160 Port 3 Srategies ACTION 5.2 STRATEGY IN Microsoft Office Versus Google Apps productivity software with its Office suite of pro model, whereas Office still has a significantp includes a word processor, spreadsheet, in the physical retail channel, raising costs. has long been the dominant player in the market over the Internet, which is a very-low cost distribution other words, Google is pursuing a low-cost strat for office grams, which presentation sofware, and an e-mail client. Microsofts rise to dominance in this market was the result of an egy with regard to Google Apps. Consistent with this, importont innovation-in 1989, Microsoft was the first Google Apps is priced significantly below Office. Google company to bundle word processing, spreadsheet, and charges $50 a year for each person using its product presentation programs together into a single offering that In contrast, Microsoft Office costs $400 per computer was interoperable. At the time, the market leader in word for business users (although significant discounts are processing sofware was Word Perfect; in spreadsheet often negotiated). Initially, Google Apps was targeted at software it was lotus; and in presentation software it was small businesses and startups, but more recently, Google Harvard Graphics. Microsoft was number 2 in each of seems to be gaining traction in the enterprise space hese markets. However, by ffering a bundle and pric which is Microsof’s core market for Office. In 2012 ing it below the price of each program purchased on its Google scored an impressive string of wins, including l share from its competitors, none censes with the Swiss drug company Hoffman La Roche a full suite of offerings. In effect, Microsoft where over 80,000 employees use the package, and ith the U.S. Interior Department, where 90,000 use it In total, Google Apps earned approximately $1 billion As demand for Office expanded, Microsoft was in revenue in 2012. Estimates suggest that the company able to spread the fixed costs of product development has more than 30 million paying subscribers. This stil over a much larger volume than its rivals, and unit costs makes it a small offering relative to Microsoft Office fell, giving Microsoft the double advantage of a dif which is installed on over 1 billion computers worldwide ferentiated product offering and a low-cost position. Microsoft Office, which generated $24 billion in revenue The results included the creation of a monopoly posi- in 2012, remains Microsoft’s most profitable business. own, Microsoft grabbed Office offered consumers more value (finteroperability), at a lower price, than could be had from rivals wit tion in office- productivity software and two decades of However, Microsoft cannot ignore Google Apps. extraordinary high returns for Microsoft in this market Indeed, Microsoft is not standing still. In 2012 The landscape shifted in 2006, when Google intro- Microsoft rolled out its own cloud-based Office offering duced Google Apps, an online suite of office productiv Office 365. Office 365 starts at a list price of $72 a ity sofhware that was aimed squarely at Microsof’s prof year per person, and it can cost as much as $240 per itable Office franchise. Unlike Office at the time, Google Apps was an online service. The basic programs reside user annually in versions that offer many more features and software-development capabilities. According to the cloud, and documents are saved on the cloud. a Microsoft spokesperson, demand for Office 365 is At first, Google lacked a full suite of programs, and strong. Microsoft argues that Google cannot match the traction was slow, but since 2010 adoption of Google quality of the enterprise experience that Microsot con Apps has accelerated. Today, Google Apps offers provide in in areas like privacy, security, and data han- he same basic programs as Office-a word proces dling. Microsoft’s message is clear- it still believes that ser, spreadsheet, presentation software, and an e-mail Office is the superior product offering, differentiated client-but far fewer teatures. Google’s approach is not by features, functions, privacy, data handing, and to match Office on features, but to be good enough for security,. Whether Office 365 will keep Google Apps e majority of users. This helps to reduce development costs. Google also distributes Google Apps exclusively in check, however, remains to be seen Auhor interviews at Microsch and Google: Q Hardy, Google Appa Moving onto Microsofr’s Business Turf,: New Yok Times ckey, Google Apps: A $1-Billion Business? CRN, Februory 3, 2012, www.crn.com December 26, 2012; A R. H
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