How Microsoft’s innovations made it a technology giant

How Microsoft’s innovations made it a technology giant

From a small software startup, Microsoft has grown to become a household name and leading brand offering innovative technological solutions. Let’s take a look at its journey…

Microsoft is an American multinational technology corporation that offers innovative personal computer software and hardware products and services to advance human and organizational achievement. 

Microsoft is a household name today and has grown exponentially to become the top producer of computer software, consumer electronics, personal computers, and related services. Hard to believe that it was just a small software company founded in 1975, providing interpreters such as the BASIC interpreter for the Altair 8800.

Microsoft’s market share and key statistics in 2021

  • Revenue of $168 billion
  • Operating Income of $70 billion
  • Workforce of 181,000 employees
  • Earnings per share of $8.1
  • Invested more than $20 billion in Research and Development
  • Stock Price of $336 as of Dec 2021
  • Market cap of $2.5 trillion
  • Market share of 73% in desktop operation system (OS) worldwide
  • Market share of 85% in office suite market

Microsoft’s 47 years long journey has been an incredible series of strategic breakthroughs, enabling the company to redefine the information technology industry and transform itself over the years to usher in the future. 

Let’s take a closer look at Microsoft’s tremendous growth…

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Microsoft Cements Itself By Offering Essential Software To Prominent Hardware Manufacturers

Before Microsoft rose to dominance in the personal computer operating systems market, it was simply known as a business venture started by two friends – Bill Gates and Paul Allen – who were eager to explore computer programming.

Bill and Paul were both math and programming prodigies who spent most of their time playing with computers and writing programming codes.

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The inspiration for starting Microsoft came in 1975 when Paul Allen suggested to Gates that they program a BASIC interpreter for the Altair 8800 developed by MITS; thereby enabling users to enter and run programs in the BASIC language.

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Following the successful development and demonstration of the interpreter which was marketed by MITS as Altair BASIC, Gates and Allen moved to Albuquerque and, in April 1975, co-founded Micro-Soft - short for micro-computer software. 

It was not until 1979 that Bill Gates used the term Microsoft to refer to the company, and since then, it has become the official name that is renowned all over the world.

Microsoft Signs A Strategic Contract To Develop Essential Software

In 1980, Microsoft formed its first crucial partnership with International Business Machines (IBM), which entailed creating an operating system for the in-development IBM Personal Computer (PC)

Although Microsoft had already been working on developing the BASIC programming language for the IBM PC, it had not yet developed an operating system. Nevertheless, Microsoft capitalized on the opportunity since it knew that Seattle Computer Products (SCP) had developed an operating system called QDOS (Quick-and-Dirty Operating System) which could be refined to suit the IBM PC. 

Thus, in July 1981, Microsoft purchased full rights from the SCP for their operating system and further developed it for the IBM PC, which was scheduled to ship in a few weeks. Although the name of the operating system on the IBM PC was the IBM PC-DOS it was wholly developed by Microsoft. 

Around the same time, the company became a privately held corporation and moved to Bellevue, Washington as it was hard to recruit top programmers to Albuquerque.

Microsoft Leverages Its Operating System To PC Manufacturers

In its contract with IBM, Microsoft had included a clause that allowed it to sell the operating system it had developed to other companies under the name of MS-DOS. The move paved the way for Microsoft to become the dominant technology company of the PC era.

Before he dropped out to dedicate his full attention to Microsoft, Gates was studying Law at Harvard. He made sure that while the contract between Microsoft and IBM allowed the hardware developer to use and market the software, Microsoft retained ownership of the language.

By 1983, large computer manufacturers who had developed computers similar to IBM standards began using MS-DOS as their operating system. PCs were now being seen as more than just toys, they were serious business tools. 

Consequently, at the end of the year, with the growth of the PC market, MS-DOS sold around 500,000 copies. These sales boosted the company’s annual revenue to $69 million (around today after adjusting for inflation).

Microsoft Develops Its Range Of Office Products 

During the 1980s, Microsoft developed its most prominent office products and eventually introduced the highly successful Microsoft Office.

Gates was aware of the need for a more user-friendly word program which led to the development of Microsoft Word. The initial product lacked ease of learning, but Gates was adamant about doing market research and strengthening the software’s weak points.

In April 1986, Word 3.0 was released, which became the company’s best seller. However, Gates had already set his eyes on developing a version of Word for Apple’s Macintosh computer. 

Sales of this version amounted to 20,000 copies each month and by this point, Microsoft had annual sales of $590 million (around today after adjusting for inflation) and employed 2,800 people

Gates also sought to offer advanced spreadsheet software which led to the development of Excel for the Macintosh (as Lotus 1-2-3 had already become the standard for IBM). By early 1986, Excel dominated the Macintosh spreadsheet market.

Although half of the company’s profit came from the sales of DOS, Word, and Excel cemented Microsoft’s status as the biggest producer and supplier of software for Macintosh. 

In August 1989, the company introduced Microsoft Office - its most successful office product. The office was a bundle of separate, internally developed office productivity applications such as Word and Excel along with rebranded products from their companies such as Microsoft SQL Server.

Microsoft Office eventually became the dominant business suite with its market share considerably exceeding that of its competitors. 

Key Takeaway 1: Locate the fundamental source of value and conquer it

Microsoft understood that controlling the operating system was more important as the underlying hardware became irrelevant since it could be cloned by other companies. 

The company recognized the true potential of its product and thus introduced the clause that allowed it to sell the DOS to other companies in the IBM contract. Doing so, provided the company with the finances to develop other essential software and ultimately become one of the world’s leading software developer. 

Moreover, the contract with a prestigious company like IBM helped to push MS-DOS into prominence and allowed it to dominate the PC operating system market. 

Microsoft Embodies A User-First Policy

Gates had talked with Apple executives during the creation of the Macintosh and was impressed by its user-friendliness. 

While the IBM PC used letters and numbers to communicate, the Mac had a graphical user interface (GUI) that used small pictures called icons to communicate. Users would click on the icons with the cursor and perform tasks. 

Gates firmly believed that the future of computing lay in GUI. 

Microsoft’s Success Against Competitors

In 1990, Microsoft launched Windows 3.0 - a new version of its operating system with features such as streamlined GUI and improved protected mode ability. The company sold over 100,000 copies within two weeks.

Despite complaints that Windows 3.0 required advanced hardware to run at an acceptable speed, it generated more revenue than the OS/2, which IBM had asked Microsoft to develop. 

Thus, Microsoft decided to shift its focus entirely to Windows, and so the relationship between the two companies declined. Around the same time, Apple initiated a lawsuit against Microsoft, claiming that it had copied the look and feel of the Mac, thereby committing copyright infringement. 

Amidst the hostilities, IBM and Apple felt threatened by Microsoft’s emerging control of software and operating systems standards and decided to form an alliance. The fact that two of the industry’s most prolific names would feel threatened by Microsoft was further evidence of its growing influence. 

Nevertheless, by 1993, Windows had become the most widely used GUI operating system in the world. It was also dubbed the “1993 Most Innovative Company Operating in the U.S.” by Fortune Magazine. 

The year also saw the lawsuit between Apple and Microsoft come to an end, with the ruling being in Microsoft’s favor.

Microsoft’s Broad Differentiation Strategy Drives Competitive Advantage

At the start of the 1990s, Microsoft decided to shift its focus from supplying software to hardware manufacturers to selling directly to consumers.

Targeting consumers was part of Microsoft's strategy to broaden its business and appeal to non-technical audiences. As such the company developed unique products for various market segments: individuals, households, and organizations.

The company released Microsoft Encarta in 1993 which was the first encyclopedia designed to run on a computer. It also introduced Microsoft Home which included Microsoft’s new multimedia applications.

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In 1994, the company even undertook a $100 million advertising campaign and changed its slogan to “Where do you want to go today?” - hinting at the endless possibilities offered by Microsoft programs and products.

Microsoft continued to release products targeted at consumers: a successful example being Windows 95. This was the latest version of Microsoft’s premier operating system featuring an original user interface, including a novel start button.

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Windows 95 sold more than a million copies in the first four days of its release.

The company continued its momentum and also entered the personal digital assistant (PDA) market in November with the release of Windows CE 1.0. The new version of the operating system was designed to be compatible with low-memory, low-performance computer-like devices such as mobile phones, digital cameras, handheld computers, etc.

Microsoft’s Diversification Strategy Yields Desired Results

A part of Microsoft's diversification strategy was to broaden and expand into businesses associated with its core franchise.

As the web began to grow in significance and popularity, Microsoft approached a company called Spyglass to license Internet Explorer. The browser was then bundled for free with Windows 95.

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Microsoft also began expanding its product line into computer networking and the World Wide Web. As part of this expansion, it launched MSN (Microsoft Network) which encompassed the company’s entire range of online services. 

The most prominent of these online services was MSNBC - a joint venture with the NBC (National Broadcasting Company) that was basically a 24-hour cable news television station

Microsoft’s Value Proposition Captures User Attention

In 2001, Microsoft released the highly anticipated Windows XP which included the essential features of both its business and home product line

Windows XP introduced a new GUI - the first after Windows 95. Both the business and personal computers arrived with a full suite of pre-installed Microsoft software. The new operating system was the first to offer a similar user experience regardless of whether it was being used at home or at work. 

Windows XP has been heralded as one of the greatest achievements of Microsoft and is remembered as one of the key operating system releases of all time. Microsoft was also aware of its significance which is why it invested $250 million in Windows XP’s ad campaign. 

The campaign included a wide variety of events and promotions - even including a special concert with Madonna and Sting at the Windows XP launch party. Such strategies successfully captured the attention of the users. 

Key Takeaway 2: Let Consumer Needs and Feedback guide the development of your products

Much of Microsoft’s growth in the 1990s was driven by its commitment to adhering to consumer needs. 

The development of user-friendly features such as unique GUIs, pre-installed software, and bundling the web browser for free with the operating system all contributed to Microsoft’s appeal to consumers in the market. 

Microsoft strategically expanded its business in keeping with the target of directly accessing consumers and designing its product offerings accordingly. By putting the user first, Microsoft was able to develop products with a strong impact in the market and which allowed it to become a leading tech company.

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Microsoft Strategic Focus Aligns With Anticipated Trends

In the following years, Microsoft continued to update its range of products and expanded the scope of its business to become not just a leading software developer but a tech company with a global impact. 

Toward this end, Microsoft recognized the need to directly compete with companies in the fields it sought to expand in.

Microsoft’s Product Development Strategy

In the early 2000s, Microsoft leaned into its product development strategy and introduced its own product offerings in new markets.

Microsoft launched the Xbox and officially entered the game console market which was then dominated by Sony and Nintendo. While the Xbox was relatively successful, the Xbox 360 was much more so; although, it too could not outsell the PlayStation 3 - Microsoft’s main rival. 

Following the introduction of the gesture control feature by Wii which opened up a new market for video games, Microsoft developed the controller-free Kinect peripheral to boost Xbox’s popularity.

The move was highly successful as Kinect was the fastest-selling consumer electronics product in history as of 2011, with sales averaging 133,333 units per day.

In June 2012, the company unveiled the Surface computer which was the first in history to have its hardware made by Microsoft. The very next month, it also launched the Outlook webmail service to compete with Gmail.

Microsoft’s Business Strategy Focuses On Devices And Services

In 2010, Microsoft laid out its intention to unlock the full value of its software by factoring in how people use devices and services at work and in their personal lives. 

Consequently, the company was determined to deliver a broad spectrum of Windows PCs, tablets, and phones. Not only was Microsoft going to develop Windows devices but have the relevant services built into them. 

In 2012, Microsoft also made incredible updates to Office for Windows 8, adding touch and pen capabilities and unlocking new experiences for reading, note-taking, meetings, and communications

Microsoft had already released its cloud computing service, Azure, in 2008 which, along with Windows Server 2012 and System Center, made up the company’s services offerings. 

The company is now focused on helping businesses move to the cloud. In 2014, commercial cloud revenue amounted to a $4.4 billion annual run rate, making Microsoft an indisputable leader in the arena.

To reinforce its device ecosystem and drive its mobile strategy, Microsoft acquired Nokia’s Devices and Services business in 2014. 

This acquisition helped create an expanded Microsoft Devices Group that included Nokia phones, Xbox hardware, Surface, Perceptive Pixel products, and accessories

Microsoft’s Digital Transformation Strategy

As revenue continued to increase across Microsoft’s cloud services, Windows 10, and Office 365, the company set its sight on a new technology paradigm  digital transformation

With the onset of digitization across organizations, Microsoft aimed to form strategic partnerships with them by helping them build their digital capability, providing innovative technology to drive new growth, and enabling them to digitize business-critical functions.

In 2018, Microsoft identified cloud computing as being foundational to enabling digital transformation and stressed Azure’s hybrid consistency, developer productivity, and Software as a Service (SaaS) application integration.

Microsoft was also aware of the importance of a business's ability to reason over its data using AI to drive competitive advantage. In order to capitalize on this opportunity, Microsoft Research was dedicated to developing AI technologies and democratizing them with Azure Cognitive Services

Azure Cognitive Services has the most comprehensive portfolio of tools, frameworks, and infrastructure that enables users to build applications that see, hear, speak, search, understand, and accelerate decision-making. 

In 2019, Microsoft brought hyperscale capabilities to its relational database services and offered the most comprehensive cloud analytics through Azure Data Factory, Azure SQL Data Warehouse, and Power BI.

By 2020, Microsoft was pushing the bounds of how AI can generalize learning beyond narrow domains. It was collaborating with OpenAI on a supercomputing platform to train and run AI models of unprecedented scale.

Key Takeaway 3: Anticipate trends to gain an unfair advantage

Microsoft accelerated its growth by anticipating new avenues of technological breakthroughs and developing its products and services accordingly.

It had previously reorganized its strategy to focus on devices and services and built its capacity in those avenues, thereby developing a unique portfolio to cater to diverse needs. 

Microsoft anticipated the growing need for digital transformation amongst businesses and organizations and positioned itself as a strategic partner that allows them to achieve digitization. Doing so allowed Microsoft to capitalize on transformational opportunities as businesses sought out its solutions to help them transition toward digitization. 

The strategy paid off as well since the company reported strong financial results. 

Why Is Microsoft So Successful?

A significant reason for Microsoft’s resilience and why it has retained a relevant and arguably dominant position in a rapidly evolving industry is due to its financial and intellectual resources.

Despite the changes ushered in by the advent of smartphones and the Android operating system, Microsoft was able to adapt to the changing landscape by making its products available on its competitors’ devices and platforms. Such moves allow the company to leverage its brand loyalty more effectively. 

Instead, the company has shifted its focus to capitalize on the market demand for cloud computing. Microsoft's aim is to usher in future technologies by breakthroughs in AI, data management, and quantum computing.

Microsoft’s intellectual property – patents and proprietary software code – in addition to the company’s ability to adapt to ever-evolving trends, technologies, and consumer preferences, and willingness to take risks to explore new opportunities make it extremely successful. 

Microsoft’s Purpose And Mission Statement 

Microsoft is an innovation-based company that continues to grow with time. Its mission is to empower every person and every organization on the planet to achieve more. 

The company’s goal is to foster innovation that generates new ecosystems of inventors, partners, developers, creators, changemakers, public servants, frontline workers, and knowledge workers who drive the engines of growth and opportunity in ways that benefit everyone.

Who Owns Microsoft Today?

Microsoft is a multinational software company, with its headquarters at the Microsoft Redmond campus located in Redmond, Washington, United States. 

The company has a total of $2.5 trillion market capitalization as of December 2021. 

A few of the prominent shareholders of Microsoft are:

  1. The Vanguard Group, Inc. It is an American registered investment advisor based in Malvern, Pennsylvania. It owns up to 8.01% of Microsoft’s total shares, equivalent to $156,241,379,413.
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  1. BlackRock Fund Advisors is an American multinational investment company based in New York City. It is the world's largest asset manager, with US$10 trillion in assets under management as of January 2022. It owns up to 333,373,626, that is 4.47% shares of Microsoft which amounts to $87,167,201,990.
  2. SSgA Funds Management, Inc. It is the investment management division of State Street Corporation and the world's fourth largest asset manager. It owns up to 3.94% of Microsoft's shares, equal to a total of $76,756,608,430.
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Microsoft’s Growth By Numbers 

2021

2010

Revenue

$168 billion

$62 billion

Total Assets

$333 billion

$86 billion

Operating Income

$70 billion

$24 billion

Employees 

181,000

89,000

Market capitalization

$2.5 trillion

$234.5 billion

What Is Microsoft’s Growth Strategy?

At the heart of Microsoft’s growth strategy is its cloud platform and which the company seeks to expand in the future. 

The company is continually encouraging its partners to embrace cloud technologies to accelerate digital transformation. 

Thus, Microsoft is growing Azure in three essential aspects:

  • New cloud-native experiences
  • Modernization of applications and data estates
  • Migration and modernization of infrastructure and mission-critical workloads

It has even introduced the Cloud for Sovereignty service aimed at governments and public sector customers looking to accelerate digital transformation efforts. 

The company expects to see significant growth through the Microsoft Cloud because of its differentiated market position, customer demand across its solution portfolio, and consistent execution across the Cloud platform. 

With the combination of cloud vertical market specialization and further enhancements of its cloud capabilities, Microsoft is confidently positioned for future growth.

Microsoft’s Innovation Strategy For The Future

Microsoft’s vision for the future involves innovation in a way that will empower every individual. 

It is significantly investing in resources that will help in transforming the workplace into a modern one so that business apps can be introduced to improve how people communicate, collaborate, learn, work and play.

The company plans on building and running cloud-based services that help people and companies get new experiences and opportunities.

Utilizing natural methods of communication and AI to understand and interpret the demands of the client in order to drive insights and take action on their behalf, is also a crucial aspect of its vision.

Additionally, Microsoft wants to use Windows to build its cloud business, boost its market share in the PC industry, and promote greater user interaction with services like Microsoft 365 Consumer, Teams, Edge, Bing, Xbox Game Pass, and others.

With their integrated, end-to-end solutions spanning security, compliance, identity, and management, across all clouds and platforms, Microsoft is attacking security from every perspective.

It is also developing innovative gaming experiences that bring people together around their common love of games on any device, as well as pushing the frontiers of innovation with console and PC gaming by creating the next wave of entertainment.

Microsoft has experienced tremendous growth in the few decades since its establishment. From mainly selling software to hardware manufacturers, Microsoft has become a tech giant with a global impact. The company is aiding the digitization of organizations by developing innovative technologies that offer the necessary digital tools for them to enhance their functions. The future of technology rests in the development of AI and Microsoft has already developed a reputable portfolio of AI capabilities and is further enhancing these technologies. As the world transitions towards a new technological breakthrough, Microsoft is strongly positioned to lead this transformation and further reinforce its status as a leading tech company with a global impact.

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