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Implementation Strategy


									             Implementation Strategy

Sonja Adcock, Stephanie Cook, Hugh Eng, Lois Pollock
March 4, 2002

        •    1975 - Founded by Bill Gates
        •    1980 - IBM chooses Microsoft to write
                     operating system - MS-DOS
        •    1980’s - Windows, Windows NT
        •    1990’s - Monopoly Charges
        •    1995 - Debut of Microsoft Network (MSN)
        •    1998 - Anti Trust Charges Laid
        •    2000 - Bill Gates steps down as CEO

Bill Gates is chairman and chief software architect.

There are currently 47,600 employees. Sales in 2001 reached $25.3B or
$531,479 per employee.

                             A PC in every home
         Empowering people through great software -
            any time, any place and on any device

They intend to do this by:
•building better software, charging less and making it up in volume
•positioning operating systems, software and services as a defacto standard for
accessing, communicating and doing business over the net
•looking for market niches to try and conquer
•moving from being a traditional software provider to a broader technology services
•reducing their dependency on PC sales and software upgrades
Many people believe that it is Microsoft’s intention to leverage its
operating systems and document file format monopoly with its .NET
services and have the XBOX be the vehicle that dominates the
industry with its built in web services.

            •   Divide and conquer
            •   Market share above all else
            •   Customer centricity
            •   Moving to a subscription model
            •   Move beyond the PC Market
            •   Hire top 10% of top 10%
            •   Long term approach

Customer centricity: In the past, Microsoft had often relied on arms-length relationships with
customers through its channel and partnership organizations - changing by beefing up account
management teams designed to work directly with enterprise customers.
Put the information about its customers into a unified view so they could isolate the different types of
clients an communicate with them effectively.
Customer experience has been simplified - Microsoft has organized its knowledge base, improved
training for its call-center staff, and reduced the number of disparate customer touch points.
Subscription Model: Majority of revenues will come from incremental payments as people use the
tools, while many of the development costs are paid for up front. Also retooling their software
programs so they, too, can be rented out via the Net.
Long Term Approach: Microsoft is running a marathon, not a sprint - when they see a strategic
need they are very persistent. For example it took six years for MSN Portal to succeed, after more
than 10 years of trying to break into the market for television set-top boxes that deliver both
programming and internet services, they have folded the Ultimate TV division Taking the same
approach with Xbox. Microsoft will loose $800 million in first year and have paid $500 million in
advertising - but with a $20 billion market in its sights and with competing game consoles adding
web browsing and e-mail they see a need to get into this market.
We will now take a look at implementing the strategy and then how structure,
information/decisionmaking and leadership/culture all follow strategy

                  Strategic Implementation
            Strategic Alternative              Each with its own focus
               – Status quo                        –   Internal or external
                – Concentration
                – Horizontal Integration           –   Product
                – Vertical Integration             –   Market
                – Diversification                  –   Control
                – Joint Venture                    –   Risk
                – Retrenchment
                – Divestiture or                   –   etc...
                – Innovation
                – Restructuring

From the Strategic Alternatives we took a look at the four which are highlighted to
determine which one Microsoft should and does follow. The following slides will
provide more detail on each alternative and we will also look at the focus of the
implementation strategy that Microsoft follows.

                  Implementation Strategy
         Status Quo
         • Pace of change is accelerating as the
           computer needs of clientele move beyond
           the PC towards intelligent devices and

Cannot stay with Status Quo if they want to survive in the competitive market

      Implementation Strategy
• Happens late in the cycle
• Look inward into the company
• Abandon lines/channels that are not
• Get back to basics - concentrate on products
  of high potential

                   Implementation Strategy
          • Something new and different that:
             – is developed by a company
             – is released by that company
             – changes the market in some way
          • Innovations must create value - otherwise they are
          • Innovations are solutions to

Innovation in the implementation strategy is all about taking a leadership position,
taking initiative to gain your position early in the life cycle.

Not only is Microsoft not innovative as we will discuss, but it is certainly not taking
a leadership position with the gaming industry - both Sony and Nintendo are way
ahead on this front.
Is Microsoft really an innovator?

•Microsoft first hit it big in the early '80s by licensing MS-DOS to IBM for its
personal computer products. But MS-DOS was in reality a quick-and-dirty DOS
built by another Seattle-based software company. Not Microsoft.
·What about Windows? Surely Microsoft was an innovator there? Afraid not.
Computer scientists like Douglas Englebart back in the late 1960s invented the idea
of partitioning computer screens into windows. Xerox's Palo Alto Research Center
further developed the windowing idea in the '70s, and then Steve Jobs and Bill Gates
brought the concept to the masses with the Macintosh and Windows operating
systems in the mid to late 1980s.

·Did Microsoft invent Internet Explorer? No, it didn't. Explorer's heritage is licensed
software code from Naperville, Ill.-based Spyglass.
So what is Microsoft's historical claim to innovation? Probably Windows
NT/Windows 2000, though some claim that early versions of WinNT had huge
chunks of Digital Equipment Corp.'s VMS operating system embedded in it.
So, what has Microsoft truly innovated? A perusal of the U.S. Patent and
Trademark Office's website shows the PTO has assigned over 700 patents to
Microsoft since 1995, but most of those awarded are for arcane devices and
software code.
Judge Jackson March stated in the courtroom on May 24th to Microsoft, "I believe
every company has the right to innovate. And going forward if Microsoft truly
innovates (a.k.a. invents) a product, then you are free to bundle that product into
Windows software code immediately, if you so wish. However, if you use your $18
billion cash hoard to license or acquire a piece of technology, while you are free to
sell that product immediately as a separate offering, you must wait 24 months before
bundling it into the Windows operating system."
Microsoft has failed to innovate because it has been busy for the last few years
trying to kill off technologies.
Furthermore, the Xbox which originally was being touted as an alternative to
the PC with networking capabilities and other computer like functions is now
really just a game console aimed at the heart of the PS2 market - teenagers and
young men.

Robbie Bach (SVP -Games Division) has indicated that the XBOX will bring three
types of innovations to online games (play as an individual, game never ends, voice
But is this true innovation? The Xbox is Microsoft’s version of the Sony
Playstation. The only thing the Xbox can do better the Playstation, is the fact that it
can do it with more than twice the speed and has better graphic quality.
Microsoft isn't trying to alter the console formula so much as take a mighty chunk of
it for itself, and there's no better example than the controller specs. Instead of going
the Gamecube/N64 route and crafting something completely new (and intriguingly
bizarre), so far it looks as if Microsoft has dipped happily into the pots of its
competitors to make a hybrid mix of the Dreamcast, N64, and PlayStation.
Microsoft’s Innovation Strategy
So now how much innovation are we getting in Microsoft's world? Nothing.
Microsoft Word will put a squiggly line under a misspelled word, but that
"innovation" took about five years to develop.

Here's the thing: Microsoft has a war chest of some $20 billion dollars that it can use
to go out and buy companies left and right, but there are no companies left to buy!
All the real innovators have gone into other markets. And if Microsoft tried to buy
into a new market such as CAD/CAM or embedded systems, its own executives
would ruin the acquisitions. It's a lose-lose situation.

It would seem that even the Chief Software Architect, Bill Gates himself, still seems
more interested in crushing the competition and saving his own skin than in
innovating. Microsoft's agenda isn't innovation, it's imitation, as well as the
imposition of suffocating control over user choices and an ever-widening monopoly.

Companies spend enormous resources anticipating and responding to Microsoft's
use of restrictive contracts, strategically shifting standards, manipulation of product
compatibility and other forms of monopolistic warfare. That detracts from efforts to
innovate or improve existing products.

Microsoft inhibits competition and innovation.

                   Implementation Strategy
          • Diversify “enlarge its range of products”
          • PC needs are evolving
          • Need to stay relevant

1. Why is MS breaking into a new market?
MS is caught up in the post-PC frenzy and panicked when it heard that Sony was
going to add Internet access to their PlayStation 2.
MS thinks there is synergy between Xbox and their other initiatives.
Just because it’s “cool” right now.
2. As mentioned earlier many people believe it is Microsoft's intention to seize not
only the console market, but rather the set-top interface market with hopes that the
Xbox will gain the same amount of power and control as they do in the PC market.

3. As discussed previously, computer needs of clientele are moving beyond the PC
towards intelligent devices and appliances.

From looking at the various implementation strategies, we can see that
Diversification is what Microsoft is doing.

The following slides will look at what Microsoft is doing to implement their
strategy and how they are doing it.

              How Microsoft is Diversifying
          • Core Business:
              – PC Software - dominant player with 87% of market
          • New Markets
              – Windows CE (consumer electronics) - 60% of market
              – Internet Strategy - .NET Enterprise Software - 40% of
                NT Accounts
              – Web and corporate intranet servers to 55% of market
              – Xbox - new in the gaming market - seeking 40% of
              – Interactive TV - flopped

It breaks away away from what Microsoft traditionally does, however it is in
keeping with their new vision.
Furthermore, many people believe that it is MS’s intention to leverage its
operating systems and document file format monopoly with its .NET services
and have the XBOX be the vehicle that dominates the industry with its build in
web services.
Of Interest
To succeed as a Web services company, Microsoft will have to get consumers to
pay! They are also exploring renting their products for a monthly fee.

                            Divisional Structure
                                            Steve Ballmer

                                 Corporate                  Gaming
                                   Staff                    Division

                                 Business                Business and
                                Productivity              Ennterprise

                                 Home and                  Developer
                                   Retail                   Group

                              Consumer and                Consumer
                               Commerce                   W indows

                                 Sales and                 Research

Reorganized in 1999 - 8 new divisions, each having unprecedented autonomy, aim to free Microsoft
from its bureaucratic morass.
Fits with Vision Version 2 (vision as it now stands: Empowering people though great software
anytime, any place and on any device)
Structure puts the customer at the center of everything - strategy is customer centric.
Technology: Non-routine, high interdependence; Size: Large; Goals: External effectiveness, adaptation,
client satisfaction.
Microsoft has a low centre of gravity which means that they are a downstream company.

Upstream                             Downstream
Commodity                            Proprietary
Standardize                          Customize
Maximize End Users                   Target End Users
Low-Cost Producers                   High Margins
Sales Push                           Marketing Pull
Line-Driven Org                      Line/Staff
Process Innovations                  Product Innovation
Capital Budget                       R&D/Advertising Budget
Capital Intensive                    People Intensive
Technological Culture                Marketing Culture
Supply, Manuf & engineering          Product development and marketing

                Structure - follows Strategy

                               Lack of
                      Market Flexibility

                                                                    Lack of
                                                                    Market Research
       Lack of
                                               Lack of Market Fit
       Market Match

                  Entrepreneur    Functional     Divisional   SBU      Matrix
                                                        Outside Market

We know that strategy follows the “S” curve hence the leadership and culture of the
organization completely changes depending where you are on the curve.

Every company is looking for growth, including Microsoft. It would seem that MS
is getting into a business that is growing. The strategic factor set forth is to do more
– set the bar higher than its competitors.

In this case, Microsoft falls in the vicinity of Cost focus. They want to anticipate
future needs but they need to slow down risk to build their client base. Start to build

Microsoft has a strategic planning group which makes them proactive as well as
deductive since they’ve learned a lot as they’ve gone through the organizational life
cycle (i.e. leadership & culture maturity).

Microsoft has a structured process and a system base that slows down decision-
making at times. In terms of the X-box product, they are seen as deliberate. They
have an advantage of being a second mover in the gaming industry.

Microsoft uses competitive intelligence as a way of benchmarking. Microsoft is a
“Marketing” company. In other words, they go for market share except when
market declines. This allows them to grow fast than their competitors. What was
exciting in the last generation of hardware was the advance to 3D [graphics]. The
revolution this cycle is online play.

AOL Time Warner operates in the content world--magazines, movies, television--
where many competitors can thrive as long as they control their own distribution.
But as a technology company, Microsoft knows that consumers want standards--
whether for operating systems, instant messages, or streaming music--and that the
owner of those standards can amass wealth and power.
If technology decides the digital-convergence war, Microsoft has the edge. If it turns
on marketing and content, odds favour AOL Time Warner. One thing is clear: When
massive tectonic plates collide, the landscape is altered forever.

Information/Decision making follows Strategy

  Reactive                                       Cost leadership
  External focus
  Spontaneous                                Proactive
  Sporadic                          Cost     Deductive
  Widely shared                     focus    Structured process
                            Niche            System based
                                             Internal focus
     Focus                                   Deliberate
                   Product differentiation   Compartmentalized

             Organizational Life Cycle

                                          Business Stages

                    Stage                 Business Dynamics              Transitional Crisis
                    Stage 2 -             •Centralized                   •Decision to diversify
                    Professional          analytical decision            into a multi-business
                    Single Business       making and directive           operations represents a
                    (Growth Stage)        leadership                     major shift in strategy
                                                                         requiring new
                                                                         management behavior
                                          •Emphasis on
                                          increased efficiency
                                          in operations

         Stage                       Business Dynamics                  Transitional Crisis
         Stage 1 -                   •Entrepreneurial                   •Entrepreneurial skills not appropriate to
         Entrepreneurial             management style                   manage demands of growth
         Single Business
         (Market                     •Small size, informal and          •Founder may be unwilling to
         Introduction)               “vague” structure                  acknowledge that he can no longer the
                                                                        company on his own
                                     •Emphasis on creating
                                     initial product and                •Effective transition to Stage 2 requires
                                     marketing                          introduction of professional manager

                                     •Decentralized analytical
         Stage 3 -
                                     decision making
         Multi Business              •Divisional or strategic
         (Maturity)                  business unit (SBU)
                                     •Emphasis on portfolio
                                     management, especially
                                     where businesses are

As discussed, ee’s are scattered around the globe; if plan or develop software - work within a mile of
Holding the leaders of the new business divisions accountable to think and act as if they are independent
a Business leadership team set up of 14 managers who meet monthly to coordinate strategies across the
operating units.

      Strategy Organization Fit
Strategy     Dominant Business Unrelated Diversified        Related Diversified
Structure    •Centralized          •Highly decentralized    •Multidivisional/
and          functional            product divisions/profit profit centres
decision-                          centres
             •Top control of                                •Grouping of highly
making style
             strategic decisions   •Small corporate office related business with
                                                            some centralized
             •Delegation of        •No centralized line
                                                            functions within
             operations through    functions
             plans and
                                   •Almost complete
             procedures                                     •Delegated
                                   delegation of
                                                            responsibility for
                                   operations and strategy
                                   within existing
                                   businesses               •Shared responsibility
                                                            for strategy
                                   •Control through
                                   results, selection of
                                   management, and
                                   capital allocation

                Culture/Leadership - follows strategy



             Supportive                          Logical
           SUPPORTIVE                            QUALITY

                                         Inspirational (leadership style)
                                         CREATIVE (organizational culture)

                    Transformational             Transactional

                     (revolutionary)              (evolutionary)

•People are the company’s most important asset. Culture of intelligence - higher top
10% of top 10%.
•Microsoft’s corporate culture nurtures an atmosphere in which creative thinking
thrives, and employees are able to develop to their fullest potential. Microsoft
believes that if people are provided with the resources they need, they can
accomplish great things.
•Microsoft is self-contained and they think of themselves as separate from the rest
of the industry.
•They care about market share above all else.
Leadership Style: Theory J: Control and Incentives
•Employees are scattered around the globe, but nearly everyone whose job is to plan
or develop software works within a mile of Bill Gate’s office.
•Stock options have made many employees very rich.
•Given lower than industry standard salaries and the decline in stock option value,
Microsoft has increased its incentives to include extra vacation time, huge stock-
option grants, increased promotions, 15% pay raise for employees living in Silicon
•Still have to perform - Interactive TV - they pulled the plug and cut 168 jobs%.

                                What about

Major departure from Microsoft’s business?
How does it fit?
Trying again to enter the lucrative video game market - Launched in 2001.
Part of their Connected - Home Strategy - tap into consumer markets.
Ethernet card and internal hard drive will let MS push services through the XBOX
and a dedicated cable or DSL connection.
History of Microsoft in gaming industry
Microsoft has been in the games business for two decades, and has already had at
least two goes at the consumer market.
The first effort came in the 1980s, with a system called MSX. At the time, the home
computer market was struggling with a lot of incompatible formats from companies
such as Acorn, Amstrad, Atari, Commodore and Sinclair Research. Software houses
couldn't keep up with them all. Microsoft tried to rationalize the business with a
single system, MSX, supported by numerous manufacturers.

Microsoft had another skirmish with the consumer market a decade later when CD-
ROM seemed the format of the future. The idea was a versatile "edutainment"
player that would sit under the TV in the living room and run audio CDs,
encyclopedias and games. Philips and others tried it with the CDi (CD Interactive)
system, Commodore with the Amiga-based CDTV, and Apple and Japan's Bandai
with the Mac-based Pippin. They all flopped. Hardly anyone noticed the Microsoft
offering - a $699 VIS (Video Information System) running "Modular Windows" -
which was sold in the US by Tandy.

Microsoft soon got serious about games, for very good reasons wanted consumers to
move to Windows 95 but the games market was still dominated by DOS. Indeed, the
Software Publishers Association said that at the start of 1996, DOS games were
outselling Windows 95 games by 10 to one. But installing DOS games was a messy
business; some people could never get them to work. It was also bad for strategic
reasons: how could Microsoft get rid of DOS if the games market depended on it?
The growth of games companies such as Electronic Arts also suggested that -
altruism be damned - there was money to be made.

To succeed, Microsoft had to put better, faster games technology into Windows,
which it did with its DirectX system. Not all versions of DirectX were fully
debugged, and it sometimes seemed that every new game installed a new version of
DirectX, but eventually the idea worked.

Microsoft's strategy has been a success in that almost all PC games are now
developed for Windows/DirectX rather than DOS - but that's the way the market
was going anyway.

Microsoft also had to forget about writing everything itself and work with third-
party developers. In January 1996, it announced link-ups with four US-based
developers: Atomic Games, Crystal Dynamics, Rainbow America and Terminal

The best example of Microsoft's know-how is their online gaming network, The
Zone, which is a place where gamers from around the world come to play against
each other in popular games such as Age of Empires and Midtown Madness. At any
given time one can find upwards of 60,000 people playing online with the more
popular games like AOE II: The Conquers claiming around 3000 players. Through
the Zone, Microsoft has learned how to manage a large number of players and their
taste for games. In other words, they know what works and what doesn't.
Lead over competition: Another area that Microsoft has a good lead over their
competitors in is the games themselves. AOE is an excellent example of a quality
multiplayer title that fans never seem to grow weary of, which is probably why it is
one of the most popular RTS games to play online. So while all of the major console
competitors are offering online gaming, it's a field that Microsoft is more than
prepared to compete on.

Microsoft is developing 30 video games in-house and is approving game projects
from third-party software makers.

                            Overall Strategy
         • 5 year goal is to capture 40% of $20B market
         • Capture over 35% of Japanese market
         • Bring in high profile game developers from
         • Re-organized MS Games into a separate
           dedicated division
         • Use outside developers

As we can see, this strategy aligns with the overall Microsoft strategy.
The last time Microsoft was threatened by innovation, they tried to destroy the
competition. So is the strategy an endless quest for world domination? Does
Microsoft plan to buy out major third parties such as Square and Capcom? Gates
himself has enough money to buy both these companies from his own personal
chequing account. This has made consumers a little worried; If for example, Square
and Capcom became part of Microsoft, consumers would be forced into a one-sided
industry where no competitor would have a chance. Most decent games would be
made exclusively for Xbox. Hence Xbox 2, Xbox 3, would be top sellers… And
even worse, they could charge whatever they wanted for the hardware and games, as
there would be no competition.
Aggressively expanding their share in the Japanese market by teaming up with
some 70 local companies including Sega Corp - using the software development
skills of Japanese firms.
In-house expertise: Staff are comprised of former PC games team, experienced
game developers, software engineers and designers: To bump up its in-house
expertise, Microsoft also bought the Bruce Artwick Organization and hired Alexey
Pajitnov. Artwick had developed Microsoft's best-selling DOS game, Microsoft
Flight Simulator, while Pajitnov, a Russian, had created the compulsive puzzle,
Tetris. Another astute move was to put a keen gamer, Ed Fries (rhymes with fleece),
in charge of the entertainment division.
30% of games are developed by insiders while 70% by third parties - enjoy good
relations with developers, who have written games for Windows without paying
royalties while Nintendo and Sony have been battling developers over royalties.

                          Marketing Strategy
         • $500M global marketing budget
         • estimated they will loose $800m in
         • taking retail accounts directly - not shipping
           through distribution channels thereby
           ensuring availability
         • more than just a game console
         • target audiences - where is the buying

Microsoft lacks innovation. Most of its technology is bought from others and
tweaked. The Microsoft marketing machine kills off the competition, which is
where the innovations came from in the first place. It's almost a reverse Catch-22.
Instead of acting like Cisco Systems, buying innovators left and right and keeping
them intact, Microsoft gets a hold of a technology and then lets the company that
created it die.

Microsoft expects to spend $500M on XBOX launch - the most money they have
ever spent to launch a new product. The investment includes marketing, advertising
and support to retailers and third-party-software makers.
MS’s ads will be unconventional and edgy and focus on the games more than the
No matter the size of the ad budget , success in the gaming arena depends on having
compelling games to play.
Have to get the XBOX into homes: Target are young, mostly male, “hard-core”
gamers, old enough to buy their own video games but young enough that they don’t
wear a tie to work.
Having excited youths spreading the word of an "awesome" game to their peers is
priceless for game software publishers, box makers and retailers alike.

Many got their first taste in recent months, elbowing their way toward playable
standing Xbox kiosks in thousands of retail outlets around the United States before
the anticipated Nov. 15 launch of the console.
Events like the 48-hour "Xbox Unleashed" event in Los Angeles last week are part
of Microsoft's youth-marketing strategy, which includes a Taco Bell giveaway
contest and a nationwide truck tour intended to show off the console and develop
prelaunch hype.
MS is counting on die-hard gamers – for example, One player, according to a
Microsoft spokesman, flew in from Korea with nothing but a passport, came to the
event to play, and then planned to fly home. It is all about the games - if the games
are not of interest, the peripherals surrounding the system don’t matter - first and
foremost the console is a GAME - the other stuff is nice to have.

Competitors are moving in same direction as Microsoft. The Xbox will be just a
pretty hunk of machinery without some fun games to play on it; a graphically
souped-up PC in a square box.

         • Sony with: PlayStation and PlayStation 2
         • Nintendo with: Nintendo 64, Game Boy,
           Game Boy Color and Game Boy Advanced,
           Game Cube
         • Sega with: Dream Cast
         • Software pirates

Sony: Undisputed leader in the gaming arena - Playstation 2 model has sold more
than 5 million consoles - banking on games to retain dominance. They have made
headway in the broadband space; can now provide an online gaming portal, tailored
content and high-speed DSL connections. Also signed agreements to bring
multimedia capabilities to the playstation and has a deal with AOL to let the console
function on AOL’s proprietary network.
Sony has a library of about 800 games for playstation and dozens more on the way
for playstation II.
Nintendo - has more than 200 games.

The comparison of the Xbox vs. Gamecube vs. Playstation 2 is ultimately a personal
one. What really counts in the end is whether the system can provide fun and

Many consumers held-off purchasing another game system until the other Next-Gen
consoles hit the market in late 2001.
So what criteria should one follow when deciding on a new system?

1.How does the technology of one system compare with the technology of the
Xbox has the fastest processor speed at a whopping 733 MHz, and it is the only
system that will come with an internal hard drive.
GameCube claims that they purposely stayed away from the highest performance
so that it would be more developer-friendly; hence better games would be available
PlayStation 2 (PS2) is the only system on the market (aside from the Game Boy
line), that allows backwards compatibility for its games.

2.In this market, games for the system are very important. Which game developers
are on board for future games for a system?
Xbox has Halo and soon to be released Obi-Wan and Project Ego.
GameCube is going to have all of Nintendo’s signature games like Luigi’s
PlayStation 2 (PS2) already has many games available but the general consensus is
that none of them are worth the disk that they are burned on, however, the future is
looking awesome with three new exciting games.
3.Price. For many, price is the deciding factor.
Xbox = $299.99
GameCube = $199.99
PlayStation 2 (PS2) = $249.99
Nintendo has the name brand recognition and can sell almost anything with their
name attached. Parents will buy into the system being child friendly and cheap
(price and history). Nintendo has a strong presence in the video game world.
PS2 was released a year before the Xbox and GameCube. Sony also has games
catered to all ages, but mostly adults, so as not to leave any possibilities behind.

          • Hard drive - potential for viruses
          • Microsoft is disliked by majority of
          • Effect of looming Anti Trust decision
          • Price, quality and quantity of games

The Xbox uses a hard drive with is a potential risk for viruses.
MS faces a unique problem that probably most other manufacturers wouldn’t face;
they’re hated by a majority of the consumers. Even if their hardware is superior and
they have a few good titles from their own developers, they still face the PR
There’s no telling what type of affect the looming decision by the Department of
Justice will have on MS.
The launch price: The price point of $200 is the mass-market price point and at
which point you can experience some acceleration in sales. In other words, far more
people are willing to buy a console at $199 than at $299. So, what it comes down to
is that the average consumer is going to see three different game systems that they
have to choose from at three different prices.
For someone who just casually plays video games and you walk into Toys R Us at
Christmas time, you don’t care about things like “Bump Mapping,” “Vector Unit
Processors,” or “Unified RAM,”. All you want is a good deal on good games.

You see a year old system at $249, and two brand new ones, one of which is only
$199 and the other $299, which would you pick? Believe or not, that’s how the
majority of video game buyers think. GameCube at $199.

Microsoft is in a position where they can offset losses on other division. However,
on the other hand, Microsoft will be losing an estimated $125 on every single
system it sells. This means that just to release the system, they are going to have to
face massive losses.

Another risk relates back to their marketing strategy. Rumors have it that the games
available for Xbox is also coming out on computer too. Microsoft is giving a reason
to consumers not to buy the Xbox for just one game of their choice; Many of the
Xbox games are ports or alternate versions of games available on the computers that
many consumers already have e.g. Halo, Doom 3, etc. People don’t want to shell
out a lot of money for just one game e.g. Project Ego.

And finally, Microsoft is going up against Sony, who is the current king of the
console hill

                                       About the Game
           •   Four game controller ports
           •   Front-loading DVD tray
           •   Multisignal audio-video connector – easy hook up
           •   Ethernet port for on-line gaming via broadband
           •   NVIDIA graphics processor
           •   Intel 733MHz processor
           •   Internal hard drive
           •   Keyboard, mouse as optional peripherals
           •   Supports a modem as an add-on

About the game

The Xbox will use a Pentium III processor from Intel and a custom 3D graphics
processor from Nvidia. It will have 64MB of memory, an 8GB hard drive, a DVD
drive and an Ethernet connection for high-speed Internet access.
The Xbox is the only console that will include a built-in broadband adapter.
Now while many do not have access to the wonders of cable or DSL connections,
the coverage area is expanding rapidly, and Microsoft envisions a lag-free gaming

Its operating system is windows-based, allowing it to easily incorporate multimedia
and internet software on the market.

Microsoft has joined forces with NTT Communications Group to use their high
speed internet technology to create systems for on-line games.

Microsoft's senior vice president of the Games Division, Robbie Bach, likened
online gaming's potential to change the gaming industry to what MTV did for the
music industry in the '80s and added, "Online has to be easy. Fast, secure, and easy
for people to get connected." He continued by reinforcing that consumers will not
have to buy anything extra--it's all there in the box. Bach mentioned three types of
innovations the Xbox will bring to online games.

For the first, he used online basketball games as an example. In them, he explained,
you won't just play offense or defense; you'll play as individual players in individual
positions--even the ref.

Another promise of online content fell into the episodic content realm. Bach
described such concepts as unique (the idea that the game should really never end),
but we have seen similar innovation in current online titles already on the market.

The third area of online innovation is voice communication. Bach announced a
peripheral called the Xbox Communicator, which will let gamers truly
"communicate" when playing games. He added that the Xbox is not about e-mail
and text, but about voice.

Games are what sparks the interest of the consumer, not the hardware.
Unfortunately, Microsoft has not been very innovated in this area either:
·The Xbox initial line-up of games seem a bit drab. Most of they seem to be
rehashed from old concepts of games that can be played on PS2.
·Users can still play games on their own personal PCs so why would they want to
purchase the Xbox?
Gameplay is what is probably the most important role in bringing a new system to
life. There hasn’t been a whole lot out there on the Xbox which makes consumers a
bit apprehensive.

                                      Is XBOX the
         • Will XBOX replace the PC?
         • Will XBOX be the vehicle that dominates
           the industry with its built in web services?

You need more than game enthusiasts purchasing the console - but then Microsoft
isn’t new to the waiting game!!!

To be truly effective - produce games.
Games are what will get Xbox into homes.
Do they keep Xbox staff away from main stream company.
Deep pockets will solve most problems - but can’t use for bail outs!
Consumers will make or break Microsoft - if only in gaming industry.

         Microsoft faces many challenges:
             –   need to earn trust
             –   deliver .NET
             –   convince customers to upgrade
             –   keep partners happy
             –   stay out of court
             –   contain Linux
             –   hide an embarrassment of riches
             –   sell subscriptions
             –   convert eyeballs to revenue
             –   win in PDA’s and Wireless

KIRKLAND, WA—January 9, 2002—Microsoft faces major challenges in 2002,
according to research firm Directions on Microsoft. The top ten include:

1. Earn Trust, Rather Than Suspicion. Challenge: Earn trust and confidence from
enterprises that run mission-critical applications, and from consumers, while
patching a year’s worth of security breaches, critical software bugs, embarrassing
infrastructure failures, and fears about the privacy of its Passport single-sign-on
technology. Unfortunately, it takes years to gain trust—and only days to lose it.

2. Deliver .NET. Challenge: Convince Windows software developers to write
programs with its new, yet unproven .NET Framework technology instead of the
almost-as-unproven Java 2 platform pushed by IBM, Oracle, and Sun. As was the
case 15 years ago when Windows was in its infancy, Microsoft’s level of success
appealing to developers during a platform’s formative stage has a huge impact on
revenue streams in the decade to follow.

3. Convince Customers to Upgrade. Challenge: Find ways to convince people to
upgrade to the latest version of Windows and Office even though these mature
products offer less and less room for improvement (and have yet to fully deliver on
past promises such as dramatically cutting the total cost of ownership).
Compounding the challenge: new versions demand faster CPUs and more RAM at a
time when businesses aren’t in the mood to buy new PCs.

4. Keep Partners Happy. Challenge: Field an army of consultants who can slug it
out with IBM and Oracle without alienating consulting partners and resellers who
drive a huge percentage of Microsoft’s software sales. Make a big splash with Great
Plains packaged business applications without burning hundreds of important
partners who offer the same types of applications on the Microsoft platform.

5. Stay Out of Court. Challenge: 2001 showed Microsoft’s legal problems with the
DOJ and state attorneys general aren’t a fatal condition but rather a chronic disease.
Microsoft must contain and manage its legal battles to avoid having lawsuits
paralyze its decision-making and stunt its hard driving, risk taking culture.

6. Contain Linux. Challenge: This free but powerful operating system is hurting
Microsoft competitors such as Novell and Sun in the server market, but it could also
dampen growth in Microsoft’s server software sales—especially in price sensitive
emerging international markets. IBM is trying to make Linux a household name.
Meanwhile Microsoft is adding to Linux’s appeal with higher licensing fees and
product activation technologies designed to prevent unpaid use of Microsoft

7. Hide an Embarrassment of Riches. Challenge: Hold on to a US$36 billion cash
hoard while shareholders eye it, state attorneys general lust after it, and the European
Commission tries to get a piece of it. Do this while convincing customers that Microsoft
needs to charge more for its software, and convincing antitrust lawyers that the largest
cash reserve in the history of business isn’t the result of a monopoly.

8. Sell Subscriptions. Challenge: Convince customers to rent their software on an
annual or monthly basis instead of paying once to use it forever. Success here means
Microsoft’s revenue stream becomes highly predictable and less dependent on selling
upgrades. Support cost for legacy products drop because customers who rent are more
likely to be using the latest version.

9. Convert Eyeballs to Revenue. Challenge: Convince hundreds of millions of people
who access free content on MSN, using free Microsoft tools—such as the Internet
Explorer browser, and Windows Media Player—that they really want to pay for it in the
future. Microsoft has spent billions to attract this audience. Now it needs to monetize it.

10. Win in PDAs and Wireless. Challenge: The mobile device opportunity is
potentially huge in itself and is a hedge in case the PC’s pre-eminence erodes. The
challenge is to convince manufacturers that a Windows-based device strategy won’t
lead them into the same bloody price wars facing PC manufacturers.


Business Week - June 2001
Team Box Editorials, December 2000
Gamespot VG, Shahed Ahmed, November 2001
PC Review, March 2000, CIO Magazine, May 2000


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