Use of Osterwalder Business Model Canvas – Microsoft Business Model

A business model is a framework that presents the process of creating value and capturing in the companies; it is an essential strategy for promoting good business performance. A business model’s benefits to companies include promoting how firms can realize value by supporting information. Another advantage of applying the business model in companies is that it makes business ideas possible and allows innovators to share their visions worldwide (Baig et al., 2022). The most important reason for using a business model is the promotion of innovation in the company, whereby a good business strategy creates an enabling environment for all innovators. The Osterwalder business model comprises nine building blocks that explain how the company creates value and improves its profits. The building blocks include customer segment, value creation, channels or avenues, customer relationships, essential resources, revenue streams, key activities, good partnerships, and company cost structure (Osterwalder & Euchner, 2019). Thus, this paper uses the Osterwalder business model to construct a business model used by Microsoft company in promoting innovation.

Microsoft is well known for its Microsoft product that runs on all computers and gadgets; the continuous innovation of the model has made significant revenue for the company. The Microsoft business model entails various innovations such as Razor and Blade, including software, apps, and Xbox games for every operating system (Amoussohoui et al., 2022). Another component of Microsoft’s business model is lock-in, which assists customers in saving costs using the app and software. There is also the use of freemium such as LinkedIn, a social network providing subscribers with premiums. Also, there is the application of subscriptions to products such as Office 365. Microsoft search engine such as Bing generates revenue using ads; ingredient branding is always found in Microsoft products.

Figure 1 Microsoft innovation business model

The Microsoft innovation model identifies the critical partner in the Microsoft business model, the app developer, and the innovation initiator. These partners are companies that deal with app development, data management, and internet services. Also, the innovation business model utilizes software vendors in their list of key partners on the Windows development innovation strategy. The main activities in the product development of the company include; support of software products and providing online Information Technology (IT) solutions (Osterwalder & Euchner, 2019). Thus, this leads to the constant development of Microsoft Windows as among the main activities and sale of the final product that brings revenue resources into the company. Microsoft’s value proposition entails creating a valuable operating system that provides customers with computing technology solutions. An innovation of the software that is used with existing technologies in the phones and computers, such as laptops, desktops, and smartphones.

Also, customer relationship is enhanced through the innovation of self-supporting operating system and windows office software, which do not require sophisticated skills to run the software on the computer. The company has innovations in customer support; thus, one can make inquiries online and get assistance from an expert in Microsoft. Microsoft uses social media such as Facebook and tweeter to work on customer inquiries and promote good client interaction. Another component of Microsoft’s business model is marketing channels, some innovations in marketing channels include websites that support customer requests and complaints, that as the MSN portal. Direct sales market channels involve a marketing avenue that removes any intermediary, and the clients can purchase an operating system for their computers online without using any mediating company. In addition, one can buy the Windows operating system from software vendors from retailers; their role in selling Microsoft software is to buy and resell the product to prospective customers. The sales and marketing teams are also engaged in the sale of the software; these people are mandated to ensure that the company’s product meets the client’s needs.

The customer segment shows those who need Microsoft products to provide solutions in the operating system of their computers and phones. They include commercial clients such as IT and consulting businesses; they need the Microsoft operating system to run their activities and sell to their clients. Other clients include corporate organizations such as server management, Skype, and cloud computing, which require Windows to run the apps on the computers. Another group of clients includes advertising agencies such as Bing search engine and MSN, which needs Microsoft product such as Windows to run ads on the internet; hence the innovation assists in improving the outlook of these products (Baig et al., 2022). Server developers rely so much on Microsoft Office to create a server appropriate to the business model.

Critical resources in the Microsoft innovation model include intellectual property; that is, they are sole owners of the rights to develop the Windows operating system that runs on all computers. The intellectual property right is an essential asset to innovation because this protects any other company from using the company trademark, brand, and other intellectual property to imitate Microsoft products. Another critical resource is Proprietary technology, such as Microsoft software, which the company hugely uses to provide innovation in the operating system of the computers continuously. The company also has data centers where extensive data on the software developed by the company applies to remotely store and distribute data for Windows operating system innovation. Servers that manage access to the Microsoft software within its network control access to critical data on the development of Microsoft software. Also, Microsoft enjoys a skilled and experienced human resource base starting with the company’s owner, Bill Gates, who has supported the company’s running over the years. A good team of human resources has enabled the Microsoft business model to succeed, and the company remains the leader in computing software.

The cost structure block is an essential aspect of Microsoft’s innovation model; it points out how much the company spends on maintaining partner relationships and meeting the cost of critical activities and resources in producing the output. The Microsoft cost structure is in the form of research and development; the innovation in the operating system that exists up to date from the company is due to increasing market research and product development. The market research promotes product development from the MS-DOS, later replaced by Microsoft, and Windows became a standard computer operating system. The company also promotes human resource development; it ensures employees are under various short courses on product development, thus promoting their morale at work. Also, the cost structure comprises software maintenance costs in the form of maintaining the data centers and servers, which are informed of internet subscriptions and charges the company pays internet providers to keep the software running. The other costs include sales and marketing costs; the company pays these to the sale support people who continuously identify the client’s needs for appropriate innovations. In addition, the company meets administrative expenses by paying office workers who support product development, leading to innovations that keep Microsoft at the edge of its competitors.

The revenue of the business model is created in various ways; through subscriptions, personal computing, and intelligence cloud. The primary revenue under the Windows operating system is subscriptions that the clients pay to the company. Various subscriptions are a source of revenue for the company, such as Microsoft Cloud subscriptions, Microsoft Security subscriptions, Microsoft 365, dynamics 365, Microsoft power platform, Microsoft Teams, and Microsoft Industry (Amoussohoui et al., 2022). All these subscriptions bring revenue to the company through client payment for the service, for instance, subscription for using Microsoft Windows 10 software. Thus, the innovation in Microsoft’s business model creates value through the operating system, thereby generating revenue for the company.

The Microsoft company can do better in operating system innovation and development through the appropriate use of the business model. Some of the recommendations that can be made from the paper include; creating an existing firm relationship with the key partners, that is, app developers. Also, the company should work with direct sales to reduce the issue of bringing intellectual property through unscrupulous software sales. There is a need to control expenses to avoid revenue reduction from funding the critical activities in the model because if cost is not regulated, they can lead to the collapse of the innovation. Finally, Microsoft should work on non-modifying features because most features can not be modified, which leads to a focus on alternatives.

References

Amoussohoui, R., Arouna, A., Bavorova, M., Tsangari, H., & Banout, J. (2022). An extended Canvas business model: A tool for sustainable technology transfer and adoption. Technology in Society, 68, 101901. Doi https://doi.org/10.1016/j.techsoc.2022.101901

Baig, U., Hussain, B. M., Meidute-Kavaliauskiene, I., & Davidavicius, S. (2022). Digital entrepreneurship: Future research directions and opportunities for a new business model. Sustainability, 14(9), 5004. Doi https://doi.org/10.3390/su14095004

Osterwalder, A., & Euchner, J. (2019). Business model innovation: An interview with Alex Osterwalder. Research-Technology Management, 62(4), 12-18. Doi https://doi.org/10.1080/08956308.2019.1613114