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In the ever-changing world of technology even the most advanced companies have to constantly evolve to keep up with the latest trends and continue to be innovative. Microsoft has generally been on the forefront of modern technology or at least closely behind. In more recent years, Microsoft has fallen behind in the online market and also the mobile market. Microsoft is currently facing some real problems in both of these fields with competitors such as Google (GOOG) and Apple (AAPL).

Microsoft’s market share in the online search engine market is clearly lagging behind both Google (68.6%) and Yahoo (16.75%). In fact, their market share has decreased over the past year while Google’s has continued to grow.

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These numbers lead us to the question: how does Microsoft become more competitive in the online market? Microsoft has the ability and the resources to reduce this gap, however, allocating the correct resources is the difficult part of problem. What we would propose to Microsoft is an extensive software + service model which will supplement their desktop operating system (Windows).

What is software + service? Software + Service is where the future of applications are moving toward – the Web. Slowly but surely, you will start to see desktop applications become intertwined with the web or in some potential cases desktop applications becoming abandoned for web apps. If you take a look at web browsers today such as Mozilla’s Firefox, and Google’s new web browser – Google Chrome you will notice that Mozilla Firefox and Google Chrome have focused on building rendering engines which can load JavaScript (web language) extremely fast – this is exactly where we are moving toward, using the web as a platform for productivity and work. The web browser will be an extremely important piece of the user experience on a computer in the coming years; therefore it is vital that Microsoft focus on building a fast rendering engine for Internet Explorer that can increase browsing speed and render pages correctly according to web standards (W3C – World Wide Web Consortium). The recent popularity of netbooks, which is a small to medium, sized, lightweight, low-cost, energy-efficient laptop that is generally optimized for Internet based services such as web browsing and e-mailing shows this increasing trend. However, these netbooks generally do not use Microsoft Windows, but instead come with a particular Linux Distribution by default.

How can Microsoft achieve success using the software + service model? Microsoft needs to move their core applications online such as Word, Excel, Power Point, and Outlook. They should also consider offering these applications for free (at least partially – ad supported) to students and home users, while businesses can pay a subscription-type fee either on a per-user basis or depending on what the business requires. Microsoft should also seriously consider including new functionality into these applications to allow collaboration between users so multiple users could edit a specific document, spreadsheet, or power point presentation. This would improve productivity amongst co-workers and colleagues. In addition to offering these applications on the web, Microsoft has to focus on creating a Windows operating system, which is fast and user-friendly and additionally can run smoothly on low-cost laptops (netbooks). If Microsoft can offer a solution to the end-user that is fast, simple, and effective they will be able to compete with Google in the web apps department and potentially be one step ahead. The reason for this is because Microsoft has the operating system of which 90% of the world uses on a daily basis. Their Windows operating system is not going anywhere (provided they can make the necessary changes in Windows 7) – web browsers will still need something to be installed and used on. When it comes to increasing the market share of Live (Microsoft’s search engine) it is a more difficult task. The acquisition of Yahoo! would have been an excellent starting point, however, it did not go through. Microsoft needs to be innovative and do more than just provide rewards (Cashback) for using their search engine. In order to improve their online search market share we would propose including new features that benefit users as opposed to just rewarding them, for example: the ability for users promote, remove, comment on their search results therefore allowing them to alter results (on a per-user basis) to their liking which would improve the effectiveness of the results. Other functionality improvements would be typing Live search into these web apps (and Windows) to allow users to quickly search through thousands or millions of files and websites with ease. This type of functionality will put Microsoft in a great position to battle Yahoo! for the number two spot (especially while Yahoo! is currently in a downfall).

The mobile market is another area where Microsoft is badly falling behind to its competitor (Apple). As of October 2008 84% of high school students would prefer to buy an iPod as opposed to another music play such as a Microsoft Zune. In addition, 79% of teens that planned to buy a music player in the next 12 month said they expected to purchase an iPod. How can Microsoft improve the Zune sales? What we would propose is to start a large advertising campaign to promote the “coolness” of the Zune. The use of teenagers and young adults in these ad campaigns would be ideal because it would appeal to the majority of the market who would consider buying the product. Apple has done a phenomenal job marketing the iPod as electronic jewelry and portraying it as a must have for anyone who wants to be cool. Microsoft needs to attempt to do the same – it is the only way the Zune will be able to compete. In addition, we believe Microsoft should play up the idea that the Zune is cheaper and contains more features (Zune Pass, Zune Social, and an FM tuner) than the competitors. Lastly, we would propose that Microsoft rethink their Zune colors (which are currently dull and boring) and make them more vibrant and eye-catching to call attention to the device.

In summary, Microsoft has a lot of work to do in order to compete in these fields; however, it is possible to accomplish by taking a step-by-step approach. In the online market they need to focus on features, functionality, and service. In addition, Microsoft should put emphasis on obtaining the number two position from Yahoo before concerning themselves with Google. In the mobile market it is imperative that Microsoft focus on creating a “cooler” more fashionable device in the Zune to appeal to the younger market.

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