Term Paper on "Strategic Management of Technology for Microsoft's Cell Phone Market Entry"

Term Paper 10 pages (2735 words) Sources: 8 Style: MLA

[EXCERPT] . . . .

Management of Technology for Microsoft's Entry Into The Multimedia Cell Phone Market

Assessing Market Opportunities for Microsoft to Penetrate the Multimedia Cell Phone Market

The intent of this plan is to analyze the opportunities for Microsoft to enter the multimedia cell phone market on a global basis by first completing an internal analysis of the company's abilities in this area, the current market environment, and the key market drivers by dominant market segment, and assessments of Microsoft entering this market. These include a strengths, weaknesses, opportunities and threats (SWOT) analysis in addition to the application of Dr. Michael Porter's Five Forces Analysis.

The market for multimedia cellphones is growing at a compound annual growth rate of 74% a year from 2006 to 2010 in the U.S. alone. The following table provides a projection from Ovum Research of the global multimedia cell phone market. Due to the mobile infrastructure platforms that support emerging high bandwidth content sources including streaming video, the U.S. market has the greatest potential to generate the highest levels of unit sales. There is also greater penetration of cell phones in the U.S. market than any other of the geographies included in the following table, Global Multimedia Cell Phone Revenue Forecast.

Table 1: Global Multimedia Cell Phone Revenue Forecast

Dollars in Millions)

2006 2007 2008 2009 2010 CAGR Europe

Asia-Pacific

North America

Source: Ovum Research (2006)

The compound annual growth rate of the U.S. market is alluring, yet in that significant opportunity are many challenges for Microsoft to overcome. The intent of this report is to provide an analysis of those challenges and potential approaches to overcome them and launch successfully into this high growth emerging new market.

Situation Analysis

The transitional nature of the multimedia cell phone market is exemplified by the convergence of features and functions into the cell phone platform, changing the function of cell phones from being purely voice oriented to the convergence of voice and data. Figure 1 provides a graphical explanation of this convergence.

Figure 1: Graphical Nature of Convergence in Multimedia Cell Phones

Source: Credit Suisse First Boston Analysis of the Multimedia Cell Market (2006)

Solectron, Flextronics and other outsource development manufacturers that Microsoft has many years managing to retailer and channel forecasts, and aligning each of these company's outsourcing manufacturing operations with Microsoft's supply chains. An example of this dynamic is the outsourcing of manufacturing for the Xbox Series of games, Microsoft keyboards, and the many other enhancement products Microsoft sells today. Of these outsourcers, Flextronics has been able to achieve the greatest cost reductions in the multimedia cell phone market and has been one of the driving forces in cost reductions globally. From their last Investor Analyst Day held earlier this year, Flextronics delivered the commitment to cell phone companies shown in Figure 2, Costing Structure of Multimedia Cell Phones. Flextronics has been able to influence the production cost to the Bill of Materials (BOM) to 60% of the total cost, and as the graphic shows, Flextronics is targeting components that comprise the additional 36% of the cost of higher end components that deliver high levels of differentiation at low price levels in multimedia cell phones.

Figure 2: Costing Structure of Multimedia Cell Phones

Source: Flextronics (2006)

Microsoft's expertise at managing supply chains in conjunction with manufacturing outsourcers has been proven in other divisions and the best practices of profitably managing outsourcing is a core strength of Microsoft, and the dynamics occurring in the multimedia cell phone market have parallels to the lessons being learned in the game console marketplace. Foremost of these lessons learned is the generational nature of the devices (both multimedia cell phones and game consoles) to be more integrated with other systems and users. Figure 3, Multimedia Cellular Devices Roadmap (IDC, 2006) shows the progression of these devices to need, from an enterprise perspective, greater integration in specific vertical markets, better integration with front-end applications including order management and order capture from an enterprise computing perspective, and the collaborative mobility that have as their vision the "anytime, anywhere" computing concept Microsoft has espoused in the launch and marketing of the.Net initiative. In essence the dynamics occurring in the multimedia cell phone market are aligning with the.Net development efforts Microsoft has been promoting heavily for the last four years. The convergence of.Net Services in the context of multimedia cell phones is illustrated in Figure 3.

SWOT Analysis of Microsoft's Entry into The Multimedia Cell Phone Market

Strengths

The Microsoft Mobile Workplace initiative is a significant strength. It is essentially a partnership with a number of leading systems integrators to deliver solutions around specific areas (including Customer Relationship Management, Enterprise Resource Planning, Healthcare and Financial Services). Microsoft has clearly recognized that integrators are the main channel to market for general mobile solutions even when vertically tailored, (and are likely to remain so for the next 24 months) and has identified the applications and vertical sectors that are likely to bring the greatest rewards.

Microsoft provides, in its stack of Visual Studio.Net,.Net Compact Framework, Pocket PC, MIS, Exchange Server,.Net Passport and partnerships with leading industry integrator, hardware manufacturer and ISV brands, a single, integrated development and running environment in the.Net Web Services Environment. This encompasses developer tools, device components, devices, connectivity infrastructure, server infrastructure, identity and authentication and application solutions.

Microsoft's enterprise penetration in collaboration software (i.e. Exchange/Outlook) is a large advantage over competitors in the mobile space, although many investment and industry analysts feel Microsoft has allowed competitors to steal a march in mobilizing corporate email. The company last year began to bundle mobile middleware software (MIS) into the next version of Exchange, a ploy that is designed to beg the question of Enterprises - why would they want to pay for an additional mobile email component from another vendor? Competitors will have to play on the fact that:

the customer is actually paying for the value they add above and beyond access to Personal Information Manager and messaging functionality;

mobilization of email is an insignificant, incremental cost in the price of their solutions;

Microsoft mobile email solutions are more sophisticated, robust, have greater functionality or are cheaper than all other competitors. Microsoft's Pocket PC OS is more suitable for mobile deployment of enterprise applications than other OSs commercially available (such as Palm or Symbian). This is not helped by the Symbian problems with data-transfer in rich-client user-environments, and the need to support various device-specific Java virtual machines (JVMs).

Weaknesses

When the first versions of Pocket PC were released, they were 'buggy', notably Pocket PC for xDA devices (Pocket PC Phone Edition) and even though this was over two years ago the reputation has stuck. The company has a reputation for releasing its software (mobile or not) before it is fully tested and then 'patching' afterwards to repair the bugs. This is sure to prevent some companies from choosing Microsoft-based mobile solutions until several iterations have been released, and may possibly push them to another camp in the interim.

For the last few years, Microsoft has struggled with security and has gained a poor reputation in this area. So much so, in fact, that Bill Gates sent his "trustworthy computing" email in 2002 to focus the company's effort towards this area yet the many security holes in Internet Explorer's latest release also bear this out as a continual problem. Security is still a key inhibitor for most enterprise customers and large organizations considering implementing a mobile solution, with many enterprises bound to react negatively to a centralized store for user security verification, as opposed to federated models.

Opportunities

There are many potential acquisition targets for Microsoft, should it need to plug any gaps, or restore confidence in a particular competence to deliver solid enterprise mobile solutions. The recent economic climate has seen the share price of many technology vendors plummet and if Microsoft wishes to improve the functionality of its middleware platform, there are several attractive, possibly undervalued, propositions on the market. However, this remains unlikely, as Microsoft, by virtue of its position, needs to be seen to build out its own viable solution. In addition Microsoft typically purchases new companies using cash, choosing not to dilute its stock valuations by paying for new ventures with equity. Of the 40,000 proposals Microsoft gets a year for acquisitions, partnerships and joint ventures, the Mergers and Acquisition team has focused on multimedia cell phones, Internet applications and modeling applications are of interest.

Although any substantial mid-market uptake of mobile solutions is in its first stages of adoption, Microsoft has a great opportunity in this area due to its dominance of the desktop email market. Channel issues require resolution though. Operators are likely to be the primary route to market for 'out of the box', mobile solutions of this type, although performance has been disappointing to date, and Microsoft still has work to do in developing and improving its relationships with mobile operators.

Looking a little further ahead, Microsoft's recent entrance into the low to midmarket CRM and ERP markets… READ MORE

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