What type of market structure is Microsoft in?
Microsoft was founded in 1975 and is a global leader in software services and solutions. It offers different categories of products; for instance, within software, it offers Windows applications, OneDrive, Skype, Outlook, and OneNote; within entertainment, it offers Xbox games, PC games, and Windows digital games. It also offers PCs and devices. The company has subsidiaries in over 120 countries distributed all over the world. As at June 30th, 2017, it had net revenues of $89.5 billion, representing a 5% growth from the previous year.
According to Statista, Microsoft, through its Windows OS, enjoys 84.46% of the global operating systems market share for desktop PCs (July 2017 data). It is followed by Mac OSX at 11.32%, Linux at 1.79%, Chrome OS at 0.45%, and others at 1.98%. Though Microsoft is the dominant player in this market, the market structure can be said to be an oligopoly, with Apple and Microsoft controlling large shares of the market. This is because there aren’t any apparent barriers to entry or exit; rather, the main barriers are due to long-term operations of Microsoft in the market that have resulted in its acquisition of expert knowledge in its products. The US vs Microsoft (2001) antitrust case that challenged Microsoft’s monopolistic practices resulted in Microsoft settling for a proposal that allowed the producers of PCs to use any software aside from Microsoft’s. This put checks and balances on any monopolistic behavior that Microsoft may have previously exhibited.
In the games console market, leading companies by market share are Sony, followed by Microsoft and Nintendo. This market can be considered an oligopoly, where a few firms dominate the market.
Microsoft operates in a number of segments which include consumer electronics, computer software, and personal computers. Therefore, the corporation may exist in different market structures as determined by the product segments served. The company’s most popular products include Microsoft Windows (operating system), Microsoft Office suite (office suite), Internet Explorer (browser), Xbox (gaming console), and Microsoft Surface (PC/ tablet).
Microsoft products exist in markets where there are either strong challengers or leaders. Microsoft Windows is a market leader in operating systems followed closely by Apple’s Mac OS and Linux. In the browsers segment, Internet Explorer comes third following Safari and Firefox, which is the market leader. In gaming consoles, Microsoft’s Xbox is fighting it out with Sony PlayStation, which is the market leader.
This brief breakdown suggests that a majority of Microsoft’s product and the company, in general, exists in an oligopoly market structure. This is because the markets the products exist in are dominated by a small number of companies. The companies are in constant competition, forcing some level of differentiation in their products and services. Barriers to entry are high because the market segments entail complex technology, patents and economies of scale to operate. The barriers to entry also explain the abnormal profits that Microsoft and its peers are able to record.
Microsoft, of course, does not sell only one product. Therefore, it is in at least two market structures.
When it comes to operating systems, Microsoft is essentially a monopoly. Microsoft Windows is by far the dominant operating system today. It is said to have at least a 95% share of the market. This is not technically a monopoly, but the market does show most of the characteristics of a monopoly.
However, Microsoft also tries to sell other goods and services. One example of this is its Bing search engine. The search engine market is not a monopoly. Rather, it is an oligopoly with competition between Google, Microsoft, Yahoo, and a few others.