15 1995 microsoft corporation-case

7/30/2019 15 1995 Microsoft Corporation-Case

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Microsoft Corporation: The Designof Microsoft@ Support Network 1.0

Companion Case to ISBM 7-1994

James A. NarusWake Forest University

James C. AndersonJ.L. Kellogg Graduate School of Management

ISBM Report 151995


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Microsoft Corporation:

The Design of Microsoft@ Support Network 1.0

James A. Narus and James C. Anderson*

August 8, 1995

*James A. Narus is a Babcock Research Professor and Associate Professor of Management,Babcock Graduate School of Management, Wake Forest University. James C. Anderson is the


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Microsoft Corporation:The Design of Microsoft@ Support Network 1.0

Trish May, the Director of Marketing for the Product Support Services Division (PSS) of

the Microsoft Corporation, decided to take a well-earned break from the time-consuming anddemanding analyses she was doing. It was about 8pm on the evening of December 28, 1992;yet, she and most of her task force were hard at work at PSS offices in Bellevue, WA. Trish andher boss, Patty Stonesifer, the Divisions Vice President, had a major presentation scheduled for

January 20, 1993 to ten top Microsoft executives, including Mike Maples, Executive VicePresident of Products and Steve Ballmer, Executive Vice President of Sales and Support. Atthat meeting, Trish was to unveil PSS proposals for revamping Microsofts entire supportservices network. Although her analyses had revealed significant insights and providedguidelines for a solution, she was still unsure as to the make-up of her final recommendations.

As she headed for the Divisions coffeemaker for a cafe latte, she reflected upon the financialand marketplace forces that necessitated a change in Microsoft policy.

Efforts to redesign Microsofts support service network were set in motion early inNovember 1992. At that time, Patty Stonesifer had noticed a particularly troubling upwardspike in customer service costs in her periodic review of the divisions Profit and Loss (P&L)statement. She was also becoming concerned with the rapid increase in the number of technicalsupport personnel, which exceeded 1500. Although there was no immediate threat, Pattyprojected that service expenditures would become an acute problem in three years. When shebrought the matter to the attention of Microsoft Chairman Bill Gates and Steve Ballmer, theyreadily agreed that something needed to be done. Bill Gates, in particular, had long advocatedthat Microsoft rethink its support service efforts and invest substantially in them to insure thatthe firm delivered high quality service to go along with Microsofts high quality products. Thisappeared to be the appropriate time to review existing service policy and make that investment.

Admittedly, Microsofts support services were not as good as those offered by somecompetitors. Several factors contributed to the nondescript nature of Microsoft services.Previous support service policy had been determined at the product level. Annually, eachproduct manager negotiated with PSS over the type, extent, and pricing of services to be offeredto customers along with their products. Because Microsoft had the most extensive product linein the software industry, the result was a hodgepodge of service offerings. Some products had

t i ff d li it d f i th t d b h i


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The Microsoft Corporation

Microsoft is the leader in the microcomputer, software industry. In fiscal year 1992,net revenues topped $2.7 billion, while net income exceeded $708 million (see Exhibit 1 forfinancial information). Its revenues almost matched the combined totals for firms ranked 2 to

10 in the industry. Furthermore, Microsoft was a truly global competitor. It operated in 41countries around. the world and over 55% of 1992 revenues came from outside the US.

The story of Microsofts success and the career of its founder, Bill Gates, are bothinseparable and legendary in business. As a student at Harvard, Gates rewrote Kurtz &Kemenys BASIC for the MITS Altair. In 1975, he founded Microsoft. At that time, Gatesarticulated Microsofts mission as, to make the software that will permit there to be a computeron every desk and in every home. Perhaps the companys first major break came in 1980, whenIBM asked Gates to design an operating system for its personal computer. The product, MS-DOS was introduced in 1981 and quickly became the standard operating system.

During the 198Os, the company developed an assortment of popular applicationssoftware including Word, Excel, and Works. Another critical success came with theintroduction of an operating system shell named Microsoft@ WindowP, that was designedto facilitate multi-tasking (i.e., simultaneous use of several programs) and to dramaticallyincrease personal computer (PC) ease of use. By the early 199Os, sales of Windows 3.1 .skyrocketed and it too became standard for PC users. Not only did Windows spawn

additions to the Microsoft product line including Windows NTrM,WindowsTM for Workgroups,and Windows NTTM Server, it also prompted other firms to adapt their own software and/ordevelop new programs to run in a Windows environment.

Products & Competitors, Segments, and Service Usage PatternsProducts & Competitors

Products targeted to business and institutional customers could be grouped into five

major lines as a function of how and where they were used in the customers computer system(see Exhibit 2 for brief summary of products). Application software performed specific tasks(e.g., word processing, spreadsheet analyses, presentation slide preparation) for users, typicallyat a desktop PC operating systems software on the other hand provided an essential


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Major Market Segments

By late 1992, Microsoft had an installed base of tens of millions of users worldwide.The firm divided its diverse customers into three market segments -- end-users, corporate

accounts, and developers.End-users

were those individuals that routinely applied Microsoftsolutions on their desk-top computers to complete specific tasks. The category covered a broadrange including: consumers, home businesses, small firms, resellers, and help-desks (i.e., in-house, management information system or MIS professionals who provided assistance tocompany employees). However, the firm divided end-users by technical proficiency into twogroups -- novices and experts. Both groups were likely to use PC operating systems andhardware. Novices, though, more commonly owned basic applications (e.g., Microsoft Office),while experts relied more heavily upon advanced applications.

Corporate Accounts included businesses, institutions, and governments that had large-scale information processing requirements and thus, broad and highly technical software needs.They were prospective buyers of all Microsoft lines, except the most basic applications.Developers were firms that designed, marketed, and/or furnished technical support forsoftware packages. They included other software companies (e.g., Lotus, WordPerfect), value-added resellers (VARs), independent service vendors (ISVs), and firms that developed softwarefor their own internal use. They were prospects for all Microsoft products.

Service Usage Patterns1Microsofts ABC Costing and service monitoring systems provided a wealth of

information that would be useful to the task force. Some key findings included the following:l Over 80% of all service calls came within go-days of software acquisition.l About 71% of all customers never called. Of those that did, most called only 1 or 2 times.

More than 80% of all calls were generated by about 15% of all callers. Frequent callersneeded highly customized and personalized support.

l Less than 15% of all callers required extended hours of service availability (i.e., more than B-hours per day). About 5% of all callers needed 24hour service availability.

l The cost for all support services averaged about 9% of retail dollar sales. Costs varied asfollows: Office Family of Products (5%), Advanced Applications (5.5%), PC OperatingSystems (7.5%), Hardware (8%), Developer Products (lo%), Advanced Operating Systems

and Servers (12 5%) Table 1 provides more detailed forecasts of costs for 1993


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4availability. For the most part, resellers were eager to stock Microsoft products because of theirwidespread popularity and because they provided a platform on which resellers could bundleother products and services; thus dramatically improving their profitability per transaction.Microsoft also sold its products through direct marketing efforts. These customers were mostoften located in geographic regions, particularly internationally, where there were no resellers.

The Microsoft sales force included account representatives (AR@, systems engineers,and district managers who were assigned to seventeen geographic districts across the UnitedStates. Each AR was responsible for Microsofts entire product line and made periodic calls onresellers, corporate users, developers, and select end-users in their territories. ARs also madepresentations at regional computer shows and gave training seminars at reseller stores. Theirtasks were largely evangelical in nature; they introduced, promoted, and spread the wordabout Microsoft software, without taking orders. Instead, they directed prospective customersto the reseller network. ARs could take orders for technical support contracts that werefulfilled by the Microsoft Corporation. They also had the option of directing customers to thirdparty service providers. Each AR was paid a salary plus a bonus based upon reseller sales ofMicrosoft products within his or her geographic territory and/or assigned accounts. Systemsengineers complemented the efforts of ARs by providing technical pre-sales and evaluationsupport to prospective and existing customers.

The Product Support Services Division of Microsoft furnished all technical supportservices to customers. The division was headed by a Vice President. General Managers foreach market segment (i.e., Developers, End-Users, and Corporate Accounts) as well asDirectors of International Product Support and Marketing reported to the Vice President (seeExhibit 3 for PSS Organization Chart). Approximately 1,500 support engineers staffed thedivision in the North America and another 900 provided service in 36 countries around theworld. North American service engineers were deployed at three sites - Bellevue, WA,Charlotte, NC, and Irving, TX - to facilitate uniform market coverage across time zones.

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The Forces of Change

By the early 1990s, changing marketplace conditions had caused all software producersto re-examine and reformulate their technical support offerings. Four key drivers were at work- declining financial performance, a fragmenting customer base, competitive initiatives, andcustomer demands for greater simplicity in service offerings.


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new cost item that served to reduce their bonuses, calling for a re-examination of supportefforts. Some even demanded that all support services be eliminated.

Customer Base

As was the case in other industries, the marketplace for software was becoming moreand more fragmented. Given Microsofts extensive product line, customers ranged across abroad spectrum from home users to global corporations. Each group not only wanted morecustomized software but also more customized technical support.

Whereas most industry analysts dwelled on the potential ill-effects of charging end-users for support service, Microsoft managers were becoming more concerned with the growingdissatisfaction of corporate accounts and developers with the availability and quality of high-end support. For instance, callers to several well-known software firms free 8OO#sreportedly got a busy signal 60% of the time. When they did get through, these corporatecustomers had to wait in a telephone queue for an average of 10 minutes, often behind homeusers who had very simple questions. What made things even more frustrating for thesecustomers was that they were willing to pay more for highly responsive assistance on mission-critical problems. Microsoft managers expected that demands for high-end service on its ownnetwork would become even more acute in the next few years with the introduction of a newgeneration of technically complex products including Windows NT and Windows NT Server.(See Exhibit 4 for sample profiles of corporate prospects for high-end service.)

The nature of technical support service requested was also changing. In the past, whencustomers only bought one or two packages, it was relatively easy for support engineers tounderstand and resolve problems on a product-by-product basis. In 1992, the sophisticateduser was more likely to utilize a greater variety of software programs and more complicatedsystems that were purchased from various vendors. More than ever before, the entire systemhad to be fully integrated to function properly. For example, applications software had to becompatible with the operating system and the network server. This made trouble-shooting verydifficult because a given problem might originate in a number of places. Not only did eachservice engineer have to understand the workings of all 150 Microsoft products, he or she had tohave first-hand knowledge of all competitors products and of every industry-specific productapplication. Clearly, Microsoft would have to make hard decisions and restrict its serviceofferings to a subset of problems that its personnel could productively and competently resolve.


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via a toll number for the first go-days following purchase for all new products. A basic supportpackage, CustomerFirst Basic, included toll-free technical support and product discounts for anannual fee of $99. A comprehensive electronic support service, CustomerFirst Online, includedtechnical support, information, and other resources. Access via modem was available 24-hoursa day. Annual fee for this service was $249. CustomerFirst Premier Online combined theprevious two services at an annual fee of $429. CustomerFirst Corporate Library was top-end,customized support for large customers. Charges were not posted but determined as afunction of what needed to be done. Finally, CustomerFirst 900 was a pay-as-you-need, 900#,telephone support option that went for $15 per call.

Competitors were relying upon a variety of approaches to charge customers fortelephone service calls. Some sent an invoice following the call. Others charged via a 900# orhad service engineers take credit card numbers. Alternatively, some competitors either includedin software packages or sold separately incident coupons that entitled the bearer to make anumber of pre-specified technical support calls. Adobe Corporation took a different approach.They provided customers with service credits as a function of the dollar value of Adobesoftware that they purchased. The more software purchased the more credits received. Whenneeded, the customer could redeem service credits for technical support.

For the most part, software suppliers offered low-end, telephone support service byphone. There were exceptions. For example, Novell, which marketed premium-priced andhighly technical operating systems and networking products, provided top-end telephone

support for around $150 per hour. However, most of their problem-solving services werefurnished on-site by third party service vendors called, Certifid Netware Engineers (CNEs).CNE fees varied widely, ranging between $100 and $500 per hour of assistance. Clearly, therewas considerable opportunity for the development of high-end technical support.

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The Need for Simplicitv .

Prior to late 1992, Microsoft did not have a consistent support service offering. Instead,service levels varied by product from no service to premium service. Neither service levels nor

fees appeared to be correlated to the technical complexity of products. And, the servicerendered was of adequate quality. The problem was underscored by a 1992 marketing researchsurvey in which customers, particularly those that used several Microsoft products, expressedfrustration and confusion over Microsofts technical support services. The sales force


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Based upon several marketing research studies and experience, the task force concludedthat customer satisfaction would be sustained by delivering technical support that metcustomer needs in three ways. First, support programs should offer customers a choice. Thosethat did not want to pay for support they didnt need should be able to buy software alone,at a price that did not include service costs. At the same time, customers that wanted more

support and were willing to pay extra for it could also do so. Second, all technical supportprovided by Microsoft should meet or exceed industry standards for qualitv.T h i r d , a l ltechnical support programs should be marked by simplicitv; that is, customers should havelittle difficulty understanding Microsofts offering and how it applied specifically to their needs.

l Technical support services should be a cost center for the Microsoft Corporation.On this point, there was uniform agreement in the company. As managers saw it,

Microsofts core competence was its technology. Though important, technical support serviceswere not seen as a potential source of corporate profits. Instead, Microsoft was prepared toinvest in them in the short run, with the eventual goal of breaking even.

l The Microsoft Corporation should be the technical service provider of last resort.Microsoft managers realized that they could take progressive steps to leverage the work

of PSS engineers. First, continuous efforts were to be directed at making all software as user-friendly as possible. Resulting reductions in user problems would lower demand for service.Second, special efforts were to be initiated to give customers tools and information, so that theycould resolve as many problems themselves as possible. Third, customers were to be informed

about and encouraged to use third party service providers (e.g., VARs, dealers, ISVs) in theircommunities and industries. Finally, if the first three methods proved ineffective, thencustomers were actively directed toPSS personnel.

Technical Support Service Alternatives

Early on in their work, the task force hit upon the idea of using a matrix to summarizethe various service offerings. Members referred to it as the Microsoft Support Network. Therows would consist of major service groupings, while the columns of the table would contain

significant product or market segment groupings. In turn, each element (i.e., cell) in the matrixwould describe a service offering and include a fee structure. To avoid customer confusion, thegroup concluded that 4 rows and 4 columns (i.e., 16 elements) should be the largest size of thematrix; however, no research had been done to confirm this. Although the concept of a service


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Proponents argued that data-base marketing was a large and growing business activity thatrequired highly specialized and integrated support. They did not want it to be considered justanother application like word processing. Trish observed, however, that Access and FoxProservice costs were very similar to those of other applications and that data-base managementproblems became severe only in those instances where firms had customized FoxPro (the high-end product) to their particular requirements. Such needs would have to be addressed withhigh-end, service contracts. Finally, product managers for niche products such as hardwarefeared that their lines would get lost in the shuffle. These items didnt fit well with otherproducts; yet, they were not important enough to merit a separate grouping.

Market Segments. It could also be argued that service requirements varied as a functionof the type of customer. Four segments could be readily identified -- Novice End-Users, ExpertEnd-Users, Corporate Accounts, and Developers. Novice end-users rarely called. When expertend-users called, their technical service requirements overwhelmingly focused on very. general,

installation and usability issues. End-user problems tended to be application-specific,document-specific, and function-specific. For the most part, these difficulties were a source ofinconvenience rather than a job-threatening event. In fact, many end-users could address theirown problems if they read the program manual that came with the software or a commerciallyavailable how to book. Critically, end-users were highly price sensitive. And, most learned touse software when technical support was expected to be unlimited and free, forever.

Corporate accounts were more likely to have mission critical environments wheresystems failures and down-time could have catastrophic effects on both costs and customer

service. As a consequence, corporate accounts demanded responsiveness, for example, in theform of disaster recovery service. As contrasted with end-users, their support concernsgravitated around usage rather than installation problems. Moreover, these problems could bedue to the use of diverse hardware and software, and unique applications. Obviously, suchproblems were difficult and time consuming to resolve. Fortunately, because corporate accountswere use to an IBM mainframe environment, they fully expected to pay extra for third partyinstallation and technical support contracts. Moreover, they were not as price sensitive.

Developers needed highly technical assistance on applications programs, operatingsystems, servers, and programmin g languages. Software companies, for instance, might needassistance in adapting their proprietary software to Windows standards. ISVs, on the otherhand, might have problems applying Microsoft C/C++. Alternatively, large corporations mighth diffi lti ith l bl ith Vi l B i d d d


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force had initially proposed four responsiveness-based service categories -- Premier Support,Priority Support, Standard Support, and F&Tips& Electronic Services.

Premier support would be offered primarily to corporate and developer customerswhose computer systems operated in mission-critical environments where system failure anddowntime could have catastrophic consequences. Mission-critic al environments were of tenfound in investment banks, hospitals, warehousing and logistics operations, and large-scalecomputer-controlled manufacturing. Almost always, mission-critical applications requiredcustomized software and support service. Premier customers would be given top-priority whenproblems developed. Each account would receive highly personalized attention from anpermanently assigned team of the best service engineers. Because of their distinct requirements,corporate and developer accounts would subscribe to separate premier programs. And, forreasons of practicality, they would receive service for all of Microsofts products.

Priority support would be directed primarily toward a second group of corporate anddeveloper accounts, those that did not have mission-critical requirements yet wantedreasonably prompt response. Although they were willing to pay extra, they were more pricesensitive and many wanted to buy service only for a subset of Microsoft product lines. For thisreason, they would be allowed to choose between: Priority Comprehensive Support whichcovered all products; Priority Desktop which only addressed applications, PC operatingsystems, and hardware; and Priority Development with Desktop that included developmentproducts, applications, and PC operating systems and hardware.

Although all customers claimed to want their problems addressed promptly, manywould tolerate delays and wait in a queue if the service was free or offered at a nominal fee.This was particularly true if they had either minor problems or those that could be consideredan inconvenience. Many problems that occurred within the first go-days of ownership wereprime examples. End-users, particularly those that owned desktop applications were likely towant this so-called standard service. Because the nature of PC operating system andhardware, and development products problems tended to get very complex after 90-days ofownership, limiting the amount of standard service to 90days appeared to make sense. At the

same time, given the complexity of advanced systems and their history of paid service fees, itdid not appear logical to offer standard service to owners of advanced systems.

Electronic Services would provide commonly-requested information in


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particular, end-users. On the other hand, developers and corporate accounts experienced theseproblems less often because their software was typically installed by professionals. For themost part, installation problems related to application software, PC operating systems, anddevelopment products were routine in nature and could be resolved quickly and effectively.Due to their complexity, advanced system installation and start-up problems tended to be far

more difficult and time-consuming to address. For this reason, advanced system customers hadalways been charged for installation and start-up assistance.

Assistance with software usage and productivity problems represented the next type ofservice. All customers had these problems to some extent; however, they were more critical todevelopers and corporate accounts. In the case of application software, usage problems tendedto be specific to tasks, documents, and functions. For example, a customer might be havingdifficulty printing out a document. III general, these issues were very basic in nature and readilymanaged by service engineers. PC operating system, hardware, and development product

problems associated with usage and productivity tended to fall into two categories. Thoseoccurring the first 90 days of ownership revolved around basic functions and could be handledquickly. On the hand, those problems that occurred after 90-days, could often be attributed toeither interactions with other software or difficulties with advanced features. They were farmore challenging for service engineers. Advanced systems usage and productivity problemswere very difficult to address and customers had always been charged for their resolution.

Owners of advanced systems (i.e., corporate accounts) were most likely to encountersystems integration problems. This was due to the fact that their computer systems networked

numerous user sites, were comprised of hardware from multiple vendors, and ran diversesoftware from numerous software houses. Depending upon the nature of the software beingdesigned, users of development products might also need this type of assistance. This wasparticularly true in the case of firms that were tailoring their products to a Windowsenvironment or creating advanced systems. To a lesser extent, PC operating systems andhardware owners might experience systems integration difficulties due to their use of diverseprograms and hardware. End-users that ran applications on individual PCs were the leastlikely to have any of these concerns. In general, a more experienced and technically competentservice engineer would be needed to resolve this category of problems. For this reason, the costof providing service in these situations could be quite expensive.

Customized assistance represented the topend of technical support for those corporatet d d l th t d d d t di t t t C i bl h


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11At the same time, industry pundits speculated that it would be impossible to eliminate

free Insfailation& Start-Up service on application, PC operating systems, and developerproducts. Customers would interpret fees for this period as an unethical way for softwarevendors to pad their profits. Many would wonder if suppliers deliberately made theirsoftware difficult to use so that customers would have no choice but to buy service.4 Usage &Productivity assistance would be a tougher call. While most problems associated withapplication software could be addressed at low cost, those for PC operating systems,development products, and hardware could be costly; particularly those that occurred after thefirst 90-days of ownership. Clearly, Systems Integration and Customized support serviceswould be quite expensive to deliver. However, the task force did have a choice. They couldinclude them as standard and cover their costs via a hefty price premium on software.Alternatively, they could sell them as an option at a significant fee.

If services were offered as a function of responsiveness, fee decisions would be a littlemore straightforward. Standard Support would probably be offered free on an unlimited basisfor desktop applications. Because usage and productivity questions after 90-days ofownership could get costly, it would probably be necessary to charge personal operatingsystems, hardware, and development products owners a fee after 90-days. Priority and PremierSupporf would come with significant charges due to the staffing needed to provide them.

A series of intriguing decisions would have to be made concerning what services not tooffer. Given that most applications and PC operating systems software was being pre-installed by original equipment manufacturers (e.g., IBM, Compaq, Dell), it could be arguedthat installation and start-up problems should be handled by them. At the same time, a validcase could be made for having local computer dealers handle basic usage problems, particularlythose that occurred within 90-days of purchase. As for the highad services, the firm wouldhave to make some difficult choices. For example, in the case of cross-platform or integrativeproblems caused by another vendors products, should the problem be handed-off to thevendor responsible for the problems. There would also be limits to the amount of customizedand mission-critical service that could be offered. At some point, it made more sense to directcustomers to VARs or ISVs that specialized in an industry. If Microsoft decided to hand-offthese problems to 3rd parties, it would have to determine which firms would provide theappropriate services and how these firms would be compensated for doing so.

Conclusion


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Exhibit 1

A SUMMARY OF MICROSOFTS FINANCIAL PERFORMANCE: 19894992

(In millions of dollars except employee and per share data) Year Ended Tune 301989 1990 1991 1992

Net Revenues

Cost of Revenues

Gross Margin

Research & DevelopmentSales/Marketing

General & AdministrativeIncome from Operations

Nonoperating Income (loss)

Income before Tax

Income Tax

Net Income

Working Capital

Total AssetsStockholders Equity

Net Income per Share

804 1,183 1,843 2,759204 253 362 467

600 930 1,481 2,292

110 181 235 352219 317 534 854

28 39 62 90

243 393 650 996

8 17 21 45

251 410 671 1,041

80 131 208 333

171 279 463 708

310 533 735 1,323

7211,105 1,644 2,640

562 919 1,351 2,193

0.67 1.04 1.64 2.41

Number of Employees 4037 5635 8226 11542

Source: Microsofts2993 Anntral Report


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Exhibit 2

Major Product Lines

I. Application Software:

l Microsoft Office Familv of Products for Windows. For more serious users, businesses,and institutions, Microsoft offered a line of professional products (e.g., the word processingprogram Microsoft Word, the spreadsheet application Microsoft Excel, the presentationgraphics program Microsoft PowerPoint@, and a very basic data-base management programMicrosoft Access@).

l Advanced Applications for Windows. A portfolio of more sophisticated and high-endapplication programs were targeted primarily at business users. These included severalversions of a project management program, Microsoft Project, and of an advanced data-base management system, FoxPro@.

II. PC Operating Systems Software:

l Microsoft PC Operating Svstems. Microsoft marketed several widely-used operatingsystems including MS-DOS and the shell (i.e., it functioned with MS-DOS), MicrosoftWindows that typically ran off of desktop PCs. Another shell for MS-DOS, Windows for

Workgroups, was designed for simple networks comprised of a limited number of desktopcomputers, printers, e-mail systems, and fax modems.

III. Advanced Systems Software:

l Advanced Operating Svstems. Among these was Windows NT., an operating system forclient-server computing and a workstation solution for business-critical computing.

l Servers. Windows NT Server allowed firms to increase the speed with which large

da= could be accessed and multi-tasking could be run from a large number ofnetworked desktop computers and workstations without the use of a mini-computer based,central server. Microsoft SQL Server was another highly sophisticated network server thatenabled companies to transfer data from large-scale databases across their organizations


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Exhibit 3

Organization ChattProduct Support Services Division

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Exhibit 4

Profiles of Potential Customers for High-End Service Contracts

The following profiles identify the types of customers who are ideal prospects for highendservice contracts. Each profile describes the benefits that each prospect would gain from thecontracted service.

Customer Profile #l :An oil company headquartered in the US has global operations for petroleum refinement

and distribution. Its ten subsidiaries are currently responsible for their own hardware andsoftware technical support. In total, the company has over 50 thousand, networked personalcomputers (PCs). The Microsoft Office suite of applications and Windows NT servers arebeing installed companywide. The firm is also considering converting to Microsoft Mail acrossall of these PCs.

With a high-end service contract, the oil company would save money by not having tohire a consultant to coordinate the initial migration of its users to Microsoft Office. Moreover,the service would immediately support the firms helpdesk. As a consequence, training time forinternal service personnel would be reduced and employees would not have to wait fortechnical support. If the firm selected a contract that designated a technical account manager,the mean time for repairs would also be reduced. This would be due to the designated technicalaccount managers more thorough knowledge of the accounts profile, installed base, supporthistory, and recurring technical problems.

Customer Profile #2:A large aerospace firm with over 75,000 PCs is trying to establish Microsoft Office as

the standard software for those users. Management would like the applications to be installedon Windows for Workgroups workstations. The firm is attempting to establish a standard tofacilitate the ready use of programs, document sharing among employees, and PC support.

A high-end service contract would help senior management sell the idea of acompanywide software standards because it would simply existing practices. For instance, it

would reduce service costs by eliminating the need for multiple software support vendors. Aswith Profile #l, the service contract would smooth the transition to Microsoft applications. Aspart of the contract, Microsoft personnel could maintain a historical record of past and futuresupport interventions. Additional funds could also be saved through the design of standard


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Forecasted 1993 ,

1993 Forecas

Unit Sales

Service Calls per Unit Sold

Total Service Calls

Service Calls per SE per Year

SEs NeededAverage SE Cost Total SE Cost

Average Cost per Call

Costs per Service Call and Dedicated Service Engineer (SE) Accountsab

Forecasted Service Costs by Product Categories

Desktop .&nlicatiomOn* Developt P rodu& Adced Svstems7 million 12 million 500 thousand 250 thousand

0.16 0.14 0.2 0.1

1,120,000 1,680,OOO 100,000 25,0003,809 3,750 1,315 1000

294 448 76 25$95,000 $95,000 $125,000 $150,000

$27,930,000 !$42,560,000 $9,500,000 $3,750,000$25 $25 $95 $150

bForecasted Costs per Accounts Needing Dedicated SEs

Accounts Needing Dedicated SE d 500# of Accounts per Dedicated SE 8

SEs Needed 63Average SE Cost $160,000Total SE Cost $10,080,000Average Cost per Account $20,160

Note: The information presented in this table has been disguised and does not reflect actual Microsoft Corporation service costs.

This simplified chart has been presented for discussion purposes. Actual Microsoft data analyses featured detailed regression and queuing models.

Average SE Cost represents annual compensation, workstation, and problem-solving tools expenses.IA dedicated SE would be permanently assigned accounts and provide customization assistance and system integration support (e.g., Premier Support).

Table 1

15 1995 microsoft corporation-case

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