S w 909A23 MICROSOFT WINDOWS: THE LAUNCH OF WINDOWS 7 Matthew Ball wrote this case under the supervision of Professor Miranda Goode solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2009, Ivey Management Services Version: (A) 2009-08-13 INTRODUCTION It was the spring of 2009, and Steve Ballmer, chief executive officer of Microsoft Corporation, was planning the launch of Windows 7, the company’s newest operating system. Successfully marketing Windows 7 had become essential for the company, which had faced numerous challenges in recent years. The company’s image had been tarnished by the commercial and public relations failure of its last operating system, Windows Vista. Moreover, the company became the target of a brutal series of advertisements by its largest competitor, Apple Inc., and was continuing to bleed market share. Beta releases had been well received by the Internet community, and Microsoft hoped that Windows 7 would not only improve its bottom line, but also restore its tarnished image. Ballmer was faced with a weighty question: How could carefully executed advertising, pricing and product decisions enable Microsoft to revive consumer perceptions, and realize Windows 7’s potential? MICROSOFT CORPORATION In 1986, Microsoft successfully released its first independently developed operating system, Windows 1.0 (see Exhibit 1). In 1989, Microsoft introduced its flagship productivity suite, Microsoft Office, which bundled individual applications, such as Microsoft Word and Microsoft Excel. On May 22, 1990, Microsoft launched Windows 3.0. The new version of Microsoft’s operating system boasted a more streamlined user graphics interface and improved application performance and integration, and sold over 100,000 copies in two weeks.1 Two years later, Microsoft ran its released Windows 3.1 along with its first promotional campaign on TV; the software sold over three million copies in its first two months on the 2, 3 market. 1“Windows Desktop Products History,” Microsoft. Available at http://www.microsoft.com/windows/WinHistoryDesktop.mspx, accessed June 15, 2009. 2 “Microsoft Visitor Center for Students,” Microsoft. Available at http://www.microsoft.com/about/companyinformation/visitorcenter/students.aspx, accessed June 15, 2009. 3 “Microsoft Company History,” The History of Computing Project. Available at Dohttp://www.thocp.net/companies/microsoft/microso Not Copyft_company_part2.htm, accessed or June 15, 2009. Post This document is authorized for use only by Vandana Bharti at ITM Business School until March 2014. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860. Page 2 9B09A023 By 1993, Windows had become the most widely used operating system in the world.4 That same year, Fortune Magazine named Microsoft the “Most Innovative Company Operating in the U.S.”5 As part of its strategy to broaden its business, Microsoft released Microsoft Encarta in March 1993, the first encyclopedia designed to run on a computer.[5] Shortly after, the Microsoft Home brand was introduced, encompassing Microsoft’s new multimedia applications for Windows 3.x. Microsoft changed its slogan to “Where do you want to go today?” in 1994 as part of an attempt to appeal to nontechnical audiences in a US$100 million advertising campaign.6 On August 24, 1995, Microsoft released Microsoft Windows 95, which featured a completely new user interface, including a novel start button; more than a million copies of Microsoft Windows 95 were sold in the first four days after its release.6 In 2001, Microsoft released Windows XP, the first version of Windows that encompassed the features of both its business and home product lines. XP introduced a new graphical user interface, the first such change since Windows 95. Microsoft encountered turmoil in March 2004 when antitrust legal action was brought against it by the European Union for abusing its current dominance with the Windows operating system. This suit eventually resulted in a judgment to produce new versions of its Windows XP platform that did not include its Windows Media Player, as well as a fine of $613 million.7 The 21st century has seen Microsoft expand its offerings into several new product markets. In 2001, it entered the multibillion-dollar video game console market with the release of the Microsoft Xbox. In the following year, the company released Windows Mobile, a mobile phone version of its operating system.8 In 2006, the company released its own MP3 and digital music store, Zune and Zune Marketplace. Increased integration between these products provided Microsoft with a significant competitive advantage that helped secure the company’s market position across its entire product line. WINDOWS VISTA Development Production on Windows Vista, originally known by its codename “Longhorn,” began in May of 2001, five months prior to the release of Windows XP. Longhorn was originally conceived as an update to the Windows XP operating system and was targeted for release in late 2003. However, faced with ongoing delays, concerns about feature creep9 and mounting criticism on the security of XP, Microsoft announced in August of 2004 that Longhorn’s development had been completely restarted,10 with the primary goal of 4 “Microsoft History – 1993,” WebArchive.Org. Available at http://web.archive.org/web/19961017232408/library.microsoft.com/msinfo/mshist/1993.htm, accessed June 15, 2009. 5 Gill Dunsford, “Feature: Brand Microsoft,” Sales Promotion. Available at http://www.salespromo.co.uk/article/90, accessed June 15, 2009. 6 “Microsoft Company History,” The History of Computing Project. Available at http://www.thocp.net/companies/microsoft/microsoft_company_part2.htm, accessed June 15, 2009. 7 “Commission Decision,” The Commission of the European Communities. Available at http://ec.europa.eu/competition/antitrust/cases/decisions/37792/en.pdf, accessed June 15, 2009. 8 Daniel Eran Dilger, “Microsoft plans “Skymarket” apps store for Windows Mobile 7 in 2009,” RoughlyDrafted Magazine. Available at http://www.roughlydrafted.com/2008/09/01/microsoft-plans- per centE2 per cent80 per cent9Cskymarket per centE2 per cent80 per cent9D-apps-store-for-windows-mobile-7-in-2009/, accessed June 15, 2009. 9 “Feature creep” is a tendency for product or project requirements to increase during development beyond those originally foreseen, leading to features that weren't originally planned and increasing risk to product quality or scheduled deadlines. Feature creep may be driven by a client's growing "wish list" or by developers themselves as they see opportunity for improving the product. “feature creep”, SearchCIO.com. Available at http://searchcio.techtarget.com/sDefinition/0,,sid182_gci860179,00.html, accessed August 13, 2009 10 Ina Fried and Marget Kane, “Microsoft overhauls Longhorn plans”, CNET. Available at http://news.cnet.com/Microsoft- Dooverhauls-Longhorn-plans/2100-1016_3-5326 Not Copy850.html, accessed June 15, 2009. or Post This document is authorized for use only by Vandana Bharti at ITM Business School until March 2014. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860. Page 3 9B09A023 improving the security and stability of the Windows platform.11 As a result, of Longhorn’s previously announced features such as WinFS, a revolutionary new data storage and management system, were eventually dropped. In 2005, Microsoft initiated an unprecedented beta-test program that involved hundreds of thousands of volunteers. From September 2005 to October 2006, Microsoft regularly released Community Technology Previews to beta testers and two beta release versions to the public. After nearly six years, the longest wait for a Windows release, Vista was launched on January 30, 2007, at an estimated cost of more than US$6 billion.12 Features Windows Vista included numerous new features designed to increase system security and provide users with a more aesthetic and user-friendly graphical interface (see Exhibit 2). Vista’s much-hyped Aero gave users the ability to choose the color of their windows and apply “glass-like” transparency effects. Additionally, users could “tab” through their Windows by stacking them in 3D or by displaying “live thumbnails” from the taskbar. Another new feature to Vista was Windows Gadgets, which allowed users to place a variety of continually running applications (such as a clock, weather tracker, slideshow or Sudoku) on a sidebar on the desktop. Additionally, Microsoft significantly improved its media suite, which included newer, high-definition-capable versions of Windows Movie Maker, Windows DVD Maker and Windows Photo Gallery. User Account Control represented the forefront of Microsoft’s efforts to improve the security on the Windows operating system. UAC was designed to stop viruses and malware from making any unauthorized changes to the user’s system. When a user (with either administrator or limited privileges) tried to install or uninstall software, make system-wide configuration changes, download updates, allow a program access to their files, or connect their files to an Internet program, he or she would be prompted to confirm whether to proceed or not. When this prompt took place, the rest of the screen was dimmed and frozen, and only the authorization window was active. The intent of this process was to stop a malicious program from misleading the user by interfering with the authorization window or by providing its own authorization requests to trick the user.