Question

Microsoft's decision to acquire Intuit. Microsoft has made decisions to purchase other companies besides Intuit. A decision by Microsoft to purchase Nokia cell costs Microsoft $7.6 billion dollars. Do you think Microsoft's decisions to purchase firms make sound economic sense? Why or why not? Please explain your answer.

Answer 1

Microsoft happens to be one of the greatest technology manufacturers in the United States and globally the rising emergence of computing devices can be traced back to the company. It has been the pioneers of innovation and has provided jobs to large scale population thus contributing toward the gross domestic product through each and every way or method possible.

The company has been acquiring numerous companies such as Inuit which a tax, accounting and financial management company on one hand and on the other Nokia which is in the Cell phone market division. While some companies and investments have given Microsoft a winning edge over its competition others have not been so successful. Yet the hunger to diversify its operations and to ensure steady flow of revenue as a producer, the company is trying to become a market dominator than a company which has to compete in the market place.

Its acquisitions should be seen as a strategy to mitigate or manage risk, wherein the company would not stick to one segment alone like providing software’s, but also addresses the demand for other goods and services in different market types, which allows its revenues to pour in from various sources. Economically speaking this means that once the domestic or a single market demand for Microsoft core products begins declining due to competition which it already is thanks to the tough competition being present in the market place, it has engaged in production and distribution of other technologies such as Intuit which is aimed towards taxation and Nokia which is aimed towards the creation of smartphones so as to diversify its business and keep profit margins to be constant.

This, helps in ensuring that the markets are dominated by Microsoft from all possible angles, and even if it fails in a few industries, its portfolio would be diversified so as to minimize the risk of operations and the overall profitability can be extended to other sectors as well. The economic rationale is simple so as to gain maximum market space in the technological space on one hand, and on the other hand being able to diversify its business such that risks can be minimized over a period of time.

It should thus, be seen as a positive move by Microsoft to tap other markets and become the world leader, while at the same time diversifying its investments even in the technology and services sector.

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