discuss the strategic benefits expected to accrue under the following sub-headings: product development speed to market risk
With respect to Microsoft’s acquisitions, Skype and Nuance, discuss the strategic benefits expected to accrue under the following sub-headings:
- product development
- speed to market
- risk
- market power
- competitive scope
- barriers to entry
- diversification
The Case
From humble beginnings in Gates’s family garage, Microsoft has grown to exceed $77.85 billion of revenue in 2013 and offer a product line extending from gaming (Xbox) and Internet services (Internet Explorer and Bing) to mobile devices (Windows Phones). In 2011, Microsoft diversified its product line yet again through acquiring Skype Global for $8.5 billion in cash. Although Microsoft had previously ventured into the Internet communications industry with Windows Live Messenger, Skype offered Microsoft broader device support, mobile video calling, and access to over 170 million Skype users, potential new clients for Microsoft’s existing products. Microsoft considered Skype a valuable acquisition due to the strategic fit between the value chain activities of the two companies. Moreover, Skype’s communication expertise combined with Microsoft’s market reach offered an opportunity to generate new competitively valuable resources and capabilities. With the communications industry gradually shifting toward more face-to- face calling, Skype gave Microsoft an already established visual communications platform to complement its existing Xbox Live services, Office Suite, and new Windows8 software. In turn, as the leading operating system (OS) software developer in the world, Microsoft could expand Skype’s scope and reach by pre-packaging future Windows OS releases with Skype software. In addition to offering cross-business collaboration and value chain–supporting opportunities, Skype also offered several immediate resources. Skype CEO Tony Bates possessed extensive knowledge of the Internet communications market and could ensure the long- term operational and strategic continuity of Skype. Recognizing Bates’s specialized expertise and experience, Microsoft retained Bates as head of its newly formed Microsoft Skype Division. Additionally, Microsoft gained access to over 50 Skype communications patents and the already established relationships with many of Skype’s previous partners (and Microsoft competitors), including Facebook, Sony, and Verizon. Moreover, by keeping the Skype name and opting to replace its Windows Live Messenger client, Microsoft could exploit the well-known Skype brand for its history of reliability and quality. With such a rich set of opportunities for the cross-business sharing and transferring of resources and capabilities, Microsoft believed that its acquisition of Skype would generate synergies and increase its competitiveness.
Only time will tell, but given Skype’s growth and Microsoft’s plans to incorporate Skype in its Windows8 platform and Xbox Live services, the outcome of this related diversification move seems promising. To date Microsoft announce its acquisition of Nuance - a pioneer and a leading provider of conversational artificial intelligence (
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