Question

For most of its history Microsoft has produced a computer operating system (Windows) that it sold to other firms making personal computers. While it still does this, it now produces its own line of personal computers (Winbook pro) that use the Windows operating system. Use concepts developed in class and in the book this semester to discuss factors relevant to Microsoft’s decision to vertically integrate in this way.

Answer 1

The business strategy is the decisions or path chosen by any firm to remain competitive or create an advantage over other competitors in the future. Such strategic decisions can include new product, product diversification, new segment or integration of the value chain. The company might chose forward, backward, horizontal or vertical integration. Similarly, it can shut off unit, discontinue product or segment or spin off the unit into a separate company.
The right strategy is about adapting according to the situation.

Microsoft is one of the biggest name in the software and it has almost monopoly in the computer operating system. Around 90% of the personal computers are run on the operating system developed by the Microsoft. It made sense because the company had made huge profit over the years by selling its OS to different PC manufacturers.
It arch-rival Apple also sells it own OS but for only PC manufactured by themselves. This restricts the consumer for choice and so this strategy has a low volume but higher margin. Further, it allows the company to monitor standards closely and also allows to develop an ecosystem of devices and developers.

Microsoft has sensed that quite late and realized that it can introduce its own portable tablet PC just like Apple iPad and can extract a premium. It has introduced detachable keypad as a hardware and its popular business applications such as MS-Office. The strategy was a deviation from its software based practice to app based practice that was popularized by Apple in its iPad as well as Android powered tablets.