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Why have Google and Microsoft started to produce operating s

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George Darling

on 30 April 2014

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Transcript of Why have Google and Microsoft started to produce operating s

Why have Google and Microsoft
started to produce operating
systems for mobile phones?
By Arjun Jairath, Harry Owen & George Darling.

Introduce Microsoft and Google

The Network Effect

Barriers to Entry

Theories Behind Entering The Market

Evaluate Why They'd Enter The Market
Introduction- Google
Founded by Larry Page & Sergey Brin in 1998 during their time at Stanford University

in computer software development i.e. Google.com search engine

into other markets e.g. Google Maps, Google Fiber, Google News

Google's Dominance
Introduction - Microsoft
Established in 1975 by Bill Gates and Paul Allen.

in computer software development i.e. Windows OS's & IE.

, similar to Google e.g. Xbox, Skype, Bing.

Microsoft's Dominance
Microsoft entered the market in 2000
They introduced Windows Mobile before
in 2010 to
Windows Phone
Google entered the market in 2008
When they released an
Barriers to Entry
Large Sunk Costs
Advertising Costs
Research & Development
Brand Loyalty
Economies of Scale
State of technology
The Network Effect
Katz and Shapiro
The Sprinkler Strategy
The Waterfall
Firms require huge amounts of finance and capital to enter the market
Have to
heavily into the research and development before disturbing the market.

Google took over 3 years to develop and release a phone with their operating system, Android.

Google and Microsoft:
research departments
skilled workforce
with transferable information.

leads to a
about the number of subscribers.

Brand loyalty
is particularly prevalent in the smartphone industry.

Google and Microsoft:
Large consumer base
Dominant in other technology markets,
Renowned brands with a
reputation for quality
Oligopolistic market-
firms that can take advantage of
economies of scale

Advantage from technical, marketing and financial economies of scale.

Google and Microsoft:
Extensive finance
Capital resources.

derived from consumption to one user is an
increasing function of how many other users
there are.

Consumers base their choice not only on the quality of the phone's hardware and software, but also the number of users.

Crucial for operating systems due to the
large scale
of users.

Room for technological development of the Phone OS's.

Ability for
transferable technology
amongst similar markets.

Google and Microsoft:
High levels of technology
in other industries,
capital framework
in order to develop software and gain advantage.
i=firms, up to n.
r=basic value of product
v(y)=externality function, with y subscribers.

Advertising has a large influence on the Phone OS market.

Around $725 million spent on advertising in 2012.

Google and Microsoft have large financial base;
Microsoft spend $400 Million on advertising for Windows Phone 7

The externality function represents the value attached to consumption when the number of subscribers is y, over the basic value.

Consumers seek to
maximize utility
, but face obstacles:
They buy the phone as a whole, making the
of the OS
They have to passively accept/
guess the size
of the network.
The device
makers choose
the OS for a phone.

Firms able to ride the
positive network effect
are more likely to be
, due to a positive feedback loop.

Any Questions?
The network effect is an extension to Metcalfe's Law, which states that the
value of a network
is equal to the
number of
Metcalfe's Law
When a firm enters a market, it will only '
' once value exceeds the point of critical mass.

This means new users will be attracted to the OS, starting a
positive feedback loop
Critical mass is significant in the mobile OS market because there are already existing players.

Marketing methods
Fear, Uncertainty and Doubt (
)- intentional attempts to
discredit rival
companies and their network
Penetration pricing and heavy advertising

For this reason, the Network effect acts as a limit to competition, therefore making it a barrier to entry for outsider firms.
Entry strategy based on diversification where a company attempts to enter markets in a relatively short time.
Requires a high
of marketing activities to efficiently
in different markets

Usually a certain amount of
entries is accepted if strategy adopted.

A sequential
design process
, often used in software development processes.

Progress is seen as flowing steadily downwards through phases:
Conception, Initiation, Analysis, Design, Construction, Testing, Production, and Maintenance.

Can be used in conjunction with the Sprinkler strategy, forming the waterfall-sprinkler strategy.

As well as
reducing cost
risk of entering
a new category, also benefits through

Multi-product firms benefit from
gained from established products, as they are
if the parent company is highly regarded.

Key in technology industry, where firms place emphasis on horizontal integration through different branches of the firm.
This is the case with Google and Microsoft.

Can also enhance the
effectiveness of marketing
, which can further limit smaller firms from entering the market.

Umbrella Branding
Waterfall Strategy
The Network effect contributes to standardization, leading to one
dominant platform

Demand guides market to a single platform where consumer
utility is maximized

Firms prosper until
new dominant designs
takes hold from an
innovation stream

Google and Microsoft continue to develop their OS with the aim of prospering from a dominant design.

Give them the ability to
reshape markets
Able to overcome barriers to entry
Wanted to diversify to dominate tech industry
Able to exploit the network effect, to a varying degree.
Successful implementation of strategies.
Full transcript