Microsoft's SWOT Analysis: What We Discovered

By Kyle Spencer - November 1, 2012 | Tickers: AAPL, GOOG, MSFT | 0 Comments

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Evaluating a company's Strengths, Weaknesses, Opportunities, and Threats (SWOT) allows us to develop a detailed picture of company's resources and competitive position in the market. Today, we take a look at the software giant Microsoft (NASDAQ: MSFT), former senior partner of the once unstoppable Wintel Monopoly, and a company that is currently in the process of reinventing itself.

Strengths 

1. No. 1 Operating System on the planet: As of 2012, there are over 1.1 billion computers in the world, and 90% of them use Microsoft Windows.

2. No. 1 Marketing Campaign of 2012:  Ace Metrix has declared Redmond's new “clickaholics” Surface ad as the hands-down most effective Tablet ads of 2012. Having Jessica Alba sport your phone doesn't hurt, either.

3. No. 1 in the Workplace: Forrester predicts that by 2013, the global enterprise market will be worth $68 billion. The lion's share will go to Microsoft. Microsoft makes in a single quarter what Apple makes in year from business hardware sales and services.

4. Strong Reputation: Microsoft ranks No. 7 on Forbes's list of the world's most reputable companies, right behind Google (NASDAQ: GOOG) (No. 6) and, yes, even Apple (NASDAQ: AAPL), who came in at No. 5. Microsoft also led Colgate, Nike, Johnson & Johnson, IBM, Michelin,and Samsung.

5. No. 1 in Gaming: Microsoft's Xbox platform is now the top selling gaming console in the world.

6. MS Office: 97% market share

7. Skype: With over 280 million users, Microsoft's Skype service continues to grow rapidly.

8. Wide Moat, With Fire-Breathing Dragons: Microsoft has over $65 billion in cash, cash equivalents and short-term, highly liquid investments lying around and a market cap of $241.15 billion. That's 10 times the total amount of child support paid out last year, and roughly equal to all the tax paid to the IRS last year by U.S. corporations.

Weaknesses

1. Mobile: Bill Gates unveiled the tablet PC to a crowd of over 12,000 people at COMDEX back in November 2000. Unfortunately, the market had zero interest in tablets at the time. Windows Phone is still struggling to make a dent in what has essentially become a two-horse race between iOS and Android.

2. Bing: Bing is currently the No. 2 search engine on the Internet. It's also, in the words of BusinessInsider, a “rat hole” where Microsoft's balance sheet goes to die. Microsoft has spent $10 billion promoting and supporting Bing. The result? Less than half of Google's revenues, and people still say “Google it.”

3. “Stack Ranking” Culture:  Vanity Fair's indictment of the company's “stack ranking” system, and its detrimental effects on company morale and innovation under Ballmer's leadership, was scathing.

4. Radical Refresh: Windows 8 is in many ways an even more radical change of Microsoft's core product line than Windows 95. While the new Windows operating system is more aesthetically pleasing than previous incarnations, the learning curve may keep many users from upgrading.

5. Negative Perception: Despite Microsoft's enviable reputation with its business customers, the software giant is perceived by many competitors, consumers and even governments to be a ruthless, monopolistic minded firm that leverages the it's Windows operating system to torpedo its competition.

6. Dependency: Microsoft is dependent on hardware manufacturers to pre-load– and design their products to make the most of – the Windows operating system. In fairness, this is beginning to change.

Opportunities

1. Improved monetization of Search: Online advertising revenue grew 15% in Q1 of Microsoft's fiscal 2013, driven primarily by an increase in revenue per search, according to the company's earnings release for that period.

2. Windows 8: With 4 million installations already, Microsoft's new operating system appears to be – at the moment, at least – defying analysts' dire predictions. A successful OS launch could translate to higher sales for Win8 phones and tablets.

3. Surface: Surface may not be an iPad killer in its current incarnation – Microsoft is still fleshing out its app ecosystem – but most reviewers agree that a Surface 2.0 would be a major threat to Apple's continued dominance of the tablet space.

4. BRICs: The Windows 8 UI is the first mobile interface that many consumers in Brazil, Russia, India, and China will ever see. This is likely to give Microsoft an edge in the developing world that its rivals currently enjoy in the developed world: The “Metro” UI will be the OS that BRIC consumers are naturally comfortable with, while iOS and Android will involve a learning curve.

Threats

1. Apple Wakes Up: Tim Cook's "evolutionary, not revolutionary" baby-step strategy has allowed Steve Ballmer to steal a march on Cupertino. Should Apple snap out of its post-Jobs-era complacency and decide to fight back with everything but the kitchen sink, Microsoft could be plunged into an war of innovation that it might not be able to win.

2. Google Declares War: As Microsoft's position grows stronger, Google may decide that Redmond and not Cupertino is the greater threat, and Google fights dirty. If Microsoft vs. Apple is a war of innovation, Google vs. Microsoft would be a war of attrition. 

The Foolish Takeaway

The purpose of conducting a SWOT analysis is to gain insight into the fundamentals of a company in a relatively quick, yet comprehensive manner. Microsoft's many strengths outweigh its weaknesses, if only just. However, management appears to be addressing many of the company's weaknesses in a timely and effective manner. Going forward I expect the “New Microsoft” to continue to make bold decisions and increase market share. Microsoft is an excellent choice for the long term investor looking for a cash-rich, blue-chip dividend king with a solid track record that is likely to outperform in 2013.

The Big Picture

It's been a frustrating path for Microsoft investors, who've watched their company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand new premium report on Microsoft Fool analysts explain that while the opportunity is huge, the challenges are many. Also provided are regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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