Innovation Strategy at Microsoft

Microsoft is the world’s leading technology company. It is dominated the computer industry for years. A wide range of software products, services and devices are offered to their customers who vary from individuals, organisations (enterprise agreement volume-licensing contracts), OEMs (original equipment manufacturers) and application developers. The main services include: Office (28%), Servers (22%), Xbox(11%), Windows(9%), ads(7%), Surface (5%) and other (18%) (Desjardins, 2017). Microsoft has achieved a number of innovations into practice and this report will provide a preview.

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Microsoft pursue a vision, strategy and goals for innovation, CEO Satya Nadella stated the Microsoft’s strategy is “Cloud Frist, Mobile First” (Microsoft, 2014). Historically, Microsoft has relied on a revenue model from charging licensing fees for the use of the Windows operating system and the Microsoft Office suite. In order to increase market share as well as gain a competitive advantage from their competitors, Microsoft shifted their traditional business model to interact directly with their consumers to meet their expectations (Skillicorn, 2014). The company has just gone from a business model based primarily on selling products, licenses and devices to one selling ongoing service and subscriptions that integrate with its cloud-based solutions (Osterwalder, 2017).

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Since 27 March 2014, Microsoft has been shifting focus to make Windows software more compatible with competitor products, such as iPad. This innovation strategy demonstrates that Microsoft is willing to enable their consumers to access their product in the way they prefer instead of buying their own platform, the Surface tablet (Ross, 2018). As a result, Microsoft is one of the most popular Apps in the Apple store with more than 12 million downloads. The way that Microsoft generates their revenue is changing from charging hundreds of dollars up-front to own the software that lasts for a fix period to charging users a monthly fee for Office 365 subscription, which in turn, iPad owners who use Office will pay subscriptions for Microsoft.

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Sales of Windows PCs are decreasing over the last couple of years because portable devices including tablets and smart phones are becoming more popular. Microsoft gives free access to all versions of Windows including PC, tablet and phone with screens of less than 9 inches (Foley 2015). The concept behind this idea is that the total number of users will be much larger than the number of users who paid the subscription. This new model is all about freemium, as soon as consumers get entry-level free access, Microsoft can shift its acquisition to engagement which in turn, will result in many consumers subscribing to additional services on their platform, including OneDrive (cloud storage), Office 365 and Xbox Live.

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In this case, Microsoft will generate their revenue by encouraging consumers to pay for a subscription for certain features to meet their needs as well as unlocking the premium values on the small devices. Take myself as an example. I currently use Office 365 ProPlus on my PC and MacBook Pro because Office Education offered students who study in university that license Office Education free use of Office 365 ProPlus. I am satisfied with the products and I am willing to purchase a subscription when I graduate from university.