Table of Contents Expand. Economic Moats. Microsoft's Business. Microsoft's Moats by Segment. Microsoft's Moat. Key Takeaways Microsoft has what Warren Buffett calls a strong moat: competitive advantages that protect it from rivals and enable its large profits.
Microsoft's intellectual property—specifically, its patents and proprietary software code—contribute to the depth of its moat. As a household name, Microsoft's brand name is a significant part of its moat. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
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Partner Links. Related Terms Understanding Perfect Competition Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and resource mobility are met. Narrow Economic Moat Definition A narrow economic moat is a competitive advantage that one company enjoys over competing firms operating in the same or similar type of industry.
Intellectual Property Intellectual property is a set of intangibles owned and legally protected by a company from outside use or implementation without consent.
Value Investing: How to Invest Like Warren Buffett Value investors like Warren Buffett select undervalued stocks trading at less than their intrinsic book value that have long-term potential. What Does Weightless Economy Mean? The term weightless economy refers to the trade of products and services that are abstract or intangible, such as professional services. What Is an Oligopoly? An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence.
Investopedia is part of the Dotdash publishing family. Bill had an extremely close relationship with his mother, and as a young child would often accompany her to civic meetings and school visits. The kids grew up in a competitive yet fun atmosphere, with a reward for nearly everything that they accomplished. This competitive upbringing created the seed of leadership and command which Bill would become famously known for. While he was. In the case of the developing world of technology, many tried, but only a few could get a stake in the fast moving industry and throughout it all one name has stamped their name on the PC business, Microsoft.
It started with two teenagers who envisioned an endless world of possibilities for the world of computing at an early stage. Paul Allen and Bill Gates were two high school students who attended Lakeside their dreams of one day being computer. D Fischer Filed protests with US Commerce Department about Fair trade; Fisher reaches out to Microsoft and Apple; small implementations in digital strategy and executives could not believe it would seriously impact their business.
C Fisher Competition heats up, sales decline, Sony and others move into digital, Kodak panics and thinks it can slow competitive pressures through aggressive marketing. Apple Inc. Christensen On the author: Clayton Christensen is a celebrated academic, educator, author, and consultant. He graduated with his doctorate from Harvard and was awarded a professorship position at the same point in time. He is the author of 9 books and is widely regarded as the most influential business thinker of the day.
Case Study: Apple, Inc. Introduction The case study will follows examines Apple Inc. Apple was founded in by two college dropouts, specifically, Steven Jobs and Steve Wozniak.
The two built a computer circuit board working in Job's family garage located in Los Altos, California. Yoffie and Kim, , paraphrased After several months time they produced units and took on a new partner, A. You are considering starting your own business when you leave school and are keen to start researching ways to achieve business success.
You have decided to start your research by investigating a well-known entrepreneur. You are required to share your findings with your class in the form of a keynote address.
They can also seize opportunities to take the competitive lead by applying technology in innovative ways. And because sales, marketing, and customer service tasks are handled within a familiar application, any team can work smarter and be more productive on any project that they are working on.
Technology Sourcing and Internal Innovation. They can also create and monitor customized offers and pricing for each opportunity, by more effectively positioning against competition with a seamless competitor tracking tool.
A firm can also streamline a proposal creation with embedded document management capabilities and establish consistent sales processes with predefined workflows. Users can also empower their sales force with real time data from any web enabled device to get on the go leverage. Product Development Strategy. While servers, desktops, and mobile devices have arguably identical issues with compatibility, the solution and answer lies within HTML 5, and the driver in both cases is user demand.
Thanks to the steady and regular market share gains, the Mac now has the upper hand of the market, especially in the U. S, where Apple has already exceeded 10 percent of the market share. The problem Microsoft is having is that the demand for Macs comes largely from the demands for I-Phones. If a user has a good experience with an I-Phone, this will lead into repeated trips to the Apple store on site and online, with more and more users considering and purchasing Apple products, including Macs, I-Pads, and I-Pods.
Android has also benefitted from a similar popular demand recently in the mobile device world, and since Google has its own platform now, users have more choice with both hardware and wireless carriers. The problem with these platforms is compatibility, which was a bigger issue in the past than now, but still an issue. No new major PC specific applications have appeared in the past several years, instead, all new apps have been web based and run well on standard based browsers on any desktop computer operating system including Windows, Mac, and Linux.
Microsoft embraces HTML 5 because they feel it is the future of web technology that they are exploring by using Internet Explorer 9 and within the next few months Windows 8. On the mobile side HTML 5 is leaned more towards the future of mobile devices, but at the same time will bridge the gap between disparate and incompatible platforms like the I-Phone, Android, and Windows phones.
Instead they can create and users would embrace a single web app that is cross compatible on all operating systems. Microsoft is wise with its goals for Silverlight, but at the same time the software giant is welcoming HTML 5 with arms wide open as its path to the future of the company. The new user experience also extends to how applications will run on the Windows 8 software.
Developers will also be able to use common web technologies, such as HTML 5 and JavaScript to create applications for the PC to further ease integration and adoption.
To aid developers in building applications for the new Windows 8 platform, Microsoft has opened a new developer conference called BUILD which will take place in California later on this year Needless to say, Microsoft is keeping up with technology and innovation by embracing new technologies that can be implemented into their existing platforms that will make the Microsoft brand even bigger and better than it already is.
Strategy to Protect Innovations. Although Microsoft lags behind Apple in innovation, during Microsoft was granted the third most patents of all companies with almost 3, patents behind the leaders IBM and Samsung.
Microsoft spends approximately nine billion dollars a year in research, development, and acquisitions, totaling over sixty nine billion over the last decade, which for Microsoft has not brought the breakthroughs to the public like they wish they could.
Although Microsoft never quite ranked among famous labs such as Bell Labs and the Xerox Palo Alto Research Center, Microsoft itself still feels that they are one of the few remaining companies that still do pure research and development, including kinds that may not turn into products for several years to come.
But, when we look at the CEO of Apple Steve Jobs, we can see that Steve Jobs is a brilliant forecaster and knows what people want even before the public realizes it and then having great products designed to fill their need. Another problem the company faces is corporate culture.
Although Microsoft does deserve a lot of credit for the amount of money it is willing to put in their research and development, and their researchers also deserve credit for the number of patents they receive, the company needs to rethink its approach to innovation and product development, so that it can also reap the rewards and benefits of their work.
In conclusion, Microsoft will go down in history as one of the most innovative companies that have changed the way people go about their daily lives. Microsoft has come a long way from the days of settling lawsuits with numerous companies to being the powerful software giant in the world today.
With technology comes innovation, and Microsoft has proven that it can be technological innovative with all of the great products that we have seen from them over the years. Microsoft Competitive Advantage. Microsoft appears to offer decent value at it's recent price. So at today's prices the whole company is worth about 8 times trailing earnings. If you take some time and look below the hood, the company has one division, online services, that is a money loser. Now 8 times earnings is good for an earnings yield of At 7 times earnings the company is good for a Regardless of your future expectations about the economy that is a very cheap stock especially for a company with large very profitable divisions.
There are so few companies in the world that have such absolutely huge margins like that. The market obviously does not believe the company has a very strong future, I beg to differ. I have even seen some analysis that suggest the market is currently pricing in low single digit declines in earnings for the foreseeable future. Now the company may well be worth this amount, or significantly more or less depending on what the future holds. If the company has a poor future, something like print newspapers, the company may be worth much less.
So what about Microsoft, does it have any competitive advantages? Competitive Advantage. With all that as introduction, I have been reflecting quite a bit lately on whether Microsoft has a strong competitive advantage or not. Competition may exist but they have a strangle hold on the market. That is a clear starting point. It's funny much you hear people complain about Microsoft's products but what do you really expect?
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