Indian Institute of Management Kozhikode

B2B Case Analysis Note

Microsoft Corporation: The Design of Microsoft Support Network

Submitted By Sharad Kumar EPGP-04A-090 R&D Manager Nokia Siemens Sunil Ramachandran EPGP-04A-101 Associate Vice President Asianet News Network Vikas Dhawan EPGP-04A-110 Project Manager Cisco

Key Notes/Findings Trish May, the Director of Marketing for the Product Support Services Division (PSS) of the Microsoft Corporation, decided to take a well-earned break from the time-consuming and demanding analyses she was doing. Trish and her boss, Patty Stonesifer, the Divisions Vice President, had a major presentation scheduled for January 20, 1993 to ten top Microsoft executives, including Mike Maples, Executive Vice President of Products and Steve Ballmer, Executive Vice President of Sales and Support. At that meeting, Trish was to unveil PSS proposals for revamping Microsofts entire support services network. Microsoft is the leader in the microcomputer, software industry. In fiscal year 1992, net revenues topped $2.7 billion, while net income exceeded $708 million. Its revenues almost matched the combined totals for firms ranked 2 to 10 in the industry. Furthermore, Microsoft was a truly global competitor. It operated in 41 countries around the world and over 55% of 1992 revenues came from outside the US. Products Line at Microsoft: I. Application Software: Microsoft Office Family of Products for Windows e.g., the word processing program Microsoft Word, the spreadsheet application Microsoft Excel, the presentation graphics program Microsoft PowerPoint, and a very basic data-base management program Microsoft Access. Advanced Applications for Windows e.g. project management program, Microsoft Project, and of an advanced database management system, FoxPro. II. PC Operating Systems Software: Microsoft PC Operating Svstems. Microsoft marketed several widely-used operating systems including MS-DOS and the shell (i.e., it functioned with MS-DOS), Microsoft Windows that typically ran off of desktop PCs. Another shell for MS-DOS, Windows for Workgroups, was designed for simple networks comprised of a limited number of desktop computers, printers, e-mail systems, and fax modems. III. Advanced Systems Software: Advanced Operating System e.g. Windows NT, an operating system for client-server computing and a workstation solution for business-critical computing. Microsoft SQL Server was another highly sophisticated network server that enabled companies to transfer data from large-scale databases across their organizations. IV. Development Products: Development products, included programming languages and kits such as the Windows Software Development Kit, C/C++, Visual C++T, Visual BasicTM, and Basic. V. Hardware: Hardware items included the Microsoft BallPoint Mouse and several versions of the Microsoft Mouse.

Service Usage Pattern: Microsofts ABC Costing and service monitoring systems provided a wealth of information that would be useful to the task force. Some key findings included the following: Over 80% of all service calls came within go-days of software acquisition. About 71% of all customers never called. Of those that did, most called only 1 or 2 times. More than 80% of all calls were generated by about 15% of all callers. Frequent callers needed highly customized and personalized support. Less than 15% of all callers required extended hours of service availability (i.e., more than hours per day). About 5% of all callers needed 24hour service availability. Cost for all support services averaged about 9% of retail dollar sales. Costs varied as follows: Office Family of Products (5%), Advanced Applications (5.5%), PC Operating Systems (7.5%), Hardware (8%), Developer Products (l0%), Advanced Operating Systems (12%), and Servers (12.5%). Table 1 provides more detailed forecasts of costs for 1993.

Strategy Development and Consideration of Alternatives: Microsoft technical support services should reinforce and enhance the high quality of Microsoft products. All technical support programs should be characterized by three attributes - Choice, Quality, and Simplicity. Technical support services should be a Cost Center for the Microsoft Corporation. Microsoft Corporation should be the technical service provider of last resort.

Market Segments: Four segments could be readily identified -- Novice End-Users, Expert End-Users, Corporate Accounts, and Developers. Novice end-users rarely called. End-user problems tended to be application-specific, document-specific, and function-specific. Corporate accounts were more likely to have mission critical environments where systems failures and down-time could have catastrophic effects on both costs and customer service. Developers needed highly technical assistance on applications programs, operating systems, servers, and programming languages. Competitors: Most of competitors continued to give technical service for free via the telephone; several firms -Lotus, Borland, and Aldus - had initiated service charges as early as 1991. It was clear that these firms were experimenting with a variety of offerings and charges. Lotus in 1992, for example, provided unlimited and free service for 90 days following a customers first service call. After that time period, the customer could choose between paying $129 for an annual contract and paying $2 per minute for each service call. Borlands services revolved around the nature of customer problems. It chose to offer an 800# and free service only for installation and start-up difficulties. For all other problems, customers could select from several service and payment options: 1) $2 per minute on an 800# for each service call, 2) an annual service contract for application and language products for a fee of $129, or 3) a premium and top-end service contract for $2,000 for each product with a maximum of $5,000 for four applications.

Answers to Case Questions 1. What factors suggest that Microsofts PSS Division needs a more comprehensive and flexible approach for its service offerings? Patty Stonesifer (The Divisions Vice President) had noticed a particularly troubling upward spike in customer service costs in her periodic review of the divisions Profit and Loss (P&L) statement. She was also becoming concerned with the rapid increase in the number of technical support personnel, which exceeded 1500. Although there was no immediate threat, Patty projected that service expenditures would become an acute problem in three years. When Patty brought the matter to the attention of Microsoft Chairman Bill Gates and Steve Ballmer, they readily agreed that something needed to be done. Bill Gates, in particular, had long advocated that Microsoft rethink its support service efforts and invest substantially in them to insure that the firm delivered high quality service to go along with Microsofts high quality products. This appeared to be the appropriate time to review existing service policy and make that investment. Admittedly, Microsofts support services were not as good as those offered by some competitors. Several factors contributed to the nondescript nature of Microsoft services. Previous support service policy had been determined at the product level. Annually, each product manager negotiated with PSS over the type, extent, and pricing of services to be offered to customers along with their products. Because Microsoft had the most extensive product line in the software industry, the result was a hodgepodge of service offerings. Some products had no support services, some offered unlimited free service that was accessed by phone via a toll number, and still others provided extensive telephone service for fee. For customers, particularly those that owned and used several Microsoft products, the service offerings were confusing because it was difficult to know which service came with which product. Moreover, expert users felt that they were paying for services they didnt need on basic applications. At the same time, they could not get sophisticated support services on some of Microsofts newly introduced line of highly technical advanced systems, even if they were willing to pay extra.

2. Based upon the guidelines that senior management has provided Trish May what product support strategy has Microsoft envisioned? Trish believed the need of an underlying strategy for Microsoft support services, this strategy would guide the development of future services, direct pricing decision and serve as a foundation of communication effort. Obviously, a more comprehensive and consistent technical support offering was needed. And, it had to be simple enough to communicate, understand, and execute. Task force hit upon the idea of using a matrix to summarize the various service offerings. Members referred to it as the Microsoft Support Network 1.0, The concept of a service-offering matrix received enthusiastic and universal approval among Microsoft managers, but there was

widespread disagreement over the make-up of the rows, columns, and elements, because there were some different ways available for its construction.

3. How should the Microsoft Support Network 1.0 matrix be structured in terms of rows and columns?

According to task force recommendation, the rows would consist of major service groupings, while the columns of the table would contain significant product or market segment groupings. In turn, each element (i.e., cell) in the matrix would describe a service offering and include a fee structure. To avoid customer confusion, the group concluded that 4 rows and 4 columns (i.e., 16 elements) should be the largest size of the matrix; however, no research had been done to confirm this. Although the concept of a service offerings matrix received enthusiastic and universal approval among Microsoft managers, there was widespread disagreement over the make-up of the rows; columns, and elements. Trish noted that the matrix could be constructed in several ways. Problem Based Services x Product Categories Problem Based Services x Customer Segments Responsiveness Based Services x Product Categories Responsiveness Based Services x Customer Segments

4. Which services should Microsoft offer; a) offer as free or standard, b) sell as an option for an additional fee, and c) not offered (but have a 3rd party service provider partner offer)?

Given the relatively low costs involved, a strong case could be made that General Information or Fast Tips & Electronic Services should be offered for free. Because these services could be accessed by anyone, they would also generate goodwill and spark interest in Microsoft products among prospective customers. Priority and Premier Support would come with significant charges due to the staffing needed to provide them. In the case of cross-platform or integrative problems caused by another vendors products, should the problem be handed-off to the vendor responsible for the problems. There would also be limits to the amount of customized and mission-critical service that could be offered. At some point, it made more sense to direct customers to VARs or ISVs that specialized in an industry. If Microsoft decided to hand-off these problems to 3rd parties, it would have to determine which firms would provide the appropriate services and how these firms would be compensated for doing so.

5. What implementation problems should PSS managers anticipate? How can PSS manages successfully overcome them? Industry pundits speculated that it would be impossible to eliminate free Installation & Start -Up service on application, PC operating systems, and developer products. Customers would interpret

fees for this period as an unethical way for software vendors to pad their profits. Many would wonder if suppliers deliberately made their software difficult to use so that customers would have no choice but to buy service. Usage & Productivity assistance would be a tougher call. While most problems associated with application software could be addressed at low cost, those for PC operating systems, development products, and hardware could be costly; particularly those that occurred after the first 90-days of ownership. Clearly, Systems Integration and Customized support services would be quite expensive to deliver. If services were offered as a function of responsiveness, fee decisions would be a little more straightforward. Standard Support would probably be offered free on an unlimited basis for desktop applications. Because usage and productivity questions after 90-days of ownership could get costly, it would probably be necessary to charge personal operating systems, hardware, and development products owners a fee after 90-days. Communicating the details of the Microsoft Support Network 1.0 would also be a challenge. Above all, Trish did not want customers to respond to the new program by saying, You mean I have to pay for something I used to get for nothing? If this happened on a wide scale basis, sales could suffer. Instead, she wanted them to delight in their ability to choose from a variety of highend services while concluding, I dont have to pay for what I dont need! It was not at all clear how these communications goals would be achieved.