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How Microsoft is Leveraging Network Dynamics to Increase its Mobile Foothold

Long a dominant market leader in computer software due to its Windows operating system and Office software, Microsoft has struggled to gain a similar foothold in the mobile space. Its Windows Phone operating system has lagged behind Google’s Android and Apple’s iOS, while its Office suite has struggled against a number of different applications optimized for the mobile platform, like Dropbox, Evernote, and Google Docs. In particular, Microsoft’s relative late entry into the market for products like OneDrive and Office Mobile has set it behind its competitors. An analysis of network dynamics provides some insights into how Microsoft can begin to penetrate this market.

As part of CEO Satya Nadella’s new focus on the mobile platform, Microsoft has embarked on an aggressive campaign to educate and convert consumers to its mobile products. In the case of Office, Microsoft has recently decided to make the mobile version of its popular productivity suite free to users on both iOS and Android. This is a smart strategy designed to exploit information-based network effects. Because Microsoft had been initially slow to enter the mobile space, customers on those platforms had already adopted applications like Polaris Office and Evernote. For Microsoft to disrupt that existing dynamic with Office Mobile, it needed to entice customers to switch by making Office Mobile free to incentivize them to at least try using the application. The hope is that once they have tried the application, they will communicate the benefits to others. Enough positive reviews about the application can generate an information cascade that causes other users to adopt Office Mobile.

Direct benefit network effects are also in play here, especially when considering one of Microsoft’s largest rivals in productivity software, Google Docs. Because Google Docs is free, provides real-time sync for multiple users editing the same document, and is already integrated into the Android operating system, it has gained a large user base. Microsoft, however, has an interest in maximizing the number of users of its software. Direct network effects play a role because the more people that use Microsoft’s services like OneDrive or Office and exclusive file formats like .docx and .pptx, the greater the benefit it is for others to use those formats and services for the purpose of sharing and inter-compatibility. Microsoft’s historical dominance with Office has allowed it to continue to retain dominant market share, at least amongst users of traditional PCs and computers, but it is possible that if Google Docs gains a critical mass of users, enough to reach and surpass the tipping point in the market, it could rapidly gain a dominant market share at the expense of Microsoft. Microsoft’s move to make Office Mobile free, therefore, seems at least partially intended to ensure that this does not happen.

Making Office Mobile free on both Android and iOS is an interesting decision considering that both are rivals to Microsoft’s own Windows Phone operating system. When analyzing the network of smartphone users, however, that is not surprising. Android and iOS have near total control of the smartphone market, accounting for 93.9% market share in the United States, and represent two highly dense clusters that are difficult for relatively new innovations, like Windows Phone, to break into. For Microsoft to attract users within that network, it must seek to “seed” customers who are already in the network and convince them to adopt Windows Phone. By taking parts of the Windows Phone bundle like Office Mobile and offering it free to customers of Android and iOS, Microsoft hopes to convince members within those dense clusters to adopt by increasing observability and trial-ability, in the hopes that it will eventually lead to a cascade of adoptions.

Microsoft’s recent move to make its office software free on mobile devices is thus a clever attempt at leveraging network effects to increase adoption of its mobile products. The company’s late entry into the market has left it with little market share and long odds in rising to the top. However, the theory of network cascades show that given the right circumstances, new technologies can break into entrenched markets. This announcement by Microsoft is a good start.




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November 2014