consumers

Mobile

companies

Vendors-

Tablet

Laptop

companies


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6Causal Loops:

Identifying the stakesMicrosoft Inc. Competitors Employees App developers

Need to gain market share Respond to growing

market share of Microsoft

Well-being of Microsoft is

going to have trickle-down

effect for employees

Application develope

find an opportunity

growing markets

Consumers Mobile companies Vendors- tablet parts Laptop companies

Better/worse experience

through windows 8

platform

Mobile companies have to

accommodate consumer

demand for windows 8

Increase/decrease in

demand for tablet is going

to affect their business

Laptop companies have

accommodate consum

demand for windows 8

Causal Loops:

R


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7Literature review

Literature review

The Demography of Corporations and Industries by Carroll, G. and M. Hannan (2000) demonstrate

high chances of survival of Microsoft in newly entered industries i.e. tablet and smartphones. An

organizations size and tenure in old as well as in new industry increase the chances of survival in new

environments. The literature also highlights that it imperative to study what firms do after they enter a

new industry so that their actual performance outcomes can be measured.

Innovations are the necessary drivers of market. Motivation for the same could be to disrupt the market or

sustain the current presence/dominance by any organization. According to "When is a disruptive

innovation disruptive" by Glen M. Schmidt, Cheryl T. Druehl windows 8 platform could be an

attempt to sustained innovation by Microsoft. However, ability of windows 8 to cannibalize the sales of

other windows OS leads to High-end to encroachment which flows towards low-end segment. Here, high-

end and low-end refer to consumers willingness to pay for the product. High-end segments are willing to

pay more for the product while low-end segment consumers have low willingness to pay.


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8Literature review

Software industry is one of the most dynamic industries where a series of innovations keep rising every

when and so. In such a case, Microsoft is trying to minimize the effect of competitors innovations by

making the consumers more and more dependent on its ecosystem.

"Product Strategies and Firm Survival in Technologically Dynamic Industries" by Barry L. Bayus

and Rajshree Agarwal highlights that diversifying entrants into an industry have greater access to

resources that give them an upper hand over organizations which are new and entrepreneurial in nature.

The document also suggests that an established firm like Microsoft is more likely to grow through market

penetration. With resource disposals at their side, diversifying agents (in this case Microsoft) would be

able to develop collateral assets needed to create consumer demand in new markets.

The article is in agreement to Microsofts ecosystem development strategy as it suggests that single

product architecture has greater acceptance level in the industry. This also enables the firm to enjoy some

network effects to enhance market penetration.

As information technology is rapidly growing as one of the high-technology sector, in certain industries,

network effects occur, which changes the competition. These effects play a major role during product

launch that might differ from what usually is effective (New Product Launch Strategy for Network

Effects Products- Yikuan Lee and Gina Colarelli O'Connor).

The New Rules for bringing Market Innovations to MarketBhaskar Chakravorti demonstrate a

need to offer coordinated switching benefits to the consumers in order to gain the wide level acceptance

of innovations. It should incentive the consumers to switch to the new offering made by the firm.

However, the tough game is to get consumers to adopt innovations. By understanding how social,

physical and commercial networks interact the innovators can develop new methods to adopt innovation.

From the User Interface to the Consumer Interface Melissa Cole, Robert M. O'Keefe and

Haytham Sial strongly supports the need of more customer friendly environment in order to influence the


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9Literature review

purchasing behavior of a consumer. A consumer is more likely to be affected by product offering when

they are in sync with the needs such as ease of use and ability to communicate with other devices. Theory

of network externalities suggests the exponential growth in consumer base with more dependency on any

device for communication.

At the center of Microsofts strategy lies the Network Effects or externalities which in other words can be

said as economies of scale. Windows 8 is a platform which has almost same kind of applications and

service offered through each of the devices (PC, tablet and smartphones). Routine usage by the consumer

tends to make him accustomed to the existing platform. With time, the psychic cost of switching to some

other user platform increases at disproportionately high rate. This psychic cost restricts the consumers

from buying a device which has a different platform while the psychic cost acts as perceived benefits

when consumer chooses to buy another device which has the same kind of usage pattern.

This psychic cost also comes into play while communicating with other people. Better ability to share and

communicate between devices on same platform is fairly understandable. With same kind of user-

interface people are more willing to obtain psychic benefits instead of costs. Hence, once a chunk of

members have entered into the networked market, everyone elses motivation to do so become stronger.

Thus, it can be seen that network effect is present in controlling an individuals as well as collective

behavior. (Comparative innovation cases of Apple and Microsoft - The Journal of High Technology

Management Research Volume 23, Issue 2, 2012)

Hacking into an ecosystem like windows 8 is a comparatively costly affair for hackers to break

into. Windows 8 has been equipped with some never before security features that leverage its

complex network to make it difficult for hackers to hack(Ken Johnson, Matt Miller 2012).


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10Research Objective

Research Objective

-To evaluate the post-launch performance of Windows 8 in all the segments (i.e. PC, Tablet and

smartphones) its future prospects in reviving Microsoft Incorporation in OS market

-To suggest what the next steps of Microsoft could be in order to leverage more on the network effects, if

present any.

Research Questions:

1. What factors contribute to a customers buying behavior in choosing an OS?2. To what extent consumers are willing to accept Windows 8?3. What potential does network effect has to increase overall growth of Windows 8

ecosystem?

4. What factors contribute to Windows in gaining competitive advantage in OS industry?5. Does Windows 8 meet a consumers networking needs and provide a better experience?6. What are the threats posed to Windows 8 in meeting its strategic goal of making

Microsoft market leader in all segments?

Proposed methodology for research:

To assess the present performance of Microsoft Inc. secondary data collection would present a good sense

of conclusive idea. However, considering the fact that network effects do take some initial time to come

into effect, it is imperative to assess future scope of growth for windows 8 platform. For this, primary data

collection would be a necessary requirement to come to any conclusion.


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11Significance of the Project:

The research would seek consumer responses to identify the amount of success/failure Microsoft

has achieved in its attempt to impact the consumer behavior. Consumer insights would be

solicited to gauge the extent to which they are ready to accept windows 8. The research would be

focused in measuring the effect of network externalities on the purchase of windows products.

The methods for recording the consumer responses would be a mix of focus group interviews, in-

depth interviews, online surveys etc. The population for the primary research should be chosen

from the major markets. The report would summarize the consumers behavior and recommend

additional steps that Microsoft can take in order to improve its position.

Significance of the Project:

The growing mobile and tablet markets as well as a slump in the sale desktops have strained the

traditional markets of windows. Also the growing competition from open source has eaten into

the revenues of Microsoft. Therefore the move of Microsoft to go for a common platform across

the various devices from mobiles to laptops to personals computers assumes significance. This

strategy is aimed at using the traditional strength of Microsoft in the OS for PCs to gain market

share in tablet and mobile segments. This would give Microsoft competitive advantage over

Apple Inc. which uses different software for the laptop and mobile and segments. This move is

also aimed at reviving the sales of windows phones.

The market share of android phones is currently 68.3% and is expected to have a value of 63.8%

by the year 2016, with an expected CAGR of 16.3%. While market share of Windows phones are

expected to grow from 2.6% to 11% between these years with a CAGR of 71.3%. This research

is intended to understand and evaluate the fundamentals behind such an expected growth.


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12Limitation of the study

Recommendation derived through research would be a set of guidance to leverage network

effects in software industry. This might be helpful for any new firm willing to enter into this

industry and make an impact in the market.

Limitation of the study

The success of the research depends on the amount of primary research carried out. Every country has a

different demography and geography that affect the consumer behavior. The research is supposed to

obtain data from population of major markets. However, a better approach would be consider the

emerging markets as well but due to resource constraints and fear of failure of data collection it is not

suggested. The better picture would be obtained when a more extensive research is being carried out

across the major and emerging markets.

One of the major threats to a software firm is use of its own pirated version( Benjamin Tan, 2002).

Understanding of consumers ethical behavior in using a pirated version of the software has a significant

impact on the sales of Windows 8. Moral intensity can clearly influence the purchase intention of pirated

software that in spite of presence of network effect, is not going to help Microsoft.


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13References:

References:

1. Glen M. Schmidt, Cheryl T. Druehl. "When is a disruptive innovation disruptive". TheJournal of Product Innovation Management

2. Melissa Cole, Robert M. O'Keefe and Haytham Siala. (2000). From the User Interface to theConsumer Interface

3. Barry L. Bayus and Rajshree Agarwal, (May 2006). "Product Strategies and Firm Survival inTechnologically Dynamic Industries".

4. Yikuan Lee and Gina Colarelli O'Connor. New Product Launch Strategy for NetworkEffects Products. Journal of Academy of Management Science Summer 2003, Volume

31, Issue 3, pp 241-255

5. Bhaskar Chakravorti (March 2004). The New Rules for bringing Market Innovations toMarket. Harvard Business Review

6. Benjamin Tan. Understanding consumer ethical decision making with respect to purchase ofpirated software. Journal of Consumer Marketing

7. Technology strategies and standard competition Comparative innovation cases of Appleand MicrosoftThe Journal of High Technology Management Research Volume 23, Issue 2,

2012, Pages 90102

8. Benjamin Tan , 2002. Understanding consumer ethical decision making with respect topurchase of pirated software. Journal of Consumer Marketing

9. Howard JA. Buyer Behavior in Marketing Strategy. Second Edition,London: Prentice-Hall, 199410.Ken Johnson, Matt Miller(2012). Exploit mitigation improvements in Windows 8. Black

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