Microsoft and the Cash Cows

Microsoft CEO Satya Nadella introduces the new version of the company’s signature product, Windows 10.

Microsoft has announced that its new Windows 10 will be a free upgrade for a wide range of current Windows users. This accompanies the company’s similar offers of free Microsoft Office apps for users of iOS and Android systems.

Windows is Microsoft’s signature product, the operating system that at one time ran the vast majority of personal computing devices, propelling Microsoft to a market dominance that the federal government sought to curtail with an antitrust action in the 1990s. MS Office featuring Word, Excel and PowerPoint has been the leading productivity suite for years as Microsoft overwhelmed early leaders such as WordPerfect and Lotus 1-2-3. The Microsoft divisions responsible for Windows and its productivity software have historically earned the bulk of the company’s profit“cash cows” per the BCG Matrix.

So why give these products away in 2015? Is this a case of killing the cash cows (akin to liquidating the goose that laid the golden egg)?

The rationale becomes clearer with an examination of the BCG Matrix. This analysis method divides areas of a business into four categories:

  • Stars: Business units or products with high growth rate and high market share. They typically require heavy investment (e.g., extensive marketing campaigns) as they increase share and solidify their success.
  • Cash Cows: Market leaders with low growth rates that produce consistent income without heavy investment. They generate the money required to finance the company’s other endeavors.
  • Question Marks: High growth rate but low market share. They consume cash while the company determines if they are turning into stars.
  • Dogs: Low growth and low share. The name says it all.

The BCG Matrix

Microsoft has treated Windows and Office as stars instead of cash cows, failing to develop true stars to stimulate or at least harness changes in consumer trends. Its best attempt to branch out has been its gaming division, dominant in its market but a frequent money-loser.

The company acted oblivious to the shift to mobile computing. In 2007, it released the disastrous, bloated Windows Vista while Apple launched the iPhone. Its belated attempt to assert itself in the mobile space, Windows 8, was also derided as clunky and blamed for accelerating the downturn in PC sales, the very product that Microsoft was trying to support with its “dual” operating system approach.

Sales of Windows have continued to decline with the drop in PC sales. Office no longer enjoys unquestioned ubiquity as consumers have found substitute products that are cheaper or even free, such as Google Docs. CEO Steve Ballmer stepped down as Microsoft was increasingly deemed a has-been, its revenue currently one-third of Apple’s.

Microsoft’s new CEO, Satya Nadella, has promised a turnaround. Microsoft’s cloud computing services and mobile devices are increasing in sales. The Windows and Office giveaways are designed to keep people using Microsoft products while introducing them to the company’s latest offerings. They may be free for many consumers now, but Windows and Office are finally being used like true cash cows, supporting Microsoft’s direction for the future.

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Two Examples of Bad PR, Q4 2014

Bill Cosby: Media throughout the fall have been reporting accusations spanning the 1960s to the 2000s that Bill Cosby drugged and raped women. The media that ignited the current crisis were not traditional news outlets; a viral campaign on social media drove the story. The drumbeat began with a standup comedy routine by Hannibal Burgess in October 2014 that lambasted Cosby’s moralizing in light of past rape accusations against him. Burgess urged the crowd to “google ‘Bill Cosby Rape.'” (Note: clip contains raw language.) An audience member shot the video, which was posted to YouTube.

The YouTube video garnered attention and pushed the story to the mainstream media. Ten years ago, Andrea Constand, a staff member for Temple University’s basketball team, accused Cosby of drugging and raping her. Three other women–Tamara Green, Barbara Bowman and Beth Currier–went public with similar accusations. A dozen unnamed women were ready to testify against Cosby in the civil suit brought by Constand, but their accounts were never heard as the suit was settled out of court in 2006.

As comedian Burgess pointed out in media interviews, the accusations against Cosby and his legal issues had been known to the public during the past decade, with the Today show and People magazine granting interviews to the early accusers. The difference in this decade was social media, where gatekeepers and equal time principles do not apply. Per The New York Times, Cosby’s team of agents and lawyers were adept at minimizing damaging mainstream media coverage in past years.  But as Tiger Woods learned when his womanizing crisis unfolded in 2009, even the most formidable team of handlers will be hapless when applying their timeworn techniques in the current media era.

Cosby’s own haplessness was apparent in his official silence. He urged an AP reporter to delete remarks about the growing scandal from an interview and shook his head and remained mute when an NPR reporter followed a similar line of questioning. The vaunted Cosby team failed miserably as well, launching a meme to put the comedian in a favorable light. Instead of fans embracing the tactic, multitudes turn the Cosby photos into captioned commentary denouncing and insulting him.

The number of women accusing Cosby of drugging and raping them has now surged into double digits. NBC and Netflix have pulled Cosby projects, TVLand has taken Cosby reruns off the air, and several live venues have cancelled his appearances.

Uber: Digital technology has upended numerous industries. Uber represents this disruption in the taxi and transportation industry, linking riders and drivers via mobile app, decentralizing the dispatching process while centralizing the payment process through the app. Uber markets itself as “faster and better,” consumer benefits historically promised by companies that present a technological distinction.

Uber has the makings of a “tech darling,” a company that wins public and media approbation due to its inventiveness. USA Today named it tech company of the year in 2013. Yet, Uber has courted controversy throughout its existence, primarily due to the fact that it is not subject to the licensing and regulation imposed on traditional taxi and limo companies. As the company has expanded globally, it has faced fines, restrictions and bans in numerous regions.

Not all of Uber’s media coverage has been as positive as USA Today’s accolade. Uber’s EVP of Business, Evan Michael, suggested at a dinner attended by VIPs that Uber could hire a team to dig up dirt on journalists writing negative stories about the company, focusing on Sarah Lacy, editor of PandoDaily, a noted Uber critic.

This throwback to Nixon’s Enemies List created a PR crisis and cast a harsher light on company practices already under scrutiny, including:

  • Tracking Uber riders’ travel data without justification or permission
  • Placing bogus calls for rides with rival Lyft to slow down their service
  • Using “surge pricing” to jack up fares at high demand times, an algorithm-based system that resulted in price increases during Superstorm Sandy and the Sydney hostage standoff in December 2014

Uber is trying to amend its confrontational image, making CEO Travis Kalanick available to New York journalists in an overture of openness and hiring Obama strategist David Plouffe as senior VP of policy and strategy.

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Bing Crosby and Marketing Environmental Forces

Bing Crosby, legendary entertainer and marketer

All final grading is done and I took an evening to watch an informative documentary on PBS, “Bing Crosby Rediscovered.” It was a detailed, unvarnished and ultimately celebratory look at the man hailed as “the most popular and influential multimedia star of the first half of the 20th century.”

There were marketing lessons in the program (even during a break from teaching, I can’t get away from the subject.) To point, Bing Crosby seized two marketing environmental forces in his extraordinary career.

Social/Cultural Force:
Like other popular music genres of the 20th century, jazz was an invention of African-Americans. As Gary Giddings writes for The New York Times, young singer/drummer Bing Crosby absorbed and performed jazz stylings, leading to new ways of phrasing for popular singers as Crosby’s career accelerated in the early 1930s.

Crosby was a white man singing like an African-American jazz artist, a bridging of cultures reminiscent of what Al Jolson did before him and Elvis Presley would do later, developing new musical “products” and opening new markets. Crosby idolized jazz legend Louis Armstrong, befriending him in the 1920s and insisting on his star billing in the 1936 film “Pennies from Heaven,” one of their many collaborations.

Technological Force: Crosby was known famously as a “crooner,” giving a nuanced delivery with softer dynamics and a more intimate feel (too intimate for some who felt he was seducing the nation two decades before Elvis’ swiveling hips caused a stir.) This signature style was only possible through the advent of the condenser microphone that could pick up and amplify such vocal techniques. Crosby contrasted Al Jolson who had to use considerable volume and heavy emoting to “reach the back row” in the early decades of the 20th century.

Crosby’s crooning was a natural fit for the ascendant media technology of the 1930s–radio. Everyone was in the front row at household receivers, able to appreciate Crosby’s cool, jazz-influenced vocals. Crosby was a weekly radio star through the 1940s, averaging tens of millions of listeners per broadcast.

By the end of World War II, he wanted a break from the grind of weekly live performance and insisted on recording his shows. Up to that point, recording technology was insufficient to capture the fidelity of live sessions. However, audio tape recording developed in Nazi Germany and appropriated by the Allies provided the solution. Crosby invested in the commercialization of magnetic tape recording, leading to multi-track music recording, video tape recording, and computer data storage technology.

Bing Crosby: singer, actor, technologist, social activist, marketer.

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