Wintel - Case Write Up

Wintel - Cooperation or Conflict Assignment Questions

Siddharth Setia – A042, 8030120044 10/17/2013

Assignment Questions: 1) Analyse the drivers of profitability in Intel and Microsoft. What are the areas of potential conflict and cooperation? The rise of Intel and Microsoft is a remarkable episode in economic history. Both companies were fairly unimportant when IBM chose to back them for its launch of the IBM PC. Neither were the obvious, strong choice. Zilog and Motorola built better CPUs than Intel, and Digital Research did better software than Microsoft. Both Intel and Microsoft started with weak technology. If we pick the late 1980s as a point of reference, both were far behind their rivals. Intel has done a remarkable job of overcoming its clumsy roots and coming close to the state of the art today. This transformation has come at an enormous cost, and could not have happened without steady monopoly profits. Microsoft itself is a puzzle. It has never been a high-concept company. Instead, it has taken routes that others could have or would have taken and dominated markets with its lessthan-amazing products through aggressive marketing and its very successful collaboration with Intel.

THE DRIVERS OF PROFITABILITY FOR MICROSOFT AND INTEL ARE AS FOLLOWS: Intel:  

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Intel relentlessly pursued Moore’s Law, doubling the number of transistors on its CPU every 18 months, continuously evolving so as to stay on top. Intel Inside – The Intel Inside campaign was the most successful campaign by Intel till date which has led to “brand recall” in the mind of end-users, initiating a trigger in the minds of consumer wherein they preferred buying Intel processors over AMD or other competitors. Intel Architecture Lab (IAL) – This played a crucial role in driving new industry standards and broadened Intel’s role in the industry.

Microsoft:  The main driver for Microsoft’s growth in this industry was because of the Operating Systems, be it: Basic, MS-DOS, or Windows 3.0. These took the PC industry by storm when it emerged as the preferred interface for IBM compatible PCs.  OEMs began bundling their computers with both DOS and Windows pre-installed, effectively doubling Microsoft’s OS revenue per PC.  Microsoft’s own products enjoyed the added advantage of direct OEM distribution.

AREAS OF CONFLICT AND COOPERATION  

PCI bus initiative Indeo – Digital Video Compression standard

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ACE – Advanced Computing Environment Windows Inside Program

2) Each company has the options of a. Caving to others’ demands, b. Hold its ground or c. Try to reach a compromise. In your assessment what (among the above 3) is likely to be the best strategy for Bill Gates (Microsoft)? Microsoft was founded by two high school classmates and originally began as a software language provider. However, as IBM computers advanced, there was a new need for a tool to provide users with ways to interact with the systems. Microsoft filled the niche with its first operating system, MS-DOS. In 1984, the company released its first version of what would become its core cash product—the Windows operating system. Microsoft at the peak of the PC industry enjoyed a monopolistic position because of 3 main reasons:  First, Microsoft’s share of the market for Intel-compatible PC operating systems is extremely large and stable.  Second, Microsoft’s dominant market share is protected by high barrier to entry.  Thirdly, Microsoft’s customers lack a commercially viable alternative to Windows. Therefore, Bill Gates a.k.a Microsoft had the option to hold its ground as Intel processors were largely associated with Windows only (as Microsoft had the upper hand). Apart from that, NSP would have helped Intel getting a traction which would have worked a contrasting effect for Windows; declining market share for Windows. It’s a vicious cycle which would have engulfed both Microsoft as well as Intel.

3) Given the above analyse what would you choose from the 3 options listed above: a. Caving to others’ demands, b. Hold its ground or c. Try to reach a compromise? If in this current situation, certain decision would have to be taken up at our end that would have been to arrive at a compromise. Bill Gates (Microsoft) had the option to demand stopping the NSP product. The situation would be different if a compromise took place as that would mean a technology advancement and faster processing frequencies which could have been provided by NSP. This advancement might enter Microsoft’s territory but still would be running on Windows based PCs (as Windows is the market leader in operating systems), breaking certain technology barriers boosting sales of both Intel and Microsoft. Hence, it’s a win-win situation even in case of a compromise.