Given Microsoft’s lackluster performance since 2000, the once dominant company is now in turnaround mode. Over time, its competitive advantage turned into a competitive disadvantage, lagging behind Apple by a wide margin. Satya Nadella’s strategic focus is to move Microsoft away from its Windows-only business model to compete more effectively in a “mobile-first, cloud-first world,” the mantra he used in his appointment e-mail as CEO. Under his leadership, Microsoft made the Office Suite available on Apple iOS and Android mobile devices. Office 365, its cloud-based software offering, is now available as a subscription service starting at $6.99 per month for personal use and $69.99 for business use. Software applications can be accessed on any device, any time, with online storage, combined with Skype’s global calling feature. Yet, Nadella needs to work hard to ensure Microsoft’s future viability since Windows and Office were cash cows for so long. They are still generating almost half of revenues and some 60 percent of profits, but both continue to decline. The problem he faces is that the gross margin of “classic” PC-based Office is an astronomical 90 percent (due to Microsoft’s “monopoly” position), while the gross margin for Office 365 is only around 50 percent. The cloud computing space with Google, Amazon, Apple, IBM, and others is fiercely competitive.

Required:

1. Why is it so hard to gain a competitive advantage? Why is it even harder to sustain a competitive advantage?

2. Looking at the different ways to assess competitive advantage discussed in this chapter, does Apple have a competitive advantage over Microsoft using any of the approaches? Why or why not? In which approach is Microsoft looking “the best”? Explain.

3. Microsoft’s new CEO, Satya Nadella, has made drastic changes to Microsoft’s strategy. What was Microsoft’s strategy before Nadella was appointed CEO? What is it now under his leadership? Do you agree that Nadella has formulated a promising strategy? Why or why not?

4. How much longer do you think Apple can sustain its competitive advantage (not just over Microsoft, but in general)? Explain