The Newsletter Pro - November 2020

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BUSINESS PROFILE

MICROSOFT HASN’T DIED

How Diversified Offerings Keeps It Alive and Healthy

F or some people, it’s a lot of fun to make jokes about Microsoft. The company and its operating system is touted by many as outdated, with software that’s bloated. In some cases, its newest versions were so despised that many loyal users refused to upgrade until an even newer replacement was made available. Their former web browser, Internet Explorer, once held 95% of the world market share but now no longer leads in any country, even after becoming Microsoft Edge. And its mobile phones barely make ripples in an industry dominated by iPhones and Androids. And yet, Microsoft is still a household name. It still topped $125 billion in revenue last year and was the most widely held stock in index funds and ETFs. In several ways, it outdoes its competitors like Apple and Google by a landslide. While Microsoft may be best known and most widely used for its operating system and its suite of tools like Word, Excel, and PowerPoint, its true prowess comes from its continued diversity of products — even products in markets it does not lead in. Microsoft may still be the world’s largest software maker, but it’s not just a software maker anymore. With all its products and services combined, the company has an average 29% profit margin, which is considerably higher than either Apple or Alphabet, Google’s parent company. The popular opinion today is that these two companies have long overtaken Microsoft, but when you look at the numbers, that simply isn’t the case.

When CEO Satya Nadel took leadership of Microsoft in 2014, the company moved aggressively into other markets in order to stay relevant when put side by side with its competitors and has upheld that thinking and action ever since. One of its most lucrative markets has been cloud computing with the implementation of Azure, which has a solid percentage of global market share, second only to Amazon Web Services. Azure alone accounts for nearly one-third of Microsoft’s overall revenue. The Surface tablet was their answer to Apple’s iPad, and the Xbox gaming system may not contribute much to their net profit numbers, but it keeps them relevant in a popular and rapidly expanding market. When someone thinks about Microsoft, their brain likely first conjures images of the Windows operating system or Word, as these are still the two most popular and lucrative components of the business. But over the last decade or so, the true secret to Microsoft’s continued success in a world that thinks it’s fallen behind is simple: They diversify their products and services to create more profit streams, and then they expand on them. In some areas, they’re still the top contender. In many more places, they aren’t even close. But it’s their willingness to diversify that helped them continue to be a giant in a world that seems content to try to dwarf them. Take, for example, the Microsoft Office suite. When it first debuted in 1990, it was merely intended to be a method for showcasing Microsoft’s then-revolutionary operating system.

But in the 30 years since, the suite’s applications have gone on to become essentially mandatory for anyone who needs to do schoolwork or conduct any type of business. Even Apple Macintosh users equip their computers with these Microsoft products. Microsoft created a revenue stream and expanded it as it went. There’s power in being able to diversify your offerings. Whether it’s for the sake of staying relevant, like Microsoft did with its Xbox gaming system, or if it’s to keep updating and providing essential products like Microsoft Word, if your business has the capacity to do more and be more for its customers, then it should try. There’s nothing wrong with pouring effort into one product or service that you’re really good at and continuing to offer it to your customers. But if you don’t pay attention to how your market is changing and how the wants and needs of your customers are likely changing, too, then even being the best at what you do has the potential to get stale. Learn to update your thinking and your product line to keep up with competitors and ever-changing consumer demands. Explore ways to branch into other products that could open up entirely new streams of revenue. Businesses that adapt, take chances, and prepare for the change they see coming are the ones that will be around long after the world expects them to be.

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