How Microsoft KILLS its Competition Silently?: Business Strategy Case Study

Summary

This video script delves into Microsoft's antitrust history, starting with the 1998 lawsuit for monopolistic practices. It outlines Microsoft's 'embrace, extend, exterminate' strategy that saw it dominate markets, notably with Internet Explorer and MSN Messenger. The script also raises concerns about Microsoft's current competitive tactics, particularly with Teams versus Zoom. Finally, it draws lessons on focusing on customer needs, building great products, and empowering developers for sustainable success.

Takeaways

• 📚 The US Department of Justice and 20 state attorneys general sued Microsoft in 1998 for monopolistic practices, marking the beginning of a historic tech lawsuit.
• 🕊️ Despite the lawsuit, Microsoft's tactics of 'embracing, extending, and exterminating' competition have continued, suggesting a pattern of behavior over decades.
• 💡 Microsoft's early success was due to strategic partnerships, such as with IBM, and the introduction of MS-DOS, which led to significant revenue through licensing.
• 🚀 Microsoft's IPO in 1986 and the subsequent rise of Bill Gates to become the youngest billionaire highlighted the company's rapid growth and impact.
• 🖥️ The release of Windows 3.0 in 1990 marked a significant shift towards graphical user interfaces, making computers more accessible and boosting Microsoft's dominance in the market.
• 🌐 The emergence of the internet browser market in the 1990s introduced new competition, with Netscape Navigator gaining significant market share with its innovative features.
• 🔄 Microsoft's strategy to counter Netscape involved bundling Internet Explorer with Windows 95, making it the default browser, and using proprietary technologies to hinder competitors.
• 💔 The downfall of Netscape Navigator was a direct result of Microsoft's aggressive tactics, which ultimately led to Internet Explorer capturing 95% of the market share by 2000.
• 📈 Microsoft's approach to competition has been replicated in other areas, such as with MSN Messenger and more recently with Microsoft Teams, suggesting a consistent business strategy.
• 🔑 The importance of focusing on customer needs and market trends rather than solely on competition is highlighted by the rise of platforms like Chrome and Facebook despite Microsoft's efforts.
• 🏆 The lesson from Microsoft's case is that building great products and empowering a broad ecosystem of developers can lead to more sustainable success than monopolistic practices.

Q & A

What was the main reason for the lawsuit against Microsoft in 1998?

The main reason for the lawsuit was that Microsoft was accused of being a monopoly and illegally eliminating its competition in the computer market through anti-competitive and exclusionary practices.

What was the strategy Microsoft allegedly used to dominate the browser market in the 1990s?

Microsoft allegedly used a strategy known as 'embrace, extend, and exterminate' to dominate the browser market. This involved bundling Internet Explorer with Windows 95, making it the default browser, launching ActiveX controls to hinder Netscape's features, and making Internet Explorer free and difficult to remove.

How did Microsoft's actions against Netscape affect the browser's market share?

Microsoft's actions led to a significant drop in Netscape's market share, with Internet Explorer eventually capturing 95% of the market by 2000, effectively pushing Netscape Navigator out of the market.

What was the significance of Microsoft's MS-DOS 1.0 in the early days of personal computing?

MS-DOS 1.0, introduced by IBM with its personal computer in 1981, was significant as it provided Microsoft with substantial revenue through licensing and helped establish Microsoft as a key player in the operating system market.

How did the introduction of Windows 3.0 contribute to the growth of personal computing?

Windows 3.0, launched in 1990, introduced a graphical user interface, making computers more accessible to the general public and not just tech-savvy users. This led to a surge in computer usage and sales, with Windows becoming the dominant operating system.

What was the key feature of Netscape Navigator that gave it an edge over competitors?

Netscape Navigator had several innovative features, including the ability to view documents while they were being downloaded, support for multiple simultaneous downloads, and support for the JPEG image format. These features, along with its subscription model, helped it capture up to 80% of the browser market share at the time.

How did Microsoft's approach to competition differ from that of Apple and Google, according to the script?

Microsoft's approach was more focused on eliminating competition and maintaining a monopoly, whereas Apple and Google built platforms that empowered developers and created wealth for a larger ecosystem, ultimately leading to more sustainable success.

What is the 'embrace, extend, and exterminate' strategy, and how did it impact the tech industry?

The 'embrace, extend, and exterminate' strategy involves initially embracing a technology or market, extending it with proprietary features that hinder competitors, and then using market dominance to promote the company's product over competitors, ultimately leading to their downfall. This strategy impacted the tech industry by shaping the dominance of certain products and the decline of others.

What role did Scaler Academy play in the video script?

Scaler Academy is mentioned as the sponsor of the video. They are a tech upscaling platform aiming to equip individuals with skills to secure jobs at top tech companies and have a curriculum designed to help learners excel in their careers.

What are some of the lessons that can be learned from Microsoft's case study, as outlined in the script?

The lessons include focusing on customers and market needs rather than just competition, understanding that great products are essential for long-term success, and recognizing the importance of building platforms that empower others and create wealth for a larger ecosystem.

How did Microsoft's approach to competition affect its own innovation and the broader tech industry?

Microsoft's aggressive approach to competition may have hindered its ability to innovate and adapt to new trends, such as search engines, social media, and mobile technology. Meanwhile, the broader tech industry saw the rise of new players like Google and Apple, who built platforms that fostered innovation and collaboration.

Outlines

00:00

📚 The Rise and Legal Battles of Microsoft

This paragraph delves into the landmark antitrust case against Microsoft in 1998, where the US Department of Justice and 20 state attorneys general accused the company of monopolistic practices. The narrative outlines the company's growth and dominance in the computer market, leading to the release of Internet Explorer as a strategic move to counter Netscape Navigator's popularity. The summary touches on the early days of the computer revolution, Microsoft's significant milestones including the introduction of MS-DOS, the public offering of its stock, the launch of the Office suite, and Windows 3.0. It highlights the company's approach to maintaining its monopoly through anti-competitive practices, setting the stage for a legal battle that spanned two decades.

05:03

🛡️ Microsoft's Strategy: Embrace, Extend, and Exterminate

The second paragraph examines Microsoft's tactics to outcompete rivals, as epitomized by the 'embrace, extend, and exterminate' strategy. It details how Microsoft introduced Internet Explorer as the default browser in Windows 95, subsequently integrating features that undermined Netscape's usability, particularly with Microsoft Office files. The summary explains how Microsoft leveraged its platform dominance to promote Internet Explorer, eventually capturing a significant market share and contributing to Netscape's decline. It also draws parallels to Microsoft's approach with MSN Messenger and its current tactics with Microsoft Teams in relation to Zoom, illustrating a consistent pattern in the company's competitive strategy.

10:03

🚀 Lessons from Microsoft's Monopoly and the Future of Tech

The final paragraph reflects on the key lessons from Microsoft's antitrust case and its implications for the tech industry. It emphasizes the importance of focusing on customer needs and market trends rather than solely on competition, as exemplified by the rise of Google's Chrome and Facebook despite Microsoft's earlier dominance in those spaces. The summary underscores the transient nature of success without great products and the contrasting approaches of Apple and Google, who built platforms that empowered developers and created wealth for many, ultimately leading to greater financial success than Microsoft's monopolistic approach. The paragraph concludes with a teaser for future episodes discussing similar issues faced by Google and Apple, and an invitation for viewers to engage with additional resources and subscribe for more insightful content.

Keywords

💡Monopoly

A monopoly refers to a situation where a single company or entity dominates a market to the point where it can control prices and exclude competitors. In the video's theme, Microsoft was sued for being a monopoly in the computer market, using its dominance to stifle competition, as evidenced by the phrase 'illegally killing its competition in the computer market.'

💡Anti-competitive practices

Anti-competitive practices are actions taken by a company to unfairly hinder or eliminate competition. The video discusses how the US Department of Justice charged Microsoft with such practices, 'engaging in anti-competitive and exclusionary practices designed to maintain its monopoly,' highlighting the company's alleged tactics to preserve its market position.

💡Netscape Navigator

Netscape Navigator was a web browser that was highly popular in the 1990s. The script mentions it as a revolutionary browser with features like 'future of documents streaming' and 'multiple downloads simultaneously.' However, it faced a downfall due to Microsoft's tactics, illustrating the impact of competition-killing strategies on innovation.

💡Internet Explorer

Internet Explorer is a web browser developed by Microsoft. The video describes how Microsoft leveraged its operating system dominance to promote Internet Explorer as the default browser, 'making it the default browser for every PC sold,' which contributed to its rise to a 95% market share and the decline of Netscape Navigator.

💡Embrace, extend, and exterminate

This phrase, coined by the Department of Justice, describes Microsoft's alleged strategy for dealing with competition. The video explains it as 'embrace the concept of internet browsers, extend their products with features that do not support the competing products, and exterminate the need to use rival products,' which led to the downfall of Netscape.

💡Market share

Market share represents the percentage of an industry's total sales that a company controls. The video uses the term to highlight the dominance of Internet Explorer with '95% market share,' and the significant drop of Netscape Navigator from '80% of the browser market share' to near obscurity.

💡ActiveX controls

ActiveX controls are a set of technologies that allowed Microsoft to extend the capabilities of its software. The video mentions them as part of Microsoft's strategy to 'directly attack the most important features of Netscape,' making it difficult for users to download files, particularly Microsoft Office files, on competing browsers.

💡MSN Messenger

MSN Messenger was Microsoft's instant messaging platform. The script discusses it as an example of Microsoft's strategy to compete with AOL's AIM by 'embracing the concept of instant messaging,' extending it with proprietary features, and offering it for free, ultimately undermining the competition.

💡Microsoft Teams

Microsoft Teams is a platform for communication and collaboration, often bundled with Microsoft Office. The video points out its 'exponential growth since 2020' and suggests that it might be following a similar pattern as previous Microsoft products in terms of bundling and potentially undermining competitors like Zoom.

💡Scalar Academy

Scalar Academy is mentioned in the video as a tech upscaling platform aimed at preparing individuals for jobs in top tech companies. It serves as a partner for the video and represents the opportunities that arise from the competitive tech industry, emphasizing the importance of skill development in this context.

💡Lessons from the case study

The video concludes with lessons learned from Microsoft's actions, emphasizing the importance of focusing on customers and market needs, building great products, and creating platforms that empower others. It suggests that while Microsoft's strategies were aggressive, they also highlight the need for companies to innovate and adapt to changing trends.

Highlights

On May 18, 1998, the US Department of Justice and 20 state attorneys general sued Microsoft for monopolistic practices and stifling competition in the computer market.

The antitrust case against Microsoft is considered one of the most historic in tech history, lasting for two decades.

23 years later, Microsoft is still accused of suppressing competition, potentially leading to another historic lawsuit.

The video discusses Microsoft's business strategy that transformed it into a powerful company.

The Department of Justice charged Microsoft with anti-competitive practices to maintain its monopoly.

Microsoft's bundling of Internet Explorer with Windows 95 as the default browser was a strategic move against Netscape Navigator.

Netscape Navigator was a revolutionary browser with features like document streaming and support for JPEG images, capturing 80% of the market share.

Microsoft's strategy of 'embrace, extend, and exterminate' led to the downfall of Netscape Navigator.

By 2000, Internet Explorer had a 95% market share, becoming the dominant web browser.

Microsoft's tactics with MSN Messenger mimicked those used against Netscape, including bundling and proprietary extensions.

Microsoft Teams' exponential growth since 2020, with a 456% increase, suggests a similar strategy to that used against competitors like Zoom.

Microsoft Teams has seen a significant rise in active users, potentially at the expense of Zoom's customer base.

The video discusses lessons from Microsoft's case, emphasizing the importance of focusing on customer needs and market trends over competition.

It highlights the transient nature of success without building great products, even for powerful companies like Microsoft.

The video contrasts Microsoft's approach with that of Apple and Google, who built platforms for developers, leading to broader wealth creation.

The video ends with a teaser for an upcoming episode discussing the legal challenges faced by Google and Apple for alleged monopolistic practices.

The video is sponsored by Scalar Academy, a tech upscaling platform aiming to prepare individuals for jobs at top tech companies.

Scalar's curriculum covers a range of topics including data structures, algorithms, and system design, with a focus on real-world application.

The video encourages viewers to explore the provided study materials for a deeper understanding of Microsoft's monopoly case.

Transcripts

On 18th of May in 1998, the US Department of Justice and the Attorney General's of 20

US states sued Microsoft for being a monopoly and illegally killing its competition in the

computer market.

And what followed next was one of the most historic cases in tech history, which lasted

for two decades.

And fast forward to 23 years later, even today, Microsoft is still killing its competition

right in front of our eyes, and this could result into yet another historic lawsuit.

The question is, how did Microsoft kill its competition?

What exactly was their business strategy that turned Microsoft into such a powerful company?

And most importantly, what are the lessons that we need to learn from this iconic case

study.

This video is brought to you by Scalar Academy.

But more on this at the end of the

video.

The Justice Department has charged Microsoft with engaging in anti-competitive and exclusionary

practices designed to maintain its monopoly.

Microsoft in secret basically finished up '95 and released it; and then provided no

documentation.

Forcing Microsoft to include Netscape's competing software and our operating system is like

requiring Coca Cola to include three cans of Pepsi in every six pack it sells.

Do you agree that Internet Explorer is defined here correctly as Microsoft's web browser?

This is a story that dates back to 1994 America, when the computer revolution was just catching

fire.

This was a time when multinational corporates had accepted that computer was a powerful

tool.

And they already started having hundreds of computers in the offices, which was being

used by the employees.

And these computers had already skyrocketed the productivity of these companies.

So practically, computer has already become an integral part of the American business

ecosystem.

And long story short, here are the most important events that happened in the computer revolution

of America.

On 12th of August 1981, IBM introduced its personal computer with Microsoft's 16 bit

operating system, which was MS DOS 1.0, and this made Microsoft a tonne of revenue through

licencing.

By 1985, Microsoft was already clocking in a revenue of 140 million dollars.

Then on 13th Of March 1986, Microsoft Stock goes public breaking all records and turn

Bill Gates into the youngest billionaire ever, by 1987.

Then in August 1989, Microsoft introduces the earliest version of Office suit applications,

which then became the industry standard for businesses all across America.

Followed by that, in May 1990, Microsoft launched windows 3.0, which was a big leap into graphical

user interface.

And this is what made computers accessible to the common man, which was back then used

only by the techies through code.

And as soon as this happened, the usage of computers exploded in the United States of

America.

And this is what made Microsoft the most powerful and the most dominating force in the computer

world, with Windows 3.0, selling at the rate of 1 million copies per month in 1993.

And nearly 90% of all PCs in the world ran on Microsoft operating system.

And this is when another dimension of the computer industry opened up and that was the

internet.

Therefore, in the early 1990s, we saw the rise of internet browser market.

And one of the most revolutionary browsers at that time was a browser called Netscape

Navigator, which was launched in 1994.

Netscape at that time was loaded with features which were far ahead of its competition, they

had the future of documents streaming, which allowed users to view the documents while

it was being downloaded.

They have the feature of multiple downloads simultaneously.

And they also supported JPEG image format.

And this product was so revolutionary that even with a $49 subscription cost, they were

able to capture up to 80% of the browser market share.

Now the point to be noted over here is that, just like today, without the internet, your

computer is mostly useless.

Back then in 1995, people started using computer just to use web browsers to connect to the

internet.

And the operating system was just a bridge that connected the users to the web browsers.

So practically, browsers were becoming more important than the operating system itself.

And building upon this phenomenal success.

Netscape went public on December 5th, 1995.

And within a day, the company had hit a market cap of $2.2 billion.

And just when they thought of becoming another legendary internet company, something happened

in the exact same year that marked the beginning of Netscape's wall and within the next six

years, the same billion dollar company was almost reduced to nothing.

The question is, how is it even possible that such a big and innovative company went down

so quickly?

Well, the answer to this question lies in an accurate phrase coming from the Department

of Justice itself, which summarises how Microsoft kills its competition.

And it says, embrace, extend and exterminate.

To tell you about it.

In 1994, Microsoft realised that they were too late to the internet boom, and the browsers

are becoming more important than the operating system.

So in August 1995, when Microsoft launched windows 95, they also included their own web

browser called the Internet Explorer, and they made it the default browser for every

PC sold.

So when you start your computer, you could see the Internet Explorer right on your home

screen.

On top of that, Microsoft directly attack the most important features of Netscape by

launching something called ActiveX controls.

And this update made it impossible to easily download files on the internet, especially

the Microsoft Office files.

And this was a direct attack on Netscape prime features.

And because 90% of the computers used MS Office, it became more and more difficult for them

to use Netscape and other browsers.

And then, Microsoft also removed the Internet Explorer from the add and remove tab, because

of which neither the consumers nor the manufacturers could delete the Internet Explorer from the

computers, and cherry on the cake, they made it available for free of cost.

So this is how they first embraced the concept of internet browsers.

Then they extended their products with features that do not support the competing products.

And lastly, Microsoft used their dominance over the platform to promote their own product

over its competition, eventually, to exterminate the need to use rival products.

And not so surprisingly, this led to the downfall of Netscape Navigator.

And by 2000, Internet Explorer had 95% market share, making it the most dominating web browser

in the market.

And this is how Microsoft established an industry standard, which meant that if you wanted to

make a living from software development, you had to make sure that your product worked

in Internet Explorer.

But if Microsoft things were making a lot of money, maybe the story could be over for

you.

Similarly, Microsoft's instant messaging platform, MSN Messenger, also tried to kill one of the

most popular instant messaging platforms during that time, that was AIM, which was made by

a company called America Online.

And the way they did that was that the first embrace the concept of instant messaging by

launching MSN Messenger.

And this was obviously installed in your PC by default.

And then they extended the standard with proprietary Microsoft add ons, which added new features,

but broke the compatibility with AOL software.

And then they gained dominance by providing MSN Messenger for free.

And now the same thing is happening with zoom.

And this is the reason why I asked you yesterday, how many of you installed Microsoft Teams

deliberately?

Or did it just get installed in your PC with the updates, and as usual, most of you said

that it automatically got installed with the updates, and the rest of you either did not

use teams, or you're using a Mac.

Now, here's the catch, guys.

Microsoft Teams has seen an exponential growth since 2020 by 456%, and I couldn't find zooms

monthly active users since the last April 2020.

But when they release the numbers, you know exactly what to compare it to.

On top of that, you might also see that Microsoft will build an insanely user friendly file

sharing system for Microsoft Office files in Microsoft Teams.

And soon enough, you could also see some hurdles, which might make zoom difficult to work with.

Now, the point to be observed over here is that, in April 2020, while zoom had 300 million

daily active users, one year later, Microsoft Teams already had 145 million active users.

And these users, obviously the ones who could have used zoom or have shifted from zoom to

Microsoft Teams.

So effectively, Microsoft has already started eating into zoom's customer base.

This is how Microsoft kills its competition.

And this is what brings me to the most important part of the episode and that are the lessons

of the case study and the study materials to help you dive deeper into these tech wars.

Before we move on, let me introduce you to our partners of this episode.

And that is scalar.

Now we will amidst all of this tech war that is happening between these companies, the

one thing for sure is that this competition is going to create some extraordinary opportunities

for highly skilled computer engineers.

And that's where Scaler comes in.

Scaler is a world class tech upscaling platform and their mission is to make you skilled enough

to get jobs in some of the best companies in the world like Facebook, Amazon, and Google.

Scalar has a curriculum that is reverse engineered to not only get you a great job, but also

to help you excel at it.

They cover data structures, algorithms, system design, and a project full stack or back end,

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Scalar has placed over 1091 learners in 2020 alone, with junior developers making an average

salary of 16 lakhs and senior developers making an average salary of 39 lakhs.

The best part is that Scalar has been made by the techies and for the techies to go beyond

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Apart from that, you also get to be a part of an aspirational learner community.

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So if you're somebody who wants to become capable enough to get a job at a world class

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Moving on to the lesson on the case study.

There are three very important lessons to learn from Microsoft's iconic case.

The first thing I want you to do is take a step back and look at the story very, very

carefully.

Did you see that in spite of Microsoft sabotaging Netscape, Chrome was very easily able to beat

the Internet Explorer to become the most used browser in the world.

In spite of Microsoft killing AOL, using the MSN Messenger, Facebook and WhatsApp have

turned out to be the winner of the social media revolution.

And it almost looks like Microsoft was so obsessed with killing its competition, that

it completely lost sight of the evolving trends in the internet services like search engine,

social media, and even mobile revolution.

And this tells us two very, very important lessons that while good companies focus on

their competition, great companies focus on their customers and the needs of the market.

Number two, regardless of how powerful you are, if you don't build great products, the

success you're going to achieve is always going to be short lived.

And lastly, while Microsoft always wanted to be the richest kid in the block, and tried

to keep all the wealth to itself, Apple and Google built a platform for developers to

empower them and build wealth for a large number of people.

And in this process, they ended up making more money than Microsoft.

Hang on, but Google and Apple also got dragged to the court because they will also acting

as a monopoly right?

Hmm, interesting.

We'll talk about that in the upcoming episode.

That's from my side for today, guys.

If you learned something valuable please make sure to hit the like button in order to make

YouTube Baba happy and you will also find the links to the study material in the description.

I have barely covered 1% of the topic.

So please have a look at those links.

Because it will help you a lot in case if you're writing a research paper or it just

curious to learn about Microsoft's monopoly.

And for more such insightful business and political case studies, please subscribe to

our channel.

Thank you so much for watching.

I will see you in the next one.