Microsoft’s successful strategy explained
Today, Microsoft is among the top 3 most valuated public companies in the US stock market. During its 50 years of operation, the company was able to maintain a successful strategy that consists of approaches that remain more or less the same to this day.
Jumping on the right opportunities
Microsoft was founded by Bill Gates and Paul Allen on April 4, 1975, at the beginning of the PC revolution. During this period, computer hardware was evolving rapidly, and as a software company, Microsoft had to select the right hardware product to target.
The first product sold by the company was the BASIC interpreter for the Altair 8800, which was the first commercially successful personal computer.
Personal computers of the time had very limited power and memory, and users needed to write code using the BASIC programming language, and then execute it using an interpreter. Microsoft did not make the first-ever BASIC interpreter, they just predicted the success of the Altair 8800 and created an interpreter specifically for it. This product was a success and generated millions of profits for the company.
This first move from the company shows the most important aspects of Microsoft’s strategy: Analyzing the market to find the right opportunities, good execution and collaborating efficiently with other companies.
Buying products from other companies
In 1981, the IBM Personal Computer was launched, a product that had a substantial influence on the PC market, and IBM became the primary target for most software companies at that time.
IBM needed an operating system for its new machine, and Microsoft released MS-DOS, the first iconic MS product that many people still remember. Most people however do not know that the OS was initially developed by Seattle Computer Products, by Tim Paterson, and was originally named 86-DOS.
In 1981, Microsoft hired Tim Paterson and bought 86-DOS, renamed it MS-DOS, and then licensed it to IBM, and many other companies as well. By the late 1980s, Microsoft controlled the operating system market, as versions of MS-DOS ran on over 80% of personal computers.
Another iconic product, PowerPoint, was initially developed by a software company named Forethought Inc. and was released on April 20, 1987, initially for Macintosh computers only. Microsoft acquired PowerPoint for about $14 million, three months later.
Visio is a diagramming and vector graphics application. It was first introduced in 1992 by former company Visio Corporation. Microsoft acquired the assets of Visio Corporation in 2000, and it is now part of the Microsoft 365 family.
Borrowing ideas from other companies
Many innovative product ideas come from analyzing the competition and getting inspired by products launched by other companies.
Microsoft Windows 1.0 was launched as early as 1985, but it was not the first graphical user interface OS, it was inspired by:
- Xerox Alto (1973) and Xerox Star (1981): The OS could only run on Xerox hardware, and the computer workstation was very highly priced.
- VisiOn (1983), developed by VisiCorp: This OS had high system requirements, and it did not sell well.
Microsoft Excel, launched in 1985 on Mac and in 1987 on PC, is a very successful product of the company, but it was not the first spreadsheet software to be launched on the market:
- VisiCalc, launched in 1979 by VisiCorp was very successful.
- Lotus 1–2–3, launched in 1983 by Lotus Software, was also a success.
- Before Excel, Microsoft developed Multiplan, a competitor to VisiCalc, but it was outsold by Lotus 1–2–3.
Microsoft Word, released in 1983, was inspired by Bravo, the first graphical user interface based word processor, which was developed at Xerox PARC. Microsoft Word was designed to be used with a mouse from the beginning.
After Windows 3.0 was released in 1990, Microsoft released Excel for Windows and Word for Windows. These products became the top sellers in their categories and cemented Microsoft’s position as a software monopoly.
In 2001, after the success of Sony PlayStation 2, Microsoft Gaming launched the Xbox gaming console.
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Microsoft Azure is a cloud service that was launched in 2008, after Amazon and later Google launched their cloud.
Non-software-related activities
One of the characteristics of Microsoft is that its activity is not limited to the software industry, the company was able to implement its strategy to other industries as well.
Microsoft Hardware division was created in 1982, initially to produce the Microsoft mouse. It’s now producing various hardware for gaming, mobile, Surface tablets and many more.
Expedia was founded in 1996 as a division of Microsoft. Now Expedia Group is an independent company, it owns many travel websites and has a high revenue.
MSNBC was a news TV channel and website, created by Microsoft and NBC in 1996. It still exists today but it’s no longer the property of Microsoft.
Acquiring other successful companies
Since Microsoft became a public company in 1986, it has acquired over 225 companies and purchased stakes in 64 companies.
Fourteen acquisitions worth over one billion dollars, and the most famous ones are Skype (2011), Nokia’s mobile and devices division (2013), Mojang, the creator of Minecraft (2014), LinkedIn (2016), and GitHub (2018). The latest one, at the time I’m writing, is Activision Blizzard (2022).
Earlier, in 1997, Microsoft acquired Hotmail.com, a free webmail service, very popular at the time, for $500 million.
Microsoft already invested in OpenAI in 2019 and 2021, and in January 2023, they announced a new multi-year US$10 billion investment in the AI company that created ChatGPT. The main goal is to turn Microsoft Azure into an AI supercomputer, and ultimately democratize AI as a platform.
This partnership with OpenAI is totally in line with the company’s early days mission: Making innovative products and services available to the masses.
Limited impact of imperfection and failure
Microsoft’s philosophy is to release early and improve over time, and because Windows was so dominant on PCs, the public just accepted the fact that the product was not perfect.
All Microsoft Windows versions were more or less subject to various bugs and problems, and some versions like Windows Me, Windows Vista or Windows 8 were not well received by the public, but it did never stop people from buying the next Windows version.
In 2010, Windows Phone was launched, an attempt by the company to make it the third mobile OS platform. It never became popular and Apple and Android did a better job when it came to creating the right ecosystem for app developers. Microsoft was able to move on and this failure did not have a major impact on the company.
Another unpopular product was Internet Explorer, although Microsoft has not given up yet, and is still trying to push Edge. We can also talk about the search engine Bing, which did not reach a significant market share, and AI does not seem to have helped much.
Thanks to its high and diversified revenue, Microsoft became almost failure-proof.
