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Jul

Microsoft Implements a Highly Competitive Strategy to Gain Dominant Position in the Cloud Data Storage Markets

On June 23, 2014, Microsoft® announced lower consumer costs for OneDrive, its cloud, IaaS offer. The same press release also announced substantially more storage for consumers either opting for the free version of OneDrive, or for anyone with a valid subscription plan to Office 365.

These activities are consistent with Michael Porter’s notion of “competition to be the best”. In a book titled ‘Understanding Michael Porter’, by Joan Magretta (published 2010, Harvard Business Review Press), Michael Porter is presented as holding an opinion this strategy is ‘absolutely the wrong way to think about competition’. Why? As Porter sees it, this strategy transforms competition into a zero sum conflict for a mirage-like market, which doesn’t really exist.

Rather, Porter thinks markets actually have a much broader depth than they appear to have in a “competition to be the best” view. Successful competitors for these real markets will present consumers with differentiated product offers, built solely to deliver one of the two prizes Porter really thinks matters — either lower costs (and, therefore, greater profits), or premium prices — and nothing more. The mistake, as Porter sees it, is to sacrifice one, or both of these objectives, to win market share from supposed competitors for the same customer.

So why would Microsoft opt for this type of strategy? We have little indication, at least as of yet, as to a correct answer to this question. But perhaps this announcement is another example of the type of effort Microsoft is making via other lines of communication with its markets to hasten the pace at which enterprise business customers (the core of Microsoft’s customer base, and its most profitable segment) are moving to Microsoft cloud IaaS offers like OneDrive and Office 365.

This writer recently attended a trade show for a Microsoft product, which was attended by representatives of a cross section of corporate customers. A number of representatives remarked on the intensity of Microsoft’s efforts to prod them along to Office 365, Azure and OneDrive. There was also mention of some incentives offered to ease the transition from on premise computing to cloud offers. Bottom line: there is now an urgency about the need to move customers onto the cloud path.

Readers following Microsoft may want to maintain some attention to the results of all of these campaigns, as they come in. Michael Porter’s theories of competition are not to be discounted. If the cost of these efforts either start to degrade Microsoft’s profitability, or detract from its ability to charge premium prices for its products and services, they will be more of a burden than anything else.

Ira Michael Blonder

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