(1) Bargaining Power: This is your strength when negotiating.
The fewer competitors you have, the greater your bargaining power will be.
(2) To pay a premium: To pay extra for something.
For a special service, like fast shipping, we often pay a premium.
(3) Competitive challenges: The things that make it hard to do well
Competitive challenges change from year to year, often because of technological innovations.
1. What does it mean for Microsoft to sell software independent of hardware?
a. The software price higher
b. Microsoft doesn’t sell hardware, just software
c. Microsoft bundles hardware and software together
2. Why does it matter that hardware isn’t a commodity anymore?
a. People won’t buy Windows if the hardware is bad
b. Windows needs to develop hardware that works well
c. Microsoft’s previous strategy was to guarantee good hardware
3. Why does it matter that Android is free?
a. It increases competition for Windows
b. Companies have no reason to partner with Microsoft
c. It will affect the price of Windows negatively
By Jeremy Schaar
Microsoft is still making lots and lots of money. So why does everyone talk about them like they’re a dying company? It’s because we can all see how they could fail. Last week, I discussed what made Microsoft so successful. This week, you’ll learn the two things that caused Microsoft to change its strategy. You’ll also learn what their new strategy is and you’ll learn some great strategy vocabulary.
That looks like a nice tablet, but why would Microsoft make it? Their strategy was to sell software independent of hardware. Microsoft let Dell and other companies sell hardware. They sold software because the hardware was a commodity, but everyone needed the same software because of network effects. (See last week’s lesson.)
Two things changed. First, hardware stopped being a commodity. The features on your phone and tablet matter now. So, if Microsoft wants to continue to sell Windows, it needs to come with awesome hardware.
But why not just partner with a hardware producer like Samsung? They might not have the bargaining power they did before, but they could still sell a great operating system. The second thing that changed is that Google gives away Android for free. So why would anyone buy Windows?
The only possible solution is to be like Apple. They need to sell both the hardware and the operating system together. If they have the best combination, then people will pay a premium for it. This is why Microsoft had to buy Nokia.
So Microsoft’s new strategy is to be like Apple. I’ll discuss the consequences of that decision and the competitive challenges Microsoft will face in the future next time.