Case Notes/Answers
MICROSOFT'S SEARCH by Jan Rivkin Eric Van Den Steen
Discussion Questions:
We recommend the following assignment questions for the one-session approach to the case:
1. How has Microsoft responded to competitive threats and opportunities in the past? What
patterns do you see? What is your assessment?
2. How large is Microsoft’s competitive disadvantage in Internet search and search-related
advertising in 2008? If the industry remains on its current trajectory, how will Microsoft’s
disadvantage evolve over time?
3. Why is Microsoft pursuing the market for search and search-related advertising?
4. What integrated strategic option should Microsoft’s executives—especially Satya Nadella, Jay
Girotto, and Gary Flake—pursue?
, 5-710-416
JULY 27, 2009
TEACHING NOTE
Microsoft's Search
Synopsis
This field case places students in the role of Microsoft executives who face a daunting challenge in
late 2008: Microsoft, long the leader in personal computer software, lags far behind Google in the
market for Internet searches and related advertising. How can the company revive its fading
prospects in its battle against Google? The case describes the roots of Microsoft’s historical success,
its responses to earlier competitive threats, the ascent of Google in search, and Microsoft’s largely
unsuccessful efforts to date in search. The case prepares students to discuss, in class, why Microsoft
has a competitive disadvantage in the search market, how that disadvantage is likely to evolve, what
Microsoft’s objectives are in the search market, and how Microsoft can best pursue those objectives.
Teaching Purpose
The case is designed to be taught in an MBA course on business-unit strategy and to serve as a
bridge between modules on competitive advantage and competitive dynamics. Specifically…
1. The case allows a review of the concept of competitive advantage. A company achieves a
competitive advantage over a rival when it manages to drive a wider wedge than the rival
between the willingness to pay (WTP) it generates among customers and the costs it incurs to
serve those customers. In 2008, Microsoft suffers from lower WTP and higher costs than
Google. The case allows students to drill down and unearth the roots of Microsoft’s dual
disadvantage at a point in time.
2. The case permits students to project the dynamics of competitive advantage. Learning effects,
network externalities, and other feedback loops give Microsoft’s disadvantage a natural
trajectory: Without a significant change, Microsoft’s relative gap between WTP and cost will
only worsen over time. The case gives students an unusually detailed opportunity to sketch
out a variety of feedback loops that reinforce Google’s lead. Similar feedback loops underpin
Microsoft’s historical success in its operating system and applications businesses.
3. The case gives students an opportunity to examine generic threats to competitive advantage and a
variety of responses to them. Microsoft has faced the full set of generic threats identified by
, 710-416 Teaching Note—Microsoft's Search
Pankaj Ghemawat—imitation, substitution, holdup, and slack—and has historically dealt with
them effectively (albeit not necessarily legally…see the comments on antitrust below).
Substitution threats play an especially prominent part in Microsoft’s history: browsers, Java,
Linux, and now cloud computing can be seen as substitutes for Microsoft’s desktop operating
system.
4. The case highlights the importance of one particular aspect of any good competitor analysis: an
understanding of a company’s goals. Microsoft’s goals in the search market are unclear. Are the
goals offensive, with Microsoft aiming to get a big slice of a lucrative market? Or are they
defensive, with Microsoft trying to starve Google’s cash cow and keep Google away from
Microsoft’s incredibly profitable positions in operating systems and office applications?
Students who answer these questions differently are likely to recommend quite different
actions for Microsoft in search.
5. The case allows students to craft integrated strategic options for Microsoft and to compare and
contrast across options. In particular, students can assess how well each option succeeds in
breaking the positive feedback loops that currently propel Google’s growing advantage.
Among these teaching purposes, we believe that #2 is the unique contribution of this case to the
existing library of HBS strategy cases. We are not aware of another case that gives students as deep
an opportunity to map out feedback loops and identify the likely trajectory of a firm’s competitive
(dis)advantage.
Alternative Teaching Approaches
The case can be taught over one class session or two class sessions. In the two-session approach,
students spend the first session examining the roots of Microsoft’s historical success in the markets
for operating systems and office applications as well as the company’s responses to past threats.
During the second session, students analyze Google’s success in search, critique Microsoft’s
responses to Google to date, and make recommendations for future steps. The one-session approach
to the case resembles the second session of the two-session approach, with lessons from Microsoft’s
history introduced very selectively.
The main body of this teaching note focuses on the one-session approach to the case. An
appendix sketches out the two-session approach.
Assignment Questions
We recommend the following assignment questions for the one-session approach to the case:
1. How has Microsoft responded to competitive threats and opportunities in the past? What
patterns do you see? What is your assessment?
2. How large is Microsoft’s competitive disadvantage in Internet search and search-related
advertising in 2008? If the industry remains on its current trajectory, how will Microsoft’s
disadvantage evolve over time?
3. Why is Microsoft pursuing the market for search and search-related advertising?
2
MICROSOFT'S SEARCH by Jan Rivkin Eric Van Den Steen
Discussion Questions:
We recommend the following assignment questions for the one-session approach to the case:
1. How has Microsoft responded to competitive threats and opportunities in the past? What
patterns do you see? What is your assessment?
2. How large is Microsoft’s competitive disadvantage in Internet search and search-related
advertising in 2008? If the industry remains on its current trajectory, how will Microsoft’s
disadvantage evolve over time?
3. Why is Microsoft pursuing the market for search and search-related advertising?
4. What integrated strategic option should Microsoft’s executives—especially Satya Nadella, Jay
Girotto, and Gary Flake—pursue?
, 5-710-416
JULY 27, 2009
TEACHING NOTE
Microsoft's Search
Synopsis
This field case places students in the role of Microsoft executives who face a daunting challenge in
late 2008: Microsoft, long the leader in personal computer software, lags far behind Google in the
market for Internet searches and related advertising. How can the company revive its fading
prospects in its battle against Google? The case describes the roots of Microsoft’s historical success,
its responses to earlier competitive threats, the ascent of Google in search, and Microsoft’s largely
unsuccessful efforts to date in search. The case prepares students to discuss, in class, why Microsoft
has a competitive disadvantage in the search market, how that disadvantage is likely to evolve, what
Microsoft’s objectives are in the search market, and how Microsoft can best pursue those objectives.
Teaching Purpose
The case is designed to be taught in an MBA course on business-unit strategy and to serve as a
bridge between modules on competitive advantage and competitive dynamics. Specifically…
1. The case allows a review of the concept of competitive advantage. A company achieves a
competitive advantage over a rival when it manages to drive a wider wedge than the rival
between the willingness to pay (WTP) it generates among customers and the costs it incurs to
serve those customers. In 2008, Microsoft suffers from lower WTP and higher costs than
Google. The case allows students to drill down and unearth the roots of Microsoft’s dual
disadvantage at a point in time.
2. The case permits students to project the dynamics of competitive advantage. Learning effects,
network externalities, and other feedback loops give Microsoft’s disadvantage a natural
trajectory: Without a significant change, Microsoft’s relative gap between WTP and cost will
only worsen over time. The case gives students an unusually detailed opportunity to sketch
out a variety of feedback loops that reinforce Google’s lead. Similar feedback loops underpin
Microsoft’s historical success in its operating system and applications businesses.
3. The case gives students an opportunity to examine generic threats to competitive advantage and a
variety of responses to them. Microsoft has faced the full set of generic threats identified by
, 710-416 Teaching Note—Microsoft's Search
Pankaj Ghemawat—imitation, substitution, holdup, and slack—and has historically dealt with
them effectively (albeit not necessarily legally…see the comments on antitrust below).
Substitution threats play an especially prominent part in Microsoft’s history: browsers, Java,
Linux, and now cloud computing can be seen as substitutes for Microsoft’s desktop operating
system.
4. The case highlights the importance of one particular aspect of any good competitor analysis: an
understanding of a company’s goals. Microsoft’s goals in the search market are unclear. Are the
goals offensive, with Microsoft aiming to get a big slice of a lucrative market? Or are they
defensive, with Microsoft trying to starve Google’s cash cow and keep Google away from
Microsoft’s incredibly profitable positions in operating systems and office applications?
Students who answer these questions differently are likely to recommend quite different
actions for Microsoft in search.
5. The case allows students to craft integrated strategic options for Microsoft and to compare and
contrast across options. In particular, students can assess how well each option succeeds in
breaking the positive feedback loops that currently propel Google’s growing advantage.
Among these teaching purposes, we believe that #2 is the unique contribution of this case to the
existing library of HBS strategy cases. We are not aware of another case that gives students as deep
an opportunity to map out feedback loops and identify the likely trajectory of a firm’s competitive
(dis)advantage.
Alternative Teaching Approaches
The case can be taught over one class session or two class sessions. In the two-session approach,
students spend the first session examining the roots of Microsoft’s historical success in the markets
for operating systems and office applications as well as the company’s responses to past threats.
During the second session, students analyze Google’s success in search, critique Microsoft’s
responses to Google to date, and make recommendations for future steps. The one-session approach
to the case resembles the second session of the two-session approach, with lessons from Microsoft’s
history introduced very selectively.
The main body of this teaching note focuses on the one-session approach to the case. An
appendix sketches out the two-session approach.
Assignment Questions
We recommend the following assignment questions for the one-session approach to the case:
1. How has Microsoft responded to competitive threats and opportunities in the past? What
patterns do you see? What is your assessment?
2. How large is Microsoft’s competitive disadvantage in Internet search and search-related
advertising in 2008? If the industry remains on its current trajectory, how will Microsoft’s
disadvantage evolve over time?
3. Why is Microsoft pursuing the market for search and search-related advertising?
2
