Analysis of the Technological Innovation Failure of Windows Vista

PC OS Industry

No one can plead ignorance on the dominance of the Microsoft operating system of PC any longer, for it has been fending off the competitors since the launch of the primary version Windows 1.0, which dates back to November 1983, 3 months earlier than that of Mac OS by Apple. Over the decades, the booming of the PC operating system industry has been witnessed with the process of globalization, for the vast development that caters for the customers’ needs, economic growth as well as the technical demands. People nowadays tend to have more options when selecting the PC OS, Windows by Microsoft, Mac OS by Apple, Unix by AT&T and Linux being such instances.

Let us take a peek into the industry with the data gathered by the end of 2014. Here is the statistical graph that shows the proportion of PC operating system being used worldwide.

Microsoft, as is shown on the chart, occupies approximately 91.48% of the market share, or should we say, for the time being, it has already monopolized the PC OS market. Mac OS, accounting for 3.66%, stands for the niche market in comparison with the percentage of Windows users. Even though Apple equips the Mac OS with diverse pre-installed applications, for example the web browser, the email, and calendar, etc., it fails to jeopardize the leading status of Microsoft. However, Microsoft is challenged with a transparent decline in the sales of Windows by $304 million or 41%, according to its 2014 annual report, due mainly to the launch of Windows 8 in the prior year. What’s more, the termination of technical support for Windows XP in April 2014 was believed to be the cause for the partial offset of the Windows OEM revenue. Nevertheless, there is no denying that the downturn would not last long, as Microsoft (2014) announced that the licensing sold for Windows 8 had surpassed 100 million by the end of May 2013, which seems to be the replenishment of the loss.

How does Microsoft endeavor to keep up with the pace of this dynamic yet cutthroat industry? We try to analyze and reveal the mystery of Microsoft’s long-lasting success by utilizing the Porter’s 5 Forces paradigm. Above all, the technological factors as well as the industrial maturity foster higher competition within the industry, as Microsoft faces the challenge mostly from Apple and Google. Threat from the suppliers can be ruled out since Microsoft basically does not have one, hence the biggest threat that derives from the bargaining power of buyers is the piracy issue, which somehow to be commonly seen especially when it comes to Chinese market. Consequently, it results in the descent of profits. The being in vogue of Apple operating system may arouse disruption whilst the major competitor for Microsoft remains to be its own breakthrough. As a matter of fact, entering the industry is more or less the same as an unreachable dream in terms of the astonishing high cost of developing a feasible PC OS. Although the innovation trends may lead to the swap of the PC OS and Windows may be substituted, yet the probability tends to be fairly low with the continuous innovation offered by Microsoft.

It is expected that Microsoft would still hog the top slot in the short term, considering the vast market share as a bulwark. On the other hand, Apple, with its profitable niche market share and the vigorous revolution, would obtain an evident climb and eventually be neck to neck with Microsoft in the long run. But it would take years or even decades to accomplish, therefore, in the foreseeable future, dominance of Microsoft in the PC operating system industry will persist.

Mutual influence between Microsoft and globalization

What is globalization?

“Globalization is a process that has been going on for the past 5000 years (Tehranian, 2005),but it has significantly accelerated since the demolishing of the Soviet Union in 1991.”--(cited from Week 4 Readings, Globalization of markets, marketing ethics and social responsibility)

As we know, globalization has changed the global companies from all aspects, such as:

Make Company Growth：In many industries, markets in the developed countries are maturing at a rapid rate, limiting the rate of growth. Consider household appliances: in the developed part of the world, most households have, or have access to, appliances such as stoves, ovens, washing machines, dryers, and refrigerators. Industry growth is therefore largely determined by population growth and product replacement. In developing markets, in contrast, household penetration rates for major appliances are still low compared to Western standards, thereby offering significant growth opportunities for manufacturers.

Make Company Become More Efficient :A global presence automatically expands a company’s scale of operations, giving it larger revenues and a larger asset base. A larger scale can help create a competitive advantage if a company undertakes the tough actions needed to convert scale into economies of scale by (a) spreading fixed costs, (b) reducing capital and operating costs, (c) pooling purchasing power, and (d) creating critical mass in a significant portion of the value chain.

Accelerate Competition : Just as the globalization of customers compels companies to consider globalizing their business model, so does the globalization of one or more major competitors.

So globalization can bring companies many advantages and help them become stronger.

As for Windows Vista, it has been the subject of a number of negative assessments by various groups. Reviewers and users have been criticizing the Windows Vista operating system that was released by Microsoft in January 2007.Due to issues with privacy, security, performance, driver support and product activation, Windows Vista has been the subject of a number of negative assessments by various groups.

“We will be more successful if we get it right the first time.

Many product-development projects fail to meet their objectives for budgets, schedules, and technical performance. Undoubtedly, poor planning, rigid processes, and weak leadership all play a role. But another cause that’s often overlooked is managers’ demand that their teams “get it right the first time.” Requiring success on the first pass biases teams to-ward the least-risky solutions, even if customers don’t consider them much of an improvement over what’s already available. Worse yet, teams have little incentive to pursue innovative solutions to customers’ problems.”

--(cited from Week 5 Readings, Six Myths Of Product Development, by Stefan Thomke and Donald Reinertsen)

A transformation took place on October 6, 2008, when Microsoft granted computer makers a six-month extension for licensing Windows XP to the newly shipped PCs. In spite of the fact that it did not impact enterprise IT at all – because volume-licensing agreements would allow IT to keep installing Windows XP for many years to come – yet the move was another symbolic nail in Vista’s coffin. Hence Microsoft could be defined as an early adopter, for the company’s quick swap of its R&D strategy by offering the licensing extension of Windows XP as well as quickly correct the shortcomings on windows vista in the meantime developing windows 7.

Numerous evidences showed that IT departments were paying little attention to Windows Vista. Forrester research conducted a survey among global users 18 months after Vista’s launch, indicating that merely 8.8% of enterprise PCs were running Vista. Meanwhile, Microsoft appeared to have put Windows 7 on an accelerated schedule that it was released in August 2009, 6 months before the preliminary launch schedule.. It provided IT departments with all the justification they need to simply skip Vista and wait to eventually standardize on Windows 7 as the next OS for business.

So Microsoft took actions as fast as they could to show that it was an early adopter.

Microsoft in 2005

Barriers to Entry : Microsoft maintains a strong competitive edge due to its dominance of the operating system and productivity software. The Windows XP operating system and Office software commanded a 95% market share. Microsoft continued to leverage these strengths into new product lines in an attempt to prevent future competition. The prosperous age of desktop was gradually being moved to the television, the cell phone, and the automobile navigation system. Because of high switching cost for customers to learning a new operating system or productivity software, Microsoft had a real advantage compared to its competitors. While companies like IBM are trying to change the game with the acceptance of open source programming like Linux, Microsoft still maintains an advantage in the future competition.

Power of Suppliers : The main input for Microsoft’s products remains human capital. While innovation is key to the development of new products, it remains in greater supply than ever before. The global economy is becoming more and more open and necessary, it has provided great access to new sources of human capital from other nations that maintain a lower standard of living and cost of labor.

Power of Buyers : Before 2005, nearly 80% of Microsoft’s revenue came from corporate purchases. Tech companies had seen little growth in gross margins from corporate purchases. Because of the wider usage of Internet, consumers had also become more powerful buyers. The switching costs Microsoft maintains also gave a large advantage to it.

Threat of Substitutes : Microsoft’s main threat is not from one of the companies within its sector as is typical in most industries. The open source model for software is the greatest threat to the Microsoft kingdom. Linux, an open source operating system, is the current substitute to the Windows operating system. Other firms within the sector were beginning to accept Linux and were pushing to get the platform into their systems.

Rivalry among Existing Firms : In 2005, the industry was entering the end of the growth stage of the life cycle and approaching maturity, rivalry remains strong. Consolidation among existing firms was inevitable and would bring about great change within the industry. Firms would begin to integrate vertically and horizontally to protect the viability of their products. They would extend their products to so many areas to welcome the coming changes. Microsoft holds a nice position.

PEST

Political : Before 2005, Microsoft settled the U.S. government’s competitive concern.  Microsoft will be somewhat disadvantaged from establishing itself in other industries in the future due to its large market share.  Government regulators in the U.S. and other markets would make a careful consideration of anticompetitive activity as Microsoft continues to grow. It faced very few legal issues domestically with the resolution of the Justice department’s lawsuit.  International anticompetitive lawsuits were unresolved at that time, but they impacted revenues much less than the U.S. case.

Economic : The economic situation in 2005 could be concluded to uncertainty. Great uncertainty currently exists over oil prices, geopolitical concerns, and the U.S. election.  Interest rates are still very low relative to historical levels.  Inflation expectations are low relative to historical standards. Consumer confidence levels are high despite a lack of strong job growth.  The near-term outlook for the U.S. economy is steady growth driven by government expenditures with low inflation expectations in a rising interest rate environment. Microsoft should benefit from the economic environment in the future due to their more secure revenue stream and lack of long-term debt.

Social : In the year of 2005, with the fast development of Internet, people spent more and more time surfing the Internet to get information or services. The improvement of living conditions of people will significantly influence development of the industry. For Microsoft, its advantage in that period of time was really apparent. In addition, the increasing security problems of Internet indicated that people were requiring much more secure operation system.

Technology : Microsoft was the leader in its main revenue producing business segments, Client and Information Worker, with a market share of 95%. Microsoft had been struggling to continue its history of innovation.  CEO, Steve Ballmer indicated in his most recent email address to employees that a lack of innovation is their biggest concern.  Microsoft has become such a large company that it has become difficult to maintain the level of innovation once experienced during the late 90’s.  Innovation has been limited to tweaks in the Windows operating system and accompanying Office productivity software.

In order for Microsoft to continue as one of the strongest U.S. companies, they must successfully implement the new Longhorn operating system which is the first name of Window Vista, maintain their software code to prevent malicious attacks on users of their software, and continue to push innovation in the mobile/embedded devices segment.  

Conclusion : Windows Vista was regarded as a failure for Microsoft’s operating system. As a new system at that time, it really has a lot of new features that are innovative. While these new features and security improvements have collected positive reviews, Vista has also been the target of much criticism and negative press.

With the foundation of the analysis above, we could get a comprehensive and reasonable view for the failure of Windows Vista. The most significant factors of industry environment which influence the innovation of Windows Vista and the way them work can be concluded into the following points:

The dominant position in operating system industry made the company stick to its core competitive product. Microsoft kept dominant position of the operating system. The Windows XP operating system and Office software commanded a 95% market share, which means it had a very high brand loyalty and customer switching cost. Hence, to satisfy the requirement of people and keep the sustainable competitive advantage in operating system industry.

The relatively stable economic environment gave the company courage to greatly improve the performance of its products.The steady GDP level means a nice purchasing power of people. In 2005, the very good GDP trends and the inflation below historical average level in US gave confidence and inspirations for the company to develop much more new features which might increase cost and price. This is the reason why some advanced features of Windows Vista could not be supported by a large amount of personal computers at that time which made the system a really bad compatible product.

Increased customer request for better security gave the company too much focuses on enhancing the security features of the system.With the development of Internet technology, preventing much more Internet security problem such as cyber attack became necessary. The over-strict requirement to security produced two new features, digital rights management and user account control mechanism, which were criticized as much too complex and redundant.

The reasons why Vista failed

Vista failed to meet the customers’ expectations due to a few key reasons.

Above all, the premium hardware requirements made it incompatible with PCs that users had already been running under their IT environments. In other words, upgrading to Windows Vista required the updating hardware as well, which was a more expensive proposition compared to recycling existing machines. As a consequence, undoubtedly, it decreased the adoption rate and users’ satisfaction in comparison with Windows XP. What’s more, Microsoft peripheral and software partners were not fully prepared for the release of Windows Vista, so many third-party products that users relied on malfunctioned on the operating system.

In addition, Vista had been criticized for its restrictive but redundant technologies since its very first launch.

High-bandwidth Digital Content Protection (HDCP) and Image Constraint Token (ICT) were added owing to Microsoft’s agreement with major Hollywood studios to prohibit the users’ copying protected digital media. All devices that came into contact with premium content had to be certified by Microsoft. Even though protected media might ensure the security, yet it could not satisfy the customers’ demands.

Digital Rights Management authorized digital content and software providers the ability to put restrictions on how their products were used on their customers’ PCs. However, critics, particularly the users, poured scorn on the technology, pointing out that it was an infringement on fair use and other rights.

User Account Control (UAC) blocked other software from silently gaining administrative privileges, but the frequent and unnerving UAC prompts caused many users to either turn the function off or set it to auto-approval mode, which was against the purpose of establishing it in the first place.

There is no denying that Microsoft endeavored to build a complete and closed system just as what Apple did, but it was disappointing that the services could not catch up. In this term, Microsoft seemed to be too radical to overlook the original and basic targets. Too much attention was paid to the products and technology while the other options within innovation, such as service, business model and platform collaborations, were neglected.

Fortunately, Microsoft learned from the previous loss and changed the ways when building Windows 7. The company decided to "define a feature set early on" and only share the feature sets with partners and customers when the company was confident that they would go into the final OS. It successfully avoided confusions among Microsoft customers and partners of what new features Windows 7 would have, and also enabled Microsoft to stabilize those features as much as possible.

Recommendations for Innovation

In conclusion, Microsoft Corporation did not appraise the business environment properly. Windows Vista failed to deliver what consumers expect and achieve the goals.

Windows Vista had to compete against Windows XP in such a situation that it was launched after Windows XP gained dominance of the market share. In this case, Microsoft Corporation should have been aware of that the correct assessment of the business condition is necessary. In other word, Windows Vista should have exceeded Windows XP to some extent.

Unfortunately, Windows Vista does not have overwhelming competencies comparing to Windows XP that results in negative prospect. Users encounter a great many problems when they use Windows Vista, such as incompatibility with certain software, slow operation speed and high requirements for hardware. All the drawbacks mentioned above keep challenging the tolerance of consumers; therefore, it is of significance for Microsoft to reassure the reliability of its products as well as to pay more attention to tackling the technical problems by providing subsequent patches and packages. Even though these remedies require supplementary development expenditure, yet they can soothe the dissatisfaction of consumers.

There are two sides for everything, including the failing system. The recognized strength of Windows Vista is the reliable security, in spite of the subsequent incompatibility and slow speed. Conover, M. (2006) illustrated that Windows Vista was a radical departure from prior versions of the Windows operating system. Vista’s security is a significant improvement over previous versions of Windows. In his study, he managed to evaluate the Vista system and found that few weaknesses. It means that the Windows Vista had a quiet strong security model when it launched. What Microsoft had done was to strengthen the security but it was difficult to handle with the following incompatibility and slow speed. A balance between them should be considered. If it was able to optimize the security in standardization (e.g. to eliminate redundancies in security model), and overcome the shortcomings at the same time, a niche in the market should be found.

After struggling in the dilemma for a couple of years, Microsoft Corporation eventually determined to abandon the cumbersome Vista that accelerated the development pace of Windows 7 system, which proved to be a sensible and wise decision.

In short, technical innovation is a demanding process that involves considerable planning, assessments with maintenance.  To analyze the business environment enables the company to establish a suitable business strategy, but to define the strengths and shortcomings prevents the products from breaking down throughout the whole life cycle.

Reference:

1. Microsoft 2014 Annual Report: Financial Review. Retrieved from:

http://www.microsoft.com/investor/reports/ar14/index.html#auditor-report

2.Jacob R. Clark(2004), 2004 Microsoft initiating coverage with Neutral Rating.

3.Conover, M. (2006). Analysis of the Windows Vista security model.      

4.Windows Vista Positioning Mistakes, Merrill R. (Rick) Chapman, Managing Editor, Softletter

5.Windows' Worst Mistakes: From Clippy To Vista, Ellis, Booker. Informationweek - Online (Oct 25, 2012).

6.Microsoft: Windows 7 Will Fix, Avoid Vista Mistakes, Lai, EricView Profile. Computerworld42.44 (Nov 3, 2008): 6.