Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape an overall extent of competition in the industry. Microsoft Porter’s Five Forces  are illustrated in figure below:

Microsoft Porter’s Five Forces Analysis

Threat of substitute products or services in Microsoft Porter’s Five Forces Analysis

Threat of substitute products or services for Microsoft is low. The following factors determine the level of threat of substitute products or services for the multinational technology company:

1. Lack of direct substitutes. Range of products offered by Microsoft include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. The company also designs and sells hardware including PCs, tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories.

Additionally, Microsoft offers a wide range of software applications and cloud-based computing services such as Bing, Microsoft Azure, Microsoft Dynamics CRM Online, Microsoft Office 365, OneDrive, Skype, Xbox Live, and Yammer. There is no direct substitution for these products and services, however, indirect substitution exists.

Indirect substitution for Microsoft products and services belonging to productivity and business processes segment include a wide range of stationary products, planners and organizers. Indirect substitution for Microsoft gaming and recreation products, on the other hand, include but not limited to music, movies, sports, spending time with friends and family members etc.

2. Low buyer propensity to substitute. The level of buyer propensity to choose substitute products or services to Microsoft’s products and services can be assessed as low. This is because according to its mission ‘to empower every person and every organization on the planet to achieve more’, Microsoft products and services are highly convenient to use.

3. Absence of switching costs to substitutes. Although, there is generally low buyer propensity to choose substitute products and services as discussed above, the absence of switching costs to substitutes may increase their threat to a certain extent.

Bargaining power of suppliers in Microsoft Porter’s Five Forces Analysis

Bargaining power of Microsoft suppliers is low. The technology giant exercises its bargaining power over suppliers extensively to secure low prices and to ensure supplier commitment to other requirements. For example, as part of its CSR initiatives Microsoft started requiring its US suppliers with more than 50 employees to to offer a minimum of 12 weeks of paid parental leave at up to USD1,000 per week.[2] At the same time, there is a small number of suppliers such as Dell that have greater bargaining power compared to other suppliers mainly due to the unique nature of their products and services.

The following set of factors play an important role in the formation of supplier bargaining power:

1. Great numbers of suppliers. There are large numbers of suppliers around the globe and Microsoft is the biggest customer in terms of purchase volume for the majority of its suppliers.

2. Low supplier switching costs. The multinational technology company can replace the majority of its suppliers for little or no cost for the business. Such a situation has an evident adverse impact on supplier bargaining power.

3. Cost of supplies relative to selling price of products. For Microsoft, the cost of supplies relative to selling price of its products is low and this can be highlighted as another factor that decreases supplier bargaining power.

Rivalry among existing firms in Microsoft Porter’s Five Forces Analysis

Rivalry among existing firms is fierce in technology and consumer electronics industry. The following factors intensify the level of rivalry in the industry:

1. Large numbers of competitors. Microsoft products and services compete with a set other well-known brands in global marketplace in respective segments.

In Productivity and Business Processes operating segment Microsoft competes with software and global application vendors such as Apple, Cisco Systems, Facebook, Google, IBM, and Slack, and many web-based and mobile application competitors as well as local application developers. Major Microsoft competitors in Intelligent Cloud segment include CA Technologies, Hewlett-Packard, IBM, and VMware.

In More Personal Computing segment, on the other hand, alternative platforms and devices, mainly from Apple and Google, providers of entertainment services such as Sony and Nintendo represent competition for Microsoft.

2. Rate of growth of the industry. Gartner research and advisory company forecasts Worldwide Public Cloud Service Revenues to reach USD 302,5 billion by the year 2021.[3] Personal computing, software and applications industries also have impressive growth rates. It can be argued that high industry growth rate attracts more competitors in the market and as such, the level of competition in the global marketplace is expected to further intensify in the future.

Microsoft Corporation Report contains a full analysis of Microsoft Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Microsoft. Moreover, the report contains analyses of Microsoft leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Microsoft marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review

[2] Salinas, S. (2018) “Microsoft will start requiring partners and suppliers to offer paid family leave, and it will help cover the costs” CNBC, Available at: https://www.cnbc.com/2018/08/30/microsoft-will-require-partners-suppliers-to-offer-paid-family-leave.html

[3] Gartner Forecasts Worldwide Public Cloud Revenue to Grow 21.4 Percent in 2018 (2018) Gartner, Available at: https://www.gartner.com/newsroom/id/3871416