Falling hardware costs were expanding the market for personal computers. Computer manufacturers needed operating systems and applications that made their machines useful, while compatibility influenced the software available to buyers. IBM’s entry created a consequential opening for software suppliers. How software reached multiple manufacturers would help determine whether it could grow beyond any single computer model M1 M12.
Microsoft
Microsoft's PC distribution helped it build an application ecosystem and sell suites.
Arena: Market Conditions Before Microsoft
What shaped the outcome
Step 1 of 5 · 1980 · PC platform
Competing hardware makers distributed Microsoft's software
Supplying IBM gave Microsoft an opening. Licensing to other compatible manufacturers let it grow with the wider hardware industry and reduced its dependence on any one machine.
Rivals IBM was the initial route into the market. Serving other compatible suppliers gave Microsoft a much wider business.
Component SpecializationDistribution PartnershipsOEM Licensing
Step 2 of 5 · 1990–Esta · PC platform
Applications made Windows hard to replace
Users valued Windows for its applications, and developers wanted access to those users. A rival operating system therefore needed both a capable product and an application catalog that would persuade people to switch.
Rivals IBM struggled to attract applications to OS/2 despite its resources. The rival’s difficulty adopting Windows APIs helps explain Microsoft’s position.
Platform network effectsComplementary-asset dependencePlatform Strategy
Step 3 of 5 · 1990–By 1 · Office
Office expanded the purchase to a suite
Office combined several recurring work tasks in one purchase. Microsoft could reuse platform capabilities and sales channels across related applications, expanding its enterprise relationship beyond a single program.
Rivals Compared with separately supplied applications, a suite can share more work. Other suites also bundled products.
Step 4 of 5 · 2011–25 · Enterprise cloud
Cloud growth required changes to the licensing business
Office 365 and the engineering needed to run a live service gave Microsoft a way to serve enterprise customers in cloud. Office's availability on other platforms extended that reach. The transition required execution and a willingness to lose some traditional license sales.
Rivals AWS won enterprise cloud demand without owning Windows. The UK inquiry identifies cloud scale barriers that Microsoft and Amazon share.
Step 5 of 5 · Enterprise cloud
Cross-platform cloud delivery marked a strategic reversal
Stratechery’s Microsoft analysis offers a concise interpretation of the company’s move from a Windows-centered position toward cloud applications available across devices.
Rivals AWS and other cloud providers can win workloads without Windows or Office relationships.
Key dates
- 1980–1981DOS reached IBM and other PC makers
- 1990Windows 3.0 attracted application development
- 1990Office arrived on Windows
- 1995–1999Browsers and Java threatened Windows dependence
- 2011–2013Office moved to cloud delivery
- 2014–2015Office followed customers onto other devices
- 2015The phone business failed to repeat the desktop success
- 2025Cloud developed its own barriers
- By 1996More customers bought suites
- Established by 1999Applications became a barrier to entry
Sources
Oldest first.
- M1 Bill Gates interview. Founder oral history, retrospective; year-end date convention
- MSX-5 Apple Computer, Inc. Form 10-K, fiscal 1996. Rival annual filing
- M3 1996 Annual Report: Operations. Company operating report; year-end disclosure convention
- M4 1996 Annual Report: Management Discussion. Financial and operating disclosure; year-end convention
- MSX-3 Microsoft and Apple Affirm Commitment To Build Next Generation Software for Macintosh. Company press release
- MSX-1 TOM ABATE ON TECHNOLOGY -- How Steve Jobs Killed Mac Clone Makers. Contemporaneous trade press
- M2 U.S. v. Microsoft: Findings of Fact. Historical court findings; relevant market was Intel-compatible PC operating systems
- M12 Written direct testimony of Bill Gates. Founder testimony; interested party, historical account
- M13 The History of Microsoft — 1990. Company historical chronology
- M5 Microsoft launches Office 365 globally. Launch and beta adoption announcement
- MSX-4 John Sculley: The Truth About Me, Apple, and Steve Jobs, Part One. Rival CEO first-person interview, retrospective
- M7 Leading the Enterprise Cloud Era. Executive account of prior reorganization and adoption
- M6 A cloud for everyone, on every device. CEO strategy statement tied to delivered products
- M11 Phone hardware restructuring. Company restructuring announcement
- M9 2015 Annual Report. Annual report; conservative month-end date
- MSX-2 007. Windows 3.0 Buzz. Early-employee memoir
- M14 Microsoft Full Circle. Strategy analysis
- R6 Acquired — Microsoft Volume I. Podcast transcript
- C1 Cloud services: summary of final decision. Final market investigation findings, UK scope
- R7 Slack to Teams in Two Weeks, 95% Adoption. Implementation-partner named customer account
- M15 The CHRO as a Strategic Partner. Executive interview; leadership consultancy publisher