Microsoft's Business Model and Growth Strategies
Microsoft
Microsoft
is the world's largest manufacturer of software including operating systems,
server applications, information worker productivity applications, and business
solution applications. The company is globally recognized for its Windows OS
and Office productivity suite.
Microsoft’s business model
Microsoft’s
online services division consists of online information offerings such as Bing,
MSN portals and channels, and an online advertising platform with offerings for
both publishers and advertisers. The segment primarily earns revenue from
online advertising, including search, display, and advertiser and publisher
tools. It enables the delivery of online advertising across a broad range of
digital media properties and on Bing through its proprietary adCenter platform.
The Windows live segment also primarily generates revenue from online
advertising.
Microsoft’s
sponsored search and CPC or search engine marketing consists of text-based ads
that are displayed along with organic search results on Bing. The ads appear
under the “sponsored sites” header at the top of the search results page, or
along the sides of the results page. With costs ranging from $3,000 to $15,000
per month, advertisers are provided with several advertising options such as
email solutions, online shopping data feeds, and banner ads, al the way through
to an integrated media solution utilizing both search and display.
The
firm's display ads run on premium Microsoft Media Network sites like MSN,
MSNBC, CNBC, and Fox Sports, and are meant for budgets greater than $10,000.
Pay-per-performance pricing options include:
- Cost per action;
- Cost per click;
- Click to call (CTC).
Microsoft’s advertising revenues
Microsoft's
online advertising revenue increased y-o-y by $100m or 5.6% in 2008 to reach
$1.9bn in 2009, as a result of an increase in its search and display revenues,
although this was partly offset by decreased advertiser and publisher tools
revenue. Compared to 2007, the company’s ad revenues are on the decline, and
its search alliance with Yahoo seems to have done little to improve its ad
market share.
Table 10: Microsoft advertising revenues ($m), 2007–09
| |||
2007
|
2008
|
2009
| |
Total revenues
|
60,420
|
58,437
|
62,484
|
Ad revenues
|
2,300
|
1,800
|
1,900
|
Ad revenues (% of total)
|
3.8%
|
3.1%
|
3.0%
|
Fiscal year end December, 2009
| |||
Source: Company information
Countering Google through a strategic partnership with Yahoo
Microsoft
is promoting Bing as a decision engine, implying that information about
products and services will appear higher than Wikipedia entries. To overcome
the dominance of Google, Microsoft has entered into a 10-year agreement with
Yahoo to use its Bing search engine to power searches on Yahoo websites.
Microsoft
initially attempted to acquire Yahoo for $45bn, but its bid failed. The new
deal is a clear win for Microsoft, since it receives the search volume it
needs, without the risk and expense of a full acquisition of Yahoo and for a
fraction of the proposed acquisition price. The bid's failure will help the
company to avoid both a large financial outlay and the myriad of post-merger
legacy issues that it could have faced in integrating a purchase of that scale.
Through the alliance, Microsoft hopes to achieve what neither firm has been
able to do alone: challenge Google’s market leadership by making significant
inroads into the sector.
The
strategy has been partially successful. For instance, since its introduction in
June 2009, Bing’s US search share has increased to 11.8% from its original
8.1%, according to comScore.
Discontinuing cash back program in favor of social semantic search
Microsoft
will discontinue a promotion on its Bing search engine that gives shoppers cash
back for purchases, which was targeted at increasing market share. Instead,
Microsoft is stepping into the domain of social semantic search. Microsoft has
also added features to Bing that allows users to send search results to friends
on Facebook and Twitter in order to solicit product feedback. Instead of just
wondering whether a new smartphone model is truly smart, a shopper can ask a
friend.
After
Facebook rejected its overture for a takeover bid, Microsoft took a different
approach and invested $240m in the company in exchange for a minority stake.
The relationship continues to be leveraged as a strategic force against Google.
Bing
is also providing the capabilities of Facebook’s search engine: Open Graph. For
the advertisers, this implies that they can send across a more targeted message
based on the interests that the consumers themselves selected or “liked” and
“shared” on their graph. This could challenge Google’s dominance of ad revenues
in the long-run.
