CASE STUDY Mr.

Gates Genius & Fierce Competitor

(Marianne Jennings)

Group: Name Sapna Gowalani Shyam Khatri Siddhesh Mahajan Rajshree Patil Alpesh Pradhan Kunal Shah Roll No 188 195 201 211 213 223

Q-1) Is Microsoft just competing? Would you call them a fair competitor? Microsoft recently has announced revenue of close to 70 million USD (as of end of 3rd quarter of the financial year FY 2011-2012) with a year on year growth of 18%. If we look at the values mentioned on Microsoft website it states they believe in integrity, honesty, openness, personal excellence, constructive self-criticism, continual self-improvement, and mutual respect. But in a practical business scenario there are have been instances wherein these values have not been adhered. Hence, according to me Microsoft is not just competing but trying to create a wave of differentiation and dominance in the market. As far as fair competition is concerned if we look at this instance Microsoft tried to acquire Netscape to gain complete market share. But when this did not work out in their favor it took all possible steps to cut down the arising competition through various mechanisms. If we look at the holistic picture Microsoft is definitely one such which has gain superiority & recognition in terms of its offering, support, level of innovation etc.

Q-2) Is there anything unethical about tying product sales? Tying product sales is similar to bundling of products. There are many companies who adopt these strategies & bundle their product offerings. A simple example of this can be illustrated by concept adopted by Mc Donalds wherein it tries to bundle its burger with a soft drink & fries. This strategy can be viewed with different perspective by different people. In a way it helps the customers get value for their money. In case of software industry a Microsoft office is another classic example wherein they have bundled a Word, Excel, PowerPoint etc in a single suite termed as Microsoft Office. The objective of tying product sales can be: To create a mechanism in order to promote the sales of those products Gain a competitive advantage or monopoly in the market Providing Value for money to its customers Since cost of customer acquisition is high so tying of product sales can be used as a mechanism to enable quicker penetration with reasonably low cost investments With respect to the case study considered, Microsoft has adopted a strategy of tying their Operating system with their Internet access program Explorer. We certainly feel that tying of product sales is very much ethical & therefore should be definitely adopted. The only concern here is on the approach taken. Certainly, the manner in which this has been done by Microsoft is not ethical. As per a news article it clearly states that Microsoft has used a pressurizing strategy to promote Internet explorer & gain dominance in the market. The article also states that Microsoft rewarded with valuable consideration those large-volume OEMs that took steps to promote Internet Explorer. It gave reductions in the royalty price of Windows to certain OEMs which included Gateway that set Internet Explorer as the default browser on their PC systems. In 1997, Microsoft gave still further reductions to those OEMs that displayed Internet Explorer's logo and links to Microsoft's Internet Explorer update page on their own home pages. That same year, Microsoft agreed to give OEMs millions of dollars in co-marketing funds, as

well as costly in-kind assistance, in exchange for their carrying out other promotional activities for Internet Explorer. Also, the underlying reason for Compaq to restore Windows was to secure its special relationship that it enjoyed with Microsoft. To this Microsoft provided Compaq lower pricing on the Windows operating systems on Compaq PCs. The above clearly states that tying of product sales is definitely right. But as per business ethics the way this strategy was adopted was definitely not correct. But if we look at real life business instances there are many things done which are not ethical but the end objective of it is to benefit the business. Thus, Microsoft clearly found a way to safeguard a mutual way to promote it explorer & also maintain its relationship with Compaq. Hence, the tag line of this case study is rightly quoted as Mr. Gates is a fierce competitor. A suggested approach to promote Explorer would have been to build strategic partnerships with OEMs. This alliance should have been built on mutual understanding & benefit for Microsoft & its OEMs to promote Internet Explorer. This would have thus depicted a chance to fairly compete with Netscape.

Q-3) What free market issues exist here? Free market is a terminology mainly used by Economists. Free markets are markets in which prices are determined by the demand and supply. The free market issues that exist in this case are Principal agent problem In this principal mainly hires the agent to promote self interest. This is clear when Compaq notified Microsoft that it intended to replace Explorer with Netscape. As a cascading effect to protect the self interest Microsoft notified Compaq that its Windows 95 licensing has been terminated and thus to restore it, Compaq had to restore explorer program within 60 days. Hence, Microsoft was safeguarding its own interest Non Competitive Markets Typically, in non competitive markets there is a dominant player who has a dominant position in the market. Microsoft thus adopted a strategy to safeguard its own interest and also created entry barriers by refusing to sell its operating systems to those players that installed its competitive browser Netscape. Not only this it first tried to acquire Netscape and then tried to cut off its air supply by retarding Sun Corporations development & implementation of the Java Program. This led to cutting down the competition completely.

Q-4) Do you think Microsoft behaved differently following the court case? Yes, Microsoft has definitely behaved very differently to the court case. In spite of the huge fine levied by US Justice department it maintained that Explorer is a part of the integrated product that it can force buyers to take. Not only this it agreed to contribute 800$ million to software to schools across the country. There are close to 16 lacs schools in India which clearly means this is like an initial investment to ensure a continued revenue supply from such a large customer segment. This has given Microsoft a wider target customer base to pitch its upgrades, yearly AMCs & other products.

Q-5) Does the settlement provides for sufficient damages? Our Viewpoint is No. If we look at it from all perspectives, Microsoft has still earned more. This can be justified by saying that it has got enough exposure to its target niche by tying up with Compaq to promote explorer. It tried to cut down all the ways in which Netscape tried to compete with its offering. Not only this Microsoft also altered the portions of Suns Java program which allowed it to work without Windows. With this it also gained across a lot of media mileage in order to promote Explorer. With the settlement also, it tried to take a very diplomatic stand by investing close to 800$ in schools for the country which meant in a way they adopted a mechanism to enhance their penetration to the education sector which is another booming industry. Microsoft till date with all this continues to earn an average of 18% year on year growth & Microsofts Explorer has been rated as the fast, secure & reliable browser.