117-Microsoft Gets Price Warnings from Competitors

Recently, Google announced that it was creating an operating system to work on the new small netbook computers. Netbooks are the only part of the PC market that is growing today. Google hopes to introduce an operating system there in order to serve as a stalking horse to slip into Microsoft’s share with desktop and notebook PCs.

Also, Cisco has let it be known that it was considering offering a rival to Microsoft’s Office software. This service would let business users create documents they could draft and share through Cisco’s WebEx meeting and collaboration service. Google has already attempted to best Microsoft in the Office world with its Google Apps internet-based alternative. Google has yet to create much traction with this product. The outlook for Cisco’s product must wait until it actually appears. But the point here is all the new competition.

Why is Microsoft seeing so much new competition in markets where it is the overwhelming dominant leader? Because its prices are so high. It is drawing competitors into the marketplace who want a piece of Microsoft’s enormous profit base. (See Audio Tip #119: A Price Umbrella on StrategyStreet.com.) These competitive forays are likely to continue as long as Microsoft holds the high price umbrella over them. These new competitors have a mighty mountain to climb, so they might not succeed. On the other hand, one of them just might and create real pain for Microsoft. Linux has already damaged Microsoft in some of the large markets that Microsoft serves. (See Audio Tip #102: When is Price Likely to go Down? on StrategyStreet.com.)

Interestingly, Cisco specifically stated that it was not interested in competing with Salesforce.com in selling online applications for corporate users. You probably wonder why. So did I. Here’s why. Microsoft has the following results on a trailing twelve month basis: Operating Margins 37% and Return on Equity 42%. In contrast, Salesforce.com has these results on a trailing twelve month basis: Operating Margins of 7% and Return on Equity 9%. I guess the price and profit umbrella held up by Salesforce just doesn’t allow even big companies to crawl in underneath.

Posted 7/13/09

The summary of an assessment of Microsoft’s operating system competition is “a day late and a dollar short.”

Microsoft’s pricing allows it to have very comfortable margins. These prices could provide an umbrella for strong competitors to enter under that umbrella and compete for some of the operating system industry margins by offering an equivalent product at lower prices. Microsoft’s competitors could not or would not compete effectively under Microsoft’s pricing.The IT industry focuses on the largest five operating systems. These include Apple Mac OS, Microsoft Windows, Google’s Android OS, Linux Operating System and Apple iOS. In 2022, Microsoft windows operating system had a market share of 88% in the laptop market and over 70% in the desktop operating system market.  Apple was a distant second in both of those markets. Microsoft holds an effective monopoly.

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