1. Growth Strategy
Core Section F
Dakota Lamb
Isaac Burgess
Cole Johnston
Connor Todd
Jimmy Lucas
My-Loc Nguyen

2. Table of Contents
Executive Summary……………………………………………………………………………….
Situation Analysis…………………………………………………………………………………
Company…………………………………………………………………………………………...
• Who is Microsoft?..................................................................................................................
• Corporate goals……………………………………………………………………………..
• SWOT Analysis…………………………………………………………………………….
§ Strengths……………………………………………………………………
§ Weaknesses…………………………………………………………………
§ Opportunities……………………………………………………………….
§ Threats………………………………………………………………………
• Organizational Structure……………………………………………………………………
• Capabilities and Processes………………………………………………………………….
• Industry Environment………………………………………………………………………
Customers………………………………………………………………………………………….
• Who are they?........................................................................................................................
• Changes in Behavior, Attitudes, Composition of the Customer Base?.................................
• What are They Purchasing from Microsoft?..........................................................................
• Why are They Buying Microsoft Products?..........................................................................
• Order Qualifying and Order Winning Characteristics……………………………...............
Context……………………………………………………………………………………………..
• Industry……………………………………………………………………………………..
• Economic…………………………………………………………………………...............
• Technological……………………………………………………………………………….
• Societal……………………………………………………………………………...............
• Legal……………………………………………………………………………… ……….
Competitors……………………………………………………………………………………......
• SWOT Analysis: Apple Inc………………………………………………...........................
o Strengths, Weakness, Opportunities, Threats………………………………………
• SWOT Analysis: Google….………………………………………………..........................
o Strengths, Weakness, Opportunities, Threats……………………………................
• SWOT Analysis: Sony…….………………………………………………..........................
o Strengths, Weakness, Opportunities, Threats………………………………………
• Competitive Advantage…………………………………………………………………….
• Financial Ratio Analysis of Microsoft and Competitors…………………………………...

3. Collaborators………………………………………………………………………………………
Growth strategy…………………………………………………………………………………...
• Goals/Objectives……………………………………………………………………………
• Segmentation………………………………………………………………………………..
• Targeting……………………………………………………………………………………
• Positioning………………………………………………………………………………….
Strategy Execution……………………………………………………………………………….
• Product……………………………………………………………………………………...
o Goals………………………………………………………………………..............
o Features, Reliability, Service Ability, Aesthetics, Performance Measures...............
o Detailed Description of Product…………………………………………………….
o Process……………………………………………………………………...............
o Constraint Identification……………………………………………………………
o Lean Application……………………………………………………………………
o Components and Outsourcing………………………………………………………
o Life Cycle Stage…………………………………………………………………….
o Complementary Services/Warranties……………………………………………….
§ Place………………………………………………………………………………………...
o Goals………………………………………………………………………..............
o Market Exposure……………………………………………………………………
o Channels Used……………………………………………………………………...
o Supply Chain System…………………………………………………………….....
• Promotion…………………………………………………………………………………...
o Goals and Promotional Blend
Price………………………………………………………………………………………………...
• Goals
• Value Proposition and Customer Price Sensitivity
• Pricing Strategy
• Breakeven Analysis
• Capital Budgeting Analysis: NPV & IRR
Implementation and control……………………………………………………………………...
• Timing and implementation activities……………………………………………...............
• Sales Estimates……………………………………………………………………………...
• Break Even Analysis………………………………………………………………………..
• Scenario Analysis and Discussion………………………………………...………………..
• Sensitivity Analysis and Discussion………………………………………………………..
Conclusions………………………………………………………………………………………...

4. Executive Summary
Microsoft is an ever changing company, doing its best to compete in the ever
expanding technology market. To help expand and gain market share in the technology
market, our team looked into Microsoft’s Xbox console gaming. Under our investigation
we deemed that expanding this segment would be the most profitable due to our lack of
sales over the years. We have estimated Microsoft to have a 30% market share,
meaning a lot of potential growth with our new products. Our team came up with the
idea of creating the Xbox 720, along with optional hardware upgrade that customers can
purchase. This is the first time that console gaming was given the chance to do
aftermarket upgrades rather than just the standard OEM. Since Microsoft has previously
manufactured Xbox’s in the past the research and development costs would be our
biggest expense to give our customers the newest aftermarket products.

5. Situation Analysis
Who is Microsoft?
Founded in 1975, Microsoft is one of the largest technology companies in the
world. Making its start as a software company, it has since grown to encompass a wide
array of products and services ranging from mobile and gaming hardware, to operating
systems and cloud computing services. Microsoft’s biggest contributions to the tech
world are its series of Windows operating systems, which have been widely adapted in
the business world and at home, as well as the Microsoft Office suite which has become
the gold standard in productivity software.
The biggest factor that sets Microsoft apart from most other tech companies lies
in its sheer size. While most other technology companies have to focus their efforts on
specific, sometimes niche segments of the developing tech world, Microsoft has the
ability to cover a lot of ground and innovate on many different fronts.
Corporate Goals
Microsoft’s vision has expanded and evolved alongside the ever-growing
technology world. As computing technology grew in its capabilities and permeated
everyone’s lives, Microsoft has shifted its aims accordingly. The classic Microsoft

6. mission statement which read: “A PC in every household and every home,” has become
greater in scope and far less specific: “Empower every person and every organization
on the planet to achieve more.”
The company has set forth very explicit goals in terms of the direction they wish
to steer their research and development. The three areas they wish to advance their
efforts are: (1) to reinvent productivity and business processes, (2) to build the
intelligent cloud platform, and (3) to create more personal computing. Some of the
specific technologies they are currently working towards to reach these goals include
augmented reality holograms, cross-device operating systems using cloud computing,
and machine learning.
Situation Analysis
Strengths
Microsoft has been a powerhouse in personal computing since the 1980’s, which
has given the company a lot of time to grow into a large, diverse technology company. A
major plus for Microsoft is that its Windows operating system. According to an “Extreme
Tech article, the author “Hruska” states Microsoft is experiencing a recent decline in
market share, is still the operating system on roughly 90% of all computers in use.
Along those lines, Microsoft Office is boasting an impressive subscriber base of 23.1
Million. In the gaming realm, the Xbox gaming consoles remains incredibly popular,

7. being one of the top three dominant console gaming platforms in the market. These are
all areas that Microsoft excels at and they help maintain the positive perception that the
brand represents quality and excellence.
Microsoft has also seen significant changes in their financial outlook due to a
change in focus from mobile phones to service based platforms such as Cloud
Computing. This change has brought the service revenue share up to 10% of total
revenue, resulting in a cost of revenue decrease of $250 million (a 1% reduction). Other
improvements in the financials include a decrease in sales and marketing expenses by
$1.0 Billion (or 6%). The positive direction the company is moving in shows that they are
adapting to the current technology market and successfully making their processes
more efficient (Microsoft, 2016).
Success in the technology industry is highly dependent a firm’s ability to stay on
top of changing trends in the market and being able to stay on the cutting edge of
product development. While most young startups and smaller firms have to fund
research and development with large amounts of debt, Microsoft is able to fund its new
development with the substantial revenues it pulls in from its cash cows (Windows and
Office). Microsoft’s R&D budget is an impressive 14% of its revenue (equal to roughly
$12 Billion), which is an immense pool of cash to fund research into the newest and
greatest technologies (Microsoft, 2016).

8. Weaknesses
When it comes to personal computers, Microsoft has always been compared to
its largest competitor, Apple. The key difference between the two companies is that
Apple has always released fully vertically integrated products, meaning both the
hardware and software of the devices are made together to work together. Microsoft, on
the other hand, has placed its focus on creating open software that can be utilized by
hardware made by virtually anyone. While this approach has been wildly successful in
capturing a large market share, it seems to have damaged the reputation of the
operating system. Microsoft just licenses its software to hardware makers, meaning they
have to control over the quality of those devices. When low quality computers are
released with Windows it is common for the public to place the blame on Windows and
not the OEM. This places a burden on the public perception of Windows and Microsoft
that is difficult for the company to shake.
Although Microsoft is primarily a software company, it has evolved to incorporate
some vertically integrated platforms as well. The most popular of Microsoft’s vertically
integrated products are the Xbox consoles, which have been doing well for years. The
company’s more recent attempt to create a competitor to Apple’s iPad and MacBook
products have failed to meet expectations. The worst failure on Microsoft’s part in terms
of vertically integrated devices comes in the form of its mobile phones. After expensive
acquisitions and an attempt to elbow its way into the crowded mobile phone market,

9. Microsoft found itself unable to generate interest in its devices and sales were poor.
Although the company has decided to steer away from the phone market, the failed
attempt proved to be extremely costly.
On the software side, Microsoft has been struggling to develop an “App
Marketplace” to compete with the well-established “App Store” by Apple and the
“Google Play” store found on Android devices. Microsoft is caught in a vicious cycle
where developers don’t want to create software for the marketplace because nobody
uses it while a lack of interest in the market exists since the app selection is far too
sparse. Microsoft has been trying to get its marketplace off the ground for years now but
it remains largely unused.
Opportunities
Microsoft has quite a few opportunities that seem to be valid ways to grow its
business. The company has already started working on cloud-based platforms which
have been tremendously successful. By expanding the capabilities of cloud software,
Microsoft may be able to capture much of the growing market for internet based
storage.
The internet of things has been a concept that has become more feasible as
each year passes and technology capabilities grow. The internet of things essentially is
the concept that all the devices in a household - such as the thermostat, the refrigerator,

10. the lighting, etc. - are all connected online and can communicate together to create a
network of data exchange. This concept allows for automation within the home and can
create a unique way for technology to alter the way mundane tasks are performed. At
the moment, the internet of things hasn't truly found a way into the average consumer’s
life, but Microsoft can take the time before it becomes mainstream to develop an
ecosystem for these devices to operate in. An investment in the internet of things may
prove to be lucrative in the coming years.
As mentioned before, vertical integration is a great way to ensure quality in a
brand. By controlling both the hardware and software side of things, creating a product
that works well to present a seamless experience becomes much easier. While there
are a few devices Microsoft has that follow this approach, an expansion of the vertical
integration strategy could improve the quality of the brand. Between continuing to
release game consoles, to releasing premium laptops and desktop computers, Microsoft
has the ability to expand its market share wishing the hardware business.
Threats
There are many threats to Microsoft’s business that could harm the company’s
reputation and financial success. While the company is seeing success in its growing
software services, the threat of cyber-attacks grows just as quickly. With servers full of

11. vital data such as important documents and credit card numbers, the damage that a
cyber-attack could inflict is extremely substantial (Microsoft, 2016).
Another threat to Microsoft’s business is the risk of investment. The capital
required to do proper R&D is large and the company can’t afford not to invest in new
technologies. The biggest issue with this is that the technology market is extremely
volatile and speculative. Putting money into one technology or another can turn out to
be very damaging if the given product or service doesn’t take off.
The current trend in computing is a move away from personal computers to
mobile devices. This poses a threat to Microsoft because it means that many of the
tasks that used to be done on Windows can now be performed on mobile devices.
Since Microsoft hasn’t been able to successfully crack the mobile market, they are
losing ground in that way. Another issue is the presence of free, open source operating
systems that can do many of the same tasks as Windows. Systems such as Linux,
which the Android system is based on, are attracting a portion of potential Windows
users for a host of reasons.
The most popular device that Microsoft creates, the Xbox, has been facing some
troubles. Although it still sells well and is one of the most popular devices on the market,
its sales in comparison to its competitor are not good at all. Sony’s Playstation has
outsold Xbox two to one as of recently, which clearly isn’t where Microsoft wants to be.

12. The implications of this statistic could be detrimental to the platform. Developers want to
create games for the best platforms, which means that Playstation could win exclusive
rights to games in the next console generation, which would create an even greater gap
between sales in the two companies.
Organizational Structure
Microsoft focuses on product innovation and development which helps shape
their organizational structure; a product type division structure. This type of structure
groups personnel by product or output. Microsoft’s goal in this was to create a horizontal
structure to make it easy to share ideas and enhance the communication with top
management. Some of the different divisions are productivity and business processes,
intelligent cloud, personal computing and corporate.
Each division is in charge of a different set of products and from there, each
division is broken down even further by global corporate groups. These groups include;
office of the CEO, marketing, finance, business development, Windows, devices group,
and much more. One advantage to this type of structure is the competitiveness of
Microsoft’s products externally and internally. Another advantage of having this
horizontal structure is the empowerment of each different department. Instead of any
given department being higher in the hierarchy, each sector is valued the same, which
allows for easier communication and boosts loyalty to the company at large.

13. A disadvantage to this organizational structure is the regional aspect of the
company. Different regions may prefer different hardware and software and the product
type structure hinders their ability to effectively take that into account.
Organizational Structure
Satya Nadella
Chief Executive Officer
Satya Nadella is Chief Executive Officer of Microsoft. Before being named CEO in
February 2014, Nadella held leadership roles in both enterprise and consumer
businesses across the company. (Microsoft, 2016).

14. William(Bill) Gates
William (Bill) H. Gates is founder, technology advisor and board member of Microsoft
Corporation, the worldwide leader in software, services and solutions that help people
and businesses realize their full potential. He served as chairman of the board until
Feb. 4, 2014. (Microsoft, 2016).
Amy Hood
Executive Vice President and Chief Financial Officer
As chief financial officer, Amy Hood is responsible for leading Microsoft’s worldwide
finance organization, including acquisitions, treasury activities, tax planning, accounting
and reporting, and internal audit and investor relations (Microsoft, 2016).
Kathleen Hogan
Executive Vice President, Human Resources
As the executive vice president of Human Resources at Microsoft, Kathleen Hogan is
responsible for pushing the company’s cultural transformation forward so it can thrive in
a mobile-first, cloud-first world (Microsoft, 2016).

15. Jean Philippe Courtois
Executive Vice President and President, Microsoft Global Sales, Marketing and
Operations
As executive vice president and president, Microsoft Global Sales, Marketing and
Operations, Jean-Philippe Courtois leads global sales, marketing and services for 122
subsidiaries worldwide, driving strategic planning, running global operations and
shaping growth initiatives both in developed and emerging markets. He has spent time
with customers, partners and Microsoft employees in countries across the globe
providing a rich perspective on what it takes to drive customer and partner success
(Microsoft, 2016).
Kurt DelBene
Executive Vice President, Corporate Strategy and Operations
Kurt DelBene is the executive vice president of Corporate Strategy and Operations,
leading the company’s cross-engineering and cross-business strategy, execution and
planning initiatives as well as Microsoft’s IT and operations (Microsoft, 2016).
Processes and Capabilities

16. Microsoft’s hardware development is almost entirely handled through third-party
contract manufacturers that are easily replaced if production is halted for any reason or
if the company decides it is no longer in its best interest to work with that manufacturer.
Microsoft does handle the operation of some of its mobile phone creation through
manufacturing facilities in Vietnam. At the moment, these are the only facilities under
their operation.
Microsoft’s claim to have a flexibility with its third-party manufacturers proves to
be beneficial because it allows firms to compete for the best value in production while
simultaneously keeping costs down for Microsoft since it doesn’t have to manage its
own facilities.
A large portion of Microsoft’s processes lie before the production or release of its
flagship products. Research and development lies at the core of what keeps Microsoft
current and functioning. In the past three years, Microsoft has budgeted between $11
and $12 billion for R&D equaling about 13% of revenue each year. With these funds,
there are three major groups in which development is focused around: (1) the
Applications and Services Engineering Group, (2) the Cloud and Enterprise Engineering
Group, and (3) the Windows and Devices Engineering Group.
While most R&D for Microsoft is conducted in facilities located in Redmond,
Washington, there are development projects for the tech company across the world.
This global reach allows people of different cultures and backgrounds to develop ideas

17. with a fresh perspective and it also allows Microsoft to employ top talent from different
markets that are unavailable in the United States.
Most of Microsoft’s software is distributed through OEM’s via pre-installed
software packages in new computers. With the company’s new focus on online, cloud
based solutions, the internet has become an increasingly important space to grow sales
and distribute access to the services provided.
Industry Environment
The technology industry has become incredibly volatile and unpredictable in
recent years, which puts Microsoft in a position where it must be careful to follow trends
in computing without misjudging where to invest. Microsoft’s biggest competitors in the
market are Apple, Google and Sony. Apple and Google pose the biggest threat to
Microsoft’s computer and software business, while Sony is the biggest competitor to the
gaming side of things. The computer and computer software industry used to have far
fewer players, creating less competition, but as the years have gone by, more computer
and software companies have been created. There are now always options and
alternatives to each piece of software that is realized and many times it is free and open
source. These factors make the technology industry highly competitive.
Customers
Who Are They?

18. Microsoft splits its consumer segments into four main categories. Productives,
Connectors, Media Centrics, and Mavens. Productives are the more business or work
oriented users who want Microsoft’s products to help them stay organized and
accomplish their work. This is a large portion of the professional users and likely will be
the ones that make up the professional segment of the population. Connectors are a far
more casual user base. They use less intensive hardware to accomplish their tasks and
use Microsoft’s products to build networks and keep friend groups or communities
informed and connected. Media Centrics are another group of heavy users. They tend
to need higher end computing power because they need it to develop their photos,
videos, and other forms of media. These may be professionals or armatures, but they all
need Microsoft’s products and services to get their work done. Lastly, Mavens are
highly driven by the latest and greatest. They always want the best technology and are
not afraid to spend a little more for it. (Microsoft, 2016)
Changes in Behavior, Attitudes, Composition of Customer Base
For every company there is always a slight change in customer attitudes and
behavior. Microsoft’s customer base has changed slightly due with its advertising in the
NFL. Microsoft has pulled a high number of customers with high interests in sports due
to this. One of the latest trend with Microsoft customers is that they tend to want the
newest and latest technology. Consumers are getting more and more dependent on

19. technology in recent years, so these means a higher consumption rate of computers,
tablets, etc.
What are They Purchasing from Microsoft?
Microsoft customers purchase a variety of products and services, ranging from
operating systems to mobile hardware. Some of the products created by Microsoft
include the Windows operating system and hardware including the Xbox series, a
plethora of Windows Phones, and a series of premium Tablets, laptops, and desktop
computers. Customers also purchase a range of services such as Microsoft Office 365,
Xbox Live, and various cloud services.
Why are They Buying Microsoft Products?
Customers buy Microsoft product for a variety of reasons. Microsoft is a classic
technology company and the recognition of this brand goes a long way to drive sales.
Part of this brand recognition has to do with the fact that most people have used a
Windows device and know how to operate it. It is the industry standard for operating
systems and the familiarity of the products keep customers around. For the more
advanced users, the ability to customize and openly tinker with some of the deeper
functions of the system are invaluable for their use of the technology. As for the
Microsoft Office platform, the productivity software simply works, which drives people to
use it over other software suites. While it may not offer some features such as the ability

20. for multiple people to edit a document simultaneously, the suite is often regarded as the
highest quality and many don’t choose to use any of its alternatives.
Order Qualifying and Order Winning Characteristics
There are several reasons why customers consider buying Microsoft products
and services. One of the factors that make Microsoft a contender is that it offers a
functional, easy to use operating system. While it isn’t the only option, it certainly
competes strongly with the alternatives. Another factor is the availability of its products.
Whether the consumer is looking for an Xbox 720 or a Windows computer, the array of
retail different locations where Microsoft’s products can be found is vast.
The factors that make consumers buy Microsoft over its competitors are similar.
The capability of Microsoft’s software to be used on a wide variety of devices allows a
multitude of manufacturers to create hardware that appeals to those who want to save
as much money as possible, as well as those who want the best of the best. Alongside
the wide selection of hardware, there is also an extensive amount of software available
for the platform. Nearly every piece of software that is available can run on Windows
machines. Generally, Windows computers are less expensive to use. For the same
technical specifications as its competitors, Windows devices tend to cost less. Gaming
is also a big plus for Microsoft customers. Alongside consoles like the Xbox 720,
Microsoft also created the most used video game platform on the market.

21. Context
Industry
One of the biggest trends in computing is the increasing demand for mobility in
computing. Many tasks have shifted their use from desktop computers, to laptop
computers, to mobile devices such as tablets or phones. Since these devices have seen
such a leap in computing power, it makes sense that users would prefer a device that
can do all the required tasks while still having the option to operate on the go.
The rise in cloud computing has fundamentally changed how many products or
services work. By using cloud computing, things such as data storage, which used to be
provided as physical products, can now be turned into a service. By using central
computing that is accessed via the internet, firms such as Microsoft can now simply
charge a rate to store data as opposed to allowing third parties to manufacture hard
drives and related devices. Consumers also benefit by being able to access all their files
no matter where they are in the world.
On a similar note, the general shift to subscription services has swept the
technology world. Services like Netflix, Spotify, and Adobe Creative Cloud are all ways
that traditional software or product companies can generate cash by allowing monthly
installments of payments instead of charging an upfront cost for ownership. For

22. companies like Adobe with their Creative Cloud, or Microsoft with Office 365,
subscriptions services can be delivered to introductory level professionals or
organizations in order to keep costs down. Instead of paying hundreds or thousands of
dollars for a software suite, an individual can just pay the subscription and work as they
go.
Economic
The Millennial group, which has largely grown up around technologies such as
the internet and video games, has recently become the largest generation in the labor
force. This means that those which are most familiar with Microsoft’s products will be
seeing a raise in purchasing power (FRY, 2016).
The ability to acquire talent in the technology industry is vital to staying on top of
demand for new products and services. The pool of talent that Microsoft can dip into is
massive and part of its strategy involves attracting talent from both universities and
established industry players alike. Microsoft’s talent pool is worldwide, meaning it tries
to attract the best of the best from all over the world (Microsoft, 2016).
Like the acquisition of talent, Microsoft’s operations are also worldwide. A
significant portion of its revenues come from overseas, which means the company has

23. to factor in exchange rates. The strengthening of the U.S. dollar has had a negative
impact on reported revenue from international operations (Microsoft, 2016).
Technological:
Tech is reaching and ever increasing number of aspects of everyone’s lives
which makes it possible to create more solutions for everyday needs. With the cloud
computing/cloud sharing industry still on the rise, Microsoft is still trying to gain some
market competition in that segment. As of right now, Microsoft is tied in a three way tie
with IBM and Google for the number two spot in the cloud computing/sharing right after
Amazon who has around 31% (Shields, 2016). Microsoft is also looking to combined
both the Xbox 720 platform and the Windows platform for gaming, that way it will help
reduce development costs, and maintenance costs in the future. Then being on the
same platform, hardware items could be universal between both devices, a computer
and also the Xbox 720, that way you can always want to upgrade if wanted.
Societal:
Greater focus on Work-life balance creates an opportunity for Microsoft to
capitalize on more entertainment focused products to fill the time spent not working.
Also, greater productivity while working could make work time decrease, emphasizing
the desire for work life balance

24. Microsoft being the technological giant they are, have many different operations, from
the everyday work computers, to the at home personal for web-surfing, to the Xbox, and
even then gaming computers. Seeing how it is easy to link your work computer to your
home computer by using Microsoft Office, you could enjoy the day from working at
home and seeing the time is well spent. Microsoft has helped with the work/life balance,
because not all work has to follow you home. Even when you are at home, there are
other activities that you can do, like the app store, or using the Xbox.
Seeing how that Microsoft is one of the most widely used computer operating
systems, parts for the hardware are cheaper and easier to find. Meaning that the people
that are really into gaming can effectively find the parts they want hopefully fast and
easy.
Microsoft just signed a deal with an energy company to make buy clean energy
over a long period of time. This is happening in Cheyenne, Wyoming. The energy is
going to be used to help supply the cloud computing sites there, and just like Facebook,
Amazon, and Google, these facilities require a lot of energy to power so finding a clean
renewable source is always good publicity (Darrow, 2016).
Legal

25. Regulation and government influence on privacy is a big deal to many
consumers. The legality of privacy protection is a battle that is currently being waged
upon tech businesses.
Software theft and illicit downloads pose a threat to traditional software releases,
difficult to regulate.
“...it will remain important for those in government and the tech sector to continue to
work together to strike a balance that protects privacy and public safety in what remains
a dangerous time. As this election demonstrated, technology now plays a ubiquitous
role in our daily lives. But people will not use technology they do not trust.
We’re committed to developing technology that is secure and trusted, both for
Americans and for people around the world. We literally have thousands of employees
who make this their focus and priority. And we know that we’ll benefit from stronger
government policies as well. That’s why we’ve not only advocated for clearer and more
modern U.S. laws, but have filed lawsuits four times in the past three years against the
current administration, standing up for what we believe are the vital rights of people both
here and abroad. As we’ve won the cases we’ve brought, we’ve been reminded of one
of this country’s greatest strengths, its strong Constitution, independent judiciary, and
the overarching rule of law” (Smith, 2016).
“The U.S. Court of Appeals for the Federal Circuit issued an important decision
today, strengthening the law related to software patent eligibility under Section 101 of
the Patent Act. Software technologies are at the center of our economy and playing a

26. role in helping to transform industries in so many fields, including manufacturing, retail
and healthcare. Recently, the federal courts have been grappling with the issue of which
software innovations are eligible for protection under U.S. patent laws in the wake of the
Alice v. CLS Bank decision” (Andersen, 2016)
Competitors
Microsoft, being such a large company, has many competitors spanning many
different areas of the tech industry. We selected three which we feel are its biggest
competitors: Apple, Google, and Sony.
Apple is one of the absolute largest companies in the word. Starting as a
computer business, it has since grown to be known for premium phones, tablets, and
computers. They have built their brand on quality products that are beautifully designed
and very reliable. Apple is likely Microsoft’s closest rival, since they have been at the
forefront of consumer computing for decades.
Google, being the youngest of the four companies, made its start as a search
engine in the late 90’s and has become a behemoth in the technology world. Google
currently has an ever expanding catalog of products and services that it provides to
consumers and businesses. Everything from hardware to productivity software can be
found with a Google logo on it. Google is a force to be reckoned with and Microsoft

27. needs to ensure that the ever-growing list of services provided by Google doesn’t put
the company out of business.
Sony, the final competitor that will be assessed in relation to Microsoft, is a
Japanese technology company that is known for producing consumer electronics
ranging from Televisions to audio equipment. One of its biggest and most influential
contributions to technology are its PlayStation video game systems. PlayStation has
been one of the biggest video game consoles ever to be released, which is in direct
competition with Microsoft’s Xbox system.
SWOT Analysis: Apple Inc.
Strengths
Apple has three main strengths. One strength is their brand name. Apple is one
of the most valuable brands in the world. This makes it easier to win over customers

28. with new products and helps retain customers. Another strength of Apple is their
premium pricing, which comes with high-profit margins. This is a major strength
because it creates flexibility for their firm to adjust prices while maintaining high profits.
Another strength of Apple is their ability to rapidly innovate. This allows them to keep up
with the latest technologies and ensure competitive advantage.
Weakness
Apple’s market reach is relatively limited because they are more selective than
other brands in terms of where their products can be sold. While not necessarily hard to
get, Apple products do tend to be a little more exclusive than other brands. Another
weakness lies in the high pricing. While it is in some instances recognized as a strength
of theirs, a large segment of the market is simply priced out when it comes to their
products and are forced to give their business to Apple’s competitors. Also, some
missteps have cost the company in the past, like when they attempted an economy
product called the iPhone 5C that was considerably less expensive to capture the lower
class but was not successful.
Opportunities
Apple has two main opportunities. One opportunity is market-share growth. Apple
currently has about 20% of the market share for global PC/tablet. They have been

29. working on gaining ground in China and other countries in Asia, this will give them an
even bigger piece of the pie. Another opportunity for Apple’s firm is acquiring and or
joining other companies. One of Apple’s largest deals came from Beat Electronics. The
up-and-coming music properties that Beats brings to the table will be a nice
complement to Apple’s other products such as iTunes radio service.
Threats
Apple’s main threat is competition. Technology is continuously changing and to
be on top of the latest and greatest technologies can be hard for companies. With many
foreign companies entering the market, Apple’s high priced products may start to suffer
as these other companies fight for market share with low prices (SMITHSON, 2016).
SWOT Analysis: Google
Strengths

30. Google has dominance in two main categories: web search, and online
advertising. One of Google’s main sources of revenue is its advertising. They advertise
through many channels such as AdSense and YouTube. Through their digital
advertising, they gain consumer information such as shopping habits. This gives them a
competitive advantage and allows them to continuously alter their advertising strategies
to align them with the current advertising trends. Web search is another strength for
Google. Google Search is the company’s search engine which is the most used search
engine in the world.
Weakness
Reliance on secrecy is one of Google’s weaknesses. Google does not reveal the
algorithm they use for their search engine, which has given them bad publicity. Experts
have been slamming the company for this, which is why they have made steps to
provide a bare bone version of its system. Another weakness is the over-dependence
on advertising. Since Google’s main form of revenue is digital advertising, if the market
changes and this way of advertisement decreases in value then Google will lose much
of its revenue and have to change the fundamental way it creates revenues.
Opportunities
One of Google’s biggest opportunities lies in the Android Operating System. It
has become a direct competitor with Apple. Another opportunity for Google is their
Google Glass device. They are taking big steps toward the emerging world of Nano-
computing.

31. Threats
Social media such as Facebook has posed a large threat to Google. Facebook
and other social media sites are increasing their features and incorporating digital ads
within those features. This is hindering Google’s dominance in the digital ad business
(MSG, 2016).
SWOT Analysis: Sony
Strengths
Sony’s brand is one of their biggest strengths. They have built a brand that is
recognized all over the world. In 2011 their brand was surveyed as Asia’s most valued
brand (WEXLER, 2016). They have also been involved with many groundbreaking
technologies such as the Trinitron Color television, VCR, and Blu-Ray disc. These
advancements give Sony a strong reputation. Another strength of Sony is their gaming
console, Playstation. A product that has been successful since 1994 and still sees
tremendous consumer demand.

32. Weakness
Sony is in the business of electronics, which covers a large range of products.
With the company focusing on so many products it can be hard to stay on top of the
technological advances for all them. For this reason, Sony has been losing market
share in the television market to LG and market share in the phone industry to
Samsung.
Opportunities
Sony is developing a plan called the four screens strategy. This will comprise of
the same standard platform for all televisions, computers, smartphones, and tablets.
This will run costs way down and allow them to focus on less operating platforms.
Another opportunity is the healthcare-imaging sector. They are coming up with new
ideas and products in the healthcare industry.
Threats
Price competition from competitors such as Samsung and LG are gaining market
share with low price products. Another threat is the Apple TV. Since Apple is not yet in
the television market this product can severely hurt Sony because of Apple’s brand
name (Fatakia, 2016).

33. Competitive Advantage
Microsoft, being one of the largest and most successful companies in the world
has many competitive advantages that allow for such massive success. The first thing
that Microsoft does well is it has great human resource management. The company
ensures that they not only recruit the most qualified applicants, but also spend a lot of
time and money into training their current employees. “Talented employees are sourced
from diversified backgrounds in order to create the highly multicultural workplace that
Microsoft has. Additionally, Microsoft also uses huge amounts of resources in training
the staffs” (LinkedIn, 2016).
The second advantage that helps the company to grow is its employee retention.
Maintaining the employees that have been crafting and developing cutting edge
products over decades allows the company to stay consistent in quality. “Over time
Microsoft has been able to improve its services and the quality of products and this has
made it retain the huge clientele it has captured” (LinkedIn, 2016).
The third most effective competitive advantage is the ubiquity of the company’s
service. Most computers that the consumers utilize already have Microsoft Windows
software. “Many personal computers come already installed with the standardized
Microsoft Windows software. This is a competitive advantage that Microsoft has
exploited against over the years. The fact that not every company has software this
popular makes Microsoft stand out” (LinkedIn, 2016). Microsoft uses its brand

34. recognition and enormous size to utilize its competitive advantages to grow its
company.
Financial Ratio Analysis
Comparison: Sony
Collaborators

35. Our customers are going to be our number one collaborator, because they will
give us the feedback to see if they like the product or not. Also, the customers will give
us suggestions on what products need to be modified to meet different expectations
because after all it will be their money that is being spent on the product.
Microsoft will also need to heavily rely on its marketing team along with many
different types of news media for the upcoming launches of new technology that
Microsoft will be launching every year. This is relevant because that way we show that
we have been updating our technology over the past year to give our customers the
best gaming experiences available to them.
AMD, Samsung, Sk Hynix, Texas Instruments, Mediatek, Seagate, Delta, and
many more are our suppliers just for all Xbox’s, old and new. Now for the component
parts that we plan on reselling for the faster, better graphics, and memory, we would
have to make sure that we buy in bulk quantity. Most of those parts are produced
overseas, and we need to make sure that we get these components on time to make
sure we can resell them as soon as possible for our just-in-time inventory system.
Our main supplier for our CPU and GPU cards for our Xbox’s is AMD, which we
plan on doing a co-venture, with the research and development of new hardware that
we can sell as an upgrade kit every year. This is will be our primary focus, our
secondary focus will be with Samsung and Sk Hynix. Samsung and Sk Hynix are our

36. supplier of flash and random access memory, which we will do a little research and
development with them.
Growth Strategy
For our growth strategy, we are aiming our sights towards the gaming industry.
We propose that Microsoft employs a Product Development strategy to expand their
Xbox 720 platform beyond its current capabilities. A Product Development Strategy
entails taking a new product and targeting it mainly towards the market that is already
being serviced. We believe that the console gaming industry is antiquated and is in
need of a systematic change to allow gaming to reach its full potential on the platform.
The console video game industry functions mostly in the same way it has since
the mid-eighties: A video game system, like the Nintendo Game Cube or the Sony
Playstation, is released to the public with the capability to play the newest and most
advanced games. That game console is replaced in five to seven years with the newest

37. “generation” of the console, which is full of the latest and greatest technologies, then the
cycle repeats.
This model of infrequent system releases appears to stem from a time that saw
far slower development in computer and graphic technologies. Technology
advancement has been growing exponentially in the past few decades, which is making
this model seem less and less practical.
PC gaming has always been ahead of console gaming in nearly every aspect
since the beginning. While console gaming was simple and accessible, the PC gaming
realm has always been on the cutting edge of technology and user customization. A PC
gamer can build a gaming computer from scratch with all the newest hardware and play
games that consoles are not capable of running on their system. PC gamers also have
the ability to swap out hardware components that have become obsolete so they don’t
lose the ability to play the newest games.
The issue with the PC model is that the barriers of entry are far too high for all
but the most hardcore gamers. Buying a PC that has been created ground-up for
gaming costs an inordinate amount of money - beyond the budget of many who are just
looking to game in moderation. The ability to “DIY” build a rig is always available as
well, but there is certainly a level of expertise that is required to build a gaming machine
that most are not willing to reach just to play video games.

38. The “big three” console gaming companies (Nintendo, Sony, Microsoft) have
done little to nothing to adapt to the fast-changing level of computer graphics
technology. PC gaming has been crushing the competition because, unlike the consoles
which have to wait nearly a decade before they can upgrade their capabilities, PC
updates are constant and fluid.
The only way the console manufacturers have made an attempt to catch up to
the PC gaming standard have been in the form of “second edition consoles” that are
released roughly halfway through the console’s life cycle. These come in the form of
“slim” editions of the previous console, which typically provide a slightly smaller physical
profile, noise and heat reductions, and sometimes, slight upgrades to the hardware
specs to make games run a bit smoother. The biggest issue with these versions are that
they are equally as costly as the original console and don’t really bring much new to the
table.
Proposed Solution
Essentially, the problem of obsolescence in console gaming can be eliminated
through a Modular Console Platform. Modular design is essentially the subdivision of a
computer’s components (Hard Drive, CPU, Graphics Cards…) into bits that can be
moved, rearranged and interchanged.

39. In practice, this means that all the hardware components in a gaming console
could be replaced by simply removing a block and replacing it with a new one. Let’s use
a hard drive for example. Say your Xbox 720 needs a new hard drive because you
downloaded too many games to it. In a modular system, all you would need to do is
unplug the hard drive block and place a new hard drive block in. This can work because
computers basically already run in this way. The only difference is that computer
manufacturers have not dedicated the time to making components easy to take out and
replace because most people don’t bother busting open their old computers in the first
place.
There are many angles that need to be considered when determining whether
this could be successful. The first is whether people will understand what all this all
means. It’s understandable that some people will be put off by the phrase “Modular
Gaming Platform,” this is why the system will not be marketed that way. People will
instead buy into the fact that (1) they don't need to fully upgrade their whole system
every few years, (2) they can upgrade as much or as little as they want, and (3) they
don't have to wait as long for upgrades to the system to be able to play what PC gamers
are already enjoying.
The current market of gamers love being able to customize what they buy; it
creates value for everyone involved. The ability to invest bit by bit in their gaming

40. system will lower the barrier of entry for those who might dabble in some more hardcore
gaming and those who are already heavy gamers will appreciate the fact that they can
constantly be on the forefront of gaming technology from the comfort of their living
room.
Other alternatives have been considered to grow Microsoft’s business but we feel
that the Modular Platform is the best direction to move towards. One consideration was
to attempt to enter the emerging home automation field. While this still may be a viable
option for a company such as Microsoft, it doesn’t seem to be directly related to the
work they are already doing so it might stretch beyond their core competencies. We
also considered following in the footsteps of Apple and beginning experimental work on
a new “smart” car. This option seemed to be the most unrealistic because while home
automation is slightly out of Microsoft’s core competencies, the automotive industry is
entirely out of reach. It would also be unrealistically expensive to even attempt to enter
into that field. The last idea we had was to attempt to acquire either Hulu or Netflix and
integrate them into Microsoft’s Ecosystem. The issue with this plan is that if either of the
two companies agreed to be bought by Microsoft, it would be incredibly expensive and
they wouldn’t gain much from being a part of Microsoft since both services are available
through nearly any device. Ultimately, we feel that the modification to the Xbox 720
system is the perfect combination of innovation and familiarity for Microsoft and will
prove to have the highest chance for success.

41. Goals / Objectives
The biggest goal for Microsoft and the new Xbox 720 platform is to regain the
market share lost to Sony in the last console generation. The objective is to either
match or exceed the share in the console market and regain the reputation as the top
video game console.
A second goal is to improve the console performance and allow its tech to
compete with PC gaming. The aim will be to not only compete with the quality of PC
games, but to convert more PC gamers to use our console with its interchangeable
parts.
Segmentation
We have decided to segment our target market by three main categories. The
first category will be based on the amount of consumer usage. Breaking up hardcore
gamers and casual gamers will enable us to better serve their individual needs.
Hardcore gamers are looking for upgrading, modifying, and
building their own systems, whereas casual gamers are
looking for cheaper alternatives.
The second segment is PC gamers and console
gamers. PC gamers have the ability to change many

42. aspects of their gaming experience including a multitude of performance settings as well
as swapping out their computer components in order to best serve their gaming needs.
The third segment is the age group. As the millennial generation has aged, it is
now apparent that the average gamer is a bit older. While those under 18 still make up
nearly a third of all gamers, the average age of those who play video games is 35 years
old. (Essentialfacts.theesa.com/Essential-Facts-2016.PDF)
Targeting
Our target market is 18 to 35-year-old male hardcore console gamers. We want
to regain the market share we lost in the last generation and we believe that focusing on
this target will do the best job of getting us back on track. This age group will be able to
target both hardcore and casual gamers’ needs. This age group includes many which
are not yet in the workforce or are those who do not yet have all that much purchasing
power. These gamers are on a budget and looking for cheaper alternatives while still
being able to maximize their gaming performance. This age group also contains many
of the hardcore gamers who are willing to spend extra money for upgrading their
console.
Positioning

43. As we develop this technology, we are positioning ourselves into a new era of
console gaming. Currently console gaming is limited to what is in the box, or console.
Now, with being able to swap out processors, graphic cards, and other hardware
components, this will draw more people to console gaming.
Some gamers like using the PC because of the customization they can do to
their own computer, and that gives them a sense of pride and enjoyment having an
interaction with their product. This is what we want to do with the Xbox 720. Instead of
just doing a limited edition skin for the Xbox 360 or Xbox One, like Halo or Call of Duty,
these modifications will give the user of the Xbox 720 opportunities to upgrade their
device without having to buy a new console every couple of years when the new model
comes out.
Gamers are going to love being able to fluidly upgrade their console as they
please. A big reason this is a benefit to the customer is due to the great value they get
from it. The choice to upgrade at any given point allows Xbox 720 owners to save their
money if they choose or upgrade at a lower cost than buying a whole new system.
Ease of use is a massively important part of this console. Understanding the
functions of CPU, GPU, and Memory will not be necessary. The components will be
easy to replace and the added value of each of these components will be explained in
plain terms so the consumer will understand why they are upgrading each part.

44. Strategy Execution
Product
Goals
Our main goal for our product it to give gamers the ability to modify their gaming
console as technology increases and components become obsolete. Being able to
easily switch out console components such as hard drive, memory, and graphics will
enable gamers to have the best possible performing console available. If one gamer is
more concerned with amount of games they can save on their console they may choose
to have a larger hard drive versus someone who is interested in having the best graphic
quality will choose a better graphic chip. We want to close the gap of functionality and
performance between PC gaming systems and consoles throughout the consoles life
cycle.
Features
Some features include interchangeable components such as hard drive, flash
memory, CPU, and GPU. Touch censored buttons on face of console, LED lighting to

45. inform users on status of console, sleek design allows for the console to sit horizontal or
vertical.
Reliability
The previous console, Xbox One has a life cycle of about seven years which is
an upgrade from the Xbox 360n whose lifecycle was about six years. We will continue
to extend the lifespan of our consoles. Therefore, we have made the Xbox 720 more
durable giving it a life cycle of nine years.
Service Ability
Microsoft has a one-year manufacturing warranty for all consoles which starts the
same day of the purchase. They have also given a 90-day warranty for all accessories.
Microsoft provides a fast and inexpensive repair service. They make the repair process
easy. By signing in, it will notify you if you have a valid warranty and if it can be applied
to the customer's’ issue. If the warrant has expired, the website lists a range of prices
matched to common repairs. This informs the customer and provides a range of costs
that it will take to repair the console. The next step is shipping the console to the given
repair address. Repairs on average take 14 to 21 days for the Xbox One. We will

46. reduce that time by 4 days for the Xbox 720 making the average repair time 10 to 17
days.
Aesthetics
Xbox 720’s exterior casing consists of two-tone metal gray and glossy gray.
There is a large air vent on the top side of the console. The design was intended to
invoke a more entertainment-oriented and simplified look. Across the top of the console
there is the Xbox logo which is light up with a white LED light giving the console a more
modern look and feel.
Performance Measures
There are many operating and functional errors that could happen when setting
up an Xbox console. Every customer expects our product to work when purchased. Our
quality in the eyes of consumers has been falling short of our competitors, therefore our
goal is to reduce those errors which will allow for better customer satisfaction. For the
Xbox 720 we will be using six sigma which eliminates defects in our production and
processes. Our goal is to implement a process within 1.5 sigma of the target
specification. This means we will only have 3.4 defects per one million units made. For

47. the previous model, the defect rate was roughly 5%. Implementing a stricter process will
reduce that amount significantly.
Detailed Description of Product
Our product, Xbox 720 is a modular console platform that allows the main
components (hard drive, CPU, and graphics cards) to be easily interchangeable as.
This means that any gamer, casual or hardcore can modify their console as technology
increases.
The current Xbox one contains:
● 500 GB hard drive--- 400% increase
● 8 Core AMD CPU
● 800 MHz GPU Clock speed 853----- 7.1% increase
● 8 GB flash memory
The Xbox 720 contains: Base model
● 2 terabyte hard drive
● 10 core AMD CPU
● AMD Radeon RX GPU clock speed 914 MHz
● 12 GB Flash memory
Hard Drive Mods

48. ● 4 TB hard drive
● 6 TB hard Drive
● 8 TB hard Drive
CPU Mods
● 14 core AMD CPU
● Current CPU compared to PC gaming
● “ “
GPU
● 1000 + MHz
● 1250+ MHz
● Keep up with PC gaming
Flash memory Mods
● 18 GB
● 24 GB
We are going to use the current top of the line components for our base model
Xbox 720. Therefore, the base model will contain a two terabyte hard drive, a core 10
AMD CPU, AMD Radeon RX GPU with a clock speed of 914 MHz, and a flash memory
of 12 GB. As technology increases there will be advanced components available and
customers will have the option to choose to upgrade different components of the
console. For example, hard drives, the customer can choose to upgrade to a 4TB hard
drive after a couple years to keep up with, 6 or 8 TB hard drive. For CPU they can

49. choose between 14, 16 and 18 Core AMD. For graphic cards they can choose between
1000+, 1250+ MHz.
Process
The Xbox is composed of around 1,700 parts. The first step to be taken is to buy
the raw materials need to produce the parts in the Xbox. Some of the raw materials are
steel, gold plates, plastic etc. Once these parts are made by any of the 250 plus
manufacturing factories, the parts then have to be labelled and packaged to be sent to
the Xbox factory by truck. If the destination is long ways away then other transportation
methods are used such as ships, trains, and planes. When the parts reach the Xbox
factory, they are unloaded, checked and stored in a place ready for use. When the parts
are needed, they move them to the manufacturing facility to be put together on an
assembly line. Once it comes off the assembly line the finished product is labelled,
checked and packed into its box. The boxes are then placed on pallets moved by
forklifts and stored in a warehouse. Each Xbox is barcoded, labelled, and the address of
the destination is put on the packaging. The Xbox is then packed into a shipping
container at the factory and sent to the container terminal where they will be shipped to
retailers.

50. Constraint Identification
One constraint with on our product is having to have an account set up in order
to play online. This is considered a constraint because not all customers want or are
willing to create an account with particular information such as credit card number,
name, and birthday.
Another constraint of our product would be the plug in factor of the console. In
order for our product to turn on and be used properly the console must be plugged into
an outlet. This is a constraint because customers will not be able to use our product
anywhere they want. They will have to be near an outlet and even in their own home
they might not be able to put the console anywhere they want unless they have a really
long extension cord.
Lean Application
Microsoft does not manufacture their consoles. They have around 250
manufactures competing against one another to produce our product for the best price.
In order to create value and reduce cost we will make the Xbox 720 slimmer and
smaller in dimension compared to the previous Xbox. The research and development of
this change will bring a hefty cost but over time it will save money and this in turn will
reduce costs spent on plastic and other raw materials but also create value for the
customer by making a smaller more compact console which will increase its portability.

51. Components and Outsourcing
Most of our components will be purchased from different vendors from around
the world that specialize in that type of products, i.e. CPU, GPU, flash memory, RAD
memory, and much more. Most of these products will be Outsourced overseas and then
shipped to the main Xbox production center in Singapore. The reason why we are
having majority of our components outsourced, is because these components have
been outsourced for the previous Xbox’s, and we cannot effectively and efficiently buy,
make, and sell all of the components needed to manufacture a whole Xbox.
Life Cycle Stage
Our product is still in the early growth stages. The Xbox is still new, and evolving
from the original, Xbox 360, Xbox One, and now to the Xbox 720. Now each model of
the Xbox has been revamped and reworked to increase the gaming or video watching
experience. With the new Xbox 720, Microsoft is adding a new phenomenon to the
gaming connection by making it easy to swap out different key components.
Complementary Services and Warranties
Warranties are important to a business and its customers. Reason being is that
all products are not made all perfectly. Products break from faulty manufacturing and it’s
the company’s duty to fix their broken product to make their customers satisfied. When

52. purchasing an Xbox 720, it will come with a one-year warranty from day of purchase.
For complementary services, if a customer pre orders an Xbox 720, they will receive
one free year of a “Xbox Live” subscription.
Place
Goals
With the introduction of the newly designed gaming console, we believe that the
existing customers of gaming consoles will return to the same places they previously
purchased their console at to pick up our newly designed version. Places such as
GameStop, BestBuy, and many retailers have been carrying gaming consoles for years
so by choosing to stay at these locations we will pick up our customers from the already
existing gaming world. An added bonus, is that on our website, you we have the ability
to completely customize your console to whatever specifications you choose, we want
you to tell us what you want, not the other way around. With the ability of changing out
pieces of the console, the customization will allow you choose from a more basic and
cost effective option, or a higher end more expensive version for the more intense
gamer.
Market Exposure

53. Since we are changing the ability of the gaming console we wanted to stick with
the operations that we have already been excelling at. Our supply chain consistently
measures up with any of the other large gaming console company on the market so we
decided to stick with it. Microsoft takes their materials very seriously and making sure
that they can trace back to where it came from is a big thing for them.
Channels Used
The channels we are going to use are going to heavily focus on the retail brick
and mortar stores. While we are going to have an online presence with our own e-
commerce, we have learned it to be more effective and easier to sell from the brick and
mortar. With our main presence going to be in the brick and mortar stores, we want our
product positioning to be on point with close to eye level and still have the clean white
boxes, and sleek, sharp graphics.
Supply Chain System
We will have to have two different types of inventory, one will be JIT, Just-In-
Time, and the other will be Make to Stock. Why we will have two different inventory
systems will be because of the different components that are needed for our product.
The Just-In-Time inventory will be for the mass production of our new Xbox 720
consoles. The Make to Stock inventory will be for the add on hardware that is an
optional add on that will have to be in stock because we do not how the sales will be.

54. Microsoft will have to work with AMD, Samsung, Sk Hynix, Texas Instruments,
Mediatek, Seagate, Delta, and many more are our suppliers just for the Xbox. Most of
our suppliers are overseas, and using distribution warehouses worldwide that way we
our customers will not have to be waiting long for our products to reach them. As for the
manufacturing of the Xbox 720 console itself, it takes place in Singapore, meaning a
large portion of our graphics and other components will be shipped there via ship, then
hopefully on train or by truck until it reaches our receiving bay.
Promotion
Goals
In the market of game consoles there has been major competition against
Microsoft’s Xbox and Sony’s PlayStation since 2001. In the last generation of the game
consoles between Sony and Microsoft, Sony’s PlayStation 4 outsold the Xbox One, two
to one. In the newest generation of game consoles, Microsoft needs to do exceedingly
well against the new PlayStation to make up from lost revenue. To do this Microsoft
needs to fix problems with the last Xbox launch. Before the last Xbox got launched,
Microsoft announced what different features it would have. It did not receive good
feedback from customers. The features customers did not like was the Xbox would not
the option to play used/old games on the system. The games played on the console
would have to be bought new. Also, the starting price for the Xbox One was $599, which
was outrageously high. This hurt sales tremendously when the Xbox One officially went
on the market. Majority of the customers went to Microsoft’s competitor Sony, and

55. bought the PlayStation 4. What went wrong with the Xbox One was Microsoft put
features on the Xbox One that the consumers thought they wanted. This is why for the
new Xbox, the Xbox 720, they are going to ask what the consumer wants. This should
regain their trust, and gain back the market share of game consoles.
For the new Xbox 720 we are going to make a better experience for casual
gamers and “hardcore” gamers. Hardcore gamers tend to want the best of everything
when it comes to their gaming console. From the graphics, the memory, and the speed
of the system. We are going to give them the option to upgrade these features if they
choose to. In other game consoles customers do not have the option to interchange
graphics card, CPI, and memory card. With the new Xbox 720, we are going to give the
option to upgrade these features. It will be easy to switch out these components.
Switching the CPI, graphics card, and memory card will be as pressing a labeled button,
then taking the old component out, then replacing it with the new one. Upgrading
components will be so easy a five-year-old could do it.
For promoting the Xbox 720 in ads, we are going to advertise it as “Easy to
Use”. Also we are going to advertise how the customers have the power to customize
their Xbox. Customers that order their Xbox through the Microsoft website will have the
option to create how it will look. For example, you design the color, pattern, and etc. on
the Xbox.

56. Pricing
Goals
The goal for our pricing strategy is to stay competitive in the console gaming, and
hopefully regain some lost market share due to over pricing in the past.
Value Proposition
The value of the new Xbox 720 come from the opportunity to swap out key
component parts inside the console. With these options, the customer can choose to
spend as much money they want onto their gaming experience. As goes for the Xbox
Live subscription, players are not required to purchase a Live subscription unless they
want to play online against other players around the world.
Pricing Strategy
The short term pricing strategy main objective is to keep the price for the new
Xbox 720 as low as possible, because that way we can move as many units into the

57. hands of the customers. Why we state this is due to the fact that most of our revenues
come from the add-on features and not the actual product itself. Majority of our
revenues come from the game royalties, and Xbox Live subscription.
While the long term pricing strategy is to keep the market share of the console
game with low unit pricing. Yet providing continuous optional upgrades that are fairly
priced so that people can upgrade components if they want to.
Timing and Implementation Activities
Timing and implementing for a product like the Xbox 720 is very important. We
plan on starting early development of the product in late 2016. This will give us a year
and half to plan, design, and strategize the development of making the Xbox. In Spring
2018, we will officially publicly announce the product at a gaming convention called E3.
After this, we will do test trials with people to fix complaints and add suggestions by
customers. When the final design is completed, the Xbox 720 will start mass producing
in September 2018. This will be followed by the opening launch day in November 2018.
The following month will be opening launch abroad countries like in Europe, Australia,
Etc.
Sales Estimate
We plan on regaining the market share that we lost in the past console
generation. By appealing to the needs of our customers, we plan on getting at least

58. 75% of the sales that the PS4 had. These sales will equal 11,100,000 units and we
expect them to grow at an average of 16% per year for the first five years.
Break Even Analysis
To find the break-even point of the console hardware, the total fixed costs for the
project will need to be divided by the Contribution Margin (Sales price minus variable
cost per unit). Our fixed costs are estimated to be about $1.7 Billion, including $1.5
Billion in initial Research and Development costs and $200 million in yearly
administrative costs (crdurancsumb, 2016).
Our variable costs per unit came in at $380 based on a pricing breakdown of the
components of the Xbox One. The increase from $324 per unit to $380 gives us the
opportunity to include better technologies as well as all the proprietary hardware needed
to create the Modular system (crdurancsumb, 2016).

61. With a fixed cost of $1.7 Billion, a unit cost of $380 and a sales price of $450, the
break-even number of units equals 24,285,715, which equals $10,928,571,429 in sales.
With sales of 11,100,000 per year, Microsoft would break even on hardware sales in
2.19 years. This break even analysis doesn’t quite tell the full story. While hardware
sales are important, they are far from being the only revenue stream related to the Xbox
Platform. Before doing any further analysis of the project, all of the revenue streams
must be acknowledged.
Every year, $16.5 billion of video games are sold in the world, of which a
conservative 30% can be claimed by Xbox. Assuming an average price of $50 per
game, about 99 Million games are purchased every year for the Xbox platform.
Microsoft claims platform royalties of about $7 per game sold, with minimal expenses
related to it. An estimated $643 million in profits every year can be attributed to the sale
of Xbox games.
Microsoft also depends heavily on Xbox Live subscriptions as a source of
revenues. With a monthly subscriber base of 49 Million users and a price of $60 a year,
Microsoft brings in $2.94 Billion in revenues. To keep up and run the servers that host
all of the Xbox Live functions, Microsoft has dedicated 300,000 servers out of the million
that are located in their data centers. The cost per year to run a million servers equals
$2.5 Billion or $2,500 per server per year. For the 300,000 servers dedicated to Xbox,
the cost to power them equals roughly $750 Million as well as an additional $100 Million
in administrative and labor expenses. Microsoft should expect an estimated $2 Billion in
profits from this service.

62. Scenario Analysis and Discussion
For our base case scenario, we project that our unit sales will increase by 16% a
year, based on average growth of Xbox 360 sales. We are projecting sales of
11,100,000 units, or 75% of the Playstation units sold in its first year. In this scenario,
Net income rose from $2,518,389,000 to $2,820,062,717 and the NPV of its cash flows
equals $10,638,317,610. The IRR for this situation is 207%
For our best case scenario, we again project that our unit sales will increase by
16% a year. We are projecting sales of 14,800,000 units, or 100% of the Playstation
units sold in its first year. In this scenario, Net income rose from $2,830,632,000 to
$3,385,422,183 and the NPV of its cash flows equals $12,288,053,836.

63. For our worst case scenario, we keep our unit sales growth at 16% a year. We
are projecting sales of 5,600,000 units, equaling the total units sold for the Xbox one in
its first year. In this scenario, Net income fell from $2,054,244,000 to $1,979,663,511
and the NPV of its cash flows equals $8,197,267,334.

64. Sensitivity Analysis and Discussion
For our first sensitivity analysis, we tested to see what the effect of an increase of
cost of goods sold for the console hardware would be. We increased COGS from $380
per unit to $420 per unit. Our total COGS increased by $2,534,000,000 and the NVP
equaled $8,605,436,307
Our second sensitivity analysis tested to see what the effect would be of an
increase in the tax rate from 13% to 30%. Our total Net income fell by $492,099,000
and the NVP equaled $8,777,043,169

65. Sensitivity analysis number three tested to see what the effect would be If the
sale price of the Xbox dropped from $450 to $400. Total revenues fell by $555,000,000,
net income fell by $482,850,000 and the NVP equaled $8,099,321,723

66. For our fourth sensitivity analysis, we tested to see what the effect of a decrease
in sales of upgradable hardware would be. We lowered the percent of upgrades relative
to hardware sales from 30% to 10% and saw a decline in total revenues of
$477,300,000. Net income fell $173,826,000 and the NPV equaled $9,722,133,749.

67. Conclusion
After reviewing all the financial data, we chose to accept our project. Based on
our calculations, our project seems to not only be a great source of income for the
company, but manages to be incredibly resilient to different changes in the environment.
By earning back the lost market share from Sony, the Xbox platform will once again
reclaim its spot at the top of the console gaming market. Microsoft has seen incredible
success with this platform in the past and it is time to claim that greatness again.

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