A PESTEL Analysis of Microsoft
Microsoft is a familiar name for most computer users. Most computers on the planet run on Microsoft’s Windows Operating system. However, apart from its Windows OS and Office software, its cloud services have also grown highly popular and the brand’s performance in 2017 has been appreciable. However, the PC and laptop industry has taken a hit and that could be a major hurdle to Microsoft’s future growth. The IT giant makes several software and IT related products for professional and personal uses. Here is a PESTEL analysis of Microsoft that presents how these forces are affecting its business and what will be the impact on its short and long term future.
Any business that operates globally has to face political pressures. Sometimes the risks caused by political environment can be quite big. Government policies and regulations have a direct impact on business revenues and profitability. How friendly a nation’s political environment is, decides how well a company will be able to do business there. The EU is getting aggressive against US’ technological giants. In 2013 Microsoft was hit by $730 million fine by the EU for anti-trust violations. The case of Google and Amazon proved that EU will continue to target the US giants.
Political forces can have a major impact on a company’s business and that was proved in EU’s case. Political pressures over technology and IT companies have grown in the aftermath of the terrorist attacks too. Governments around the world expect cooperation on matters related to national security. Moreover, political stability is also essential in nations for businesses to flourish there. Political disruption always has a poor impact on businesses.
Economic factors impact businesses directly. The world economy has rebound and grown at a fast rate since the global recession. However, for the US based businesses, the situation has been a bit difficult because the dollar has grown stronger since the recession. Economic environment of a nation determines profitability in that market. The world market has grown more interconnected and poor economic situation in one nation can affect that in the other. If the economy is flourishing then the customers’ purchasing power will be higher.
This will result in better revenue and profits for any company including Microsoft. So, economic situation affects several things including sales and growth. In the last year, Microsoft has seen increase in sales and its cloud business has brought impressive profits. If the economic situation continues to improve globally, then the result will be better sales and profits for Microsoft in the coming years.
Social and cultural factors too can have a direct impact on the businesses and their revenues and growth. Businesses cannot stand divorced from these forces. For marketers and managers too an understanding of the social and cultural forces is essential. In the recent years, people have switched to mobile devices with larger screens. The growing popularity of smartphones has not worked in the favor of Microsoft. Its products are mainly designed for use on laptops and PCs. However, the growing use of mobile devices has created opportunities for the other businesses. Social trends and demographic changes can be favorable or unfavorable for businesses. Similarly, in terms of marketing too culture is an important factor that international businesses have to mind when operating in the foreign countries.
Microsoft belongs to the technology industry and so the technological changes are bound to affect it deeply. New technologies come and leave the old ones obsolete. In Microsoft’s case too innovation is essential, if it is to remain ahead in the race. The pressure from the rivals like Google and Apple is intense and if Microsoft fails on any point, it can result in severe losses. However, Microsoft has been good in terms of innovation and devotes a lot in terms of capital and resources to research and investment. It has been quick to embrace the cloud technology and its cloud based services generated impressive revenue for the brand last year.
With it, Microsoft’s earnings and performance have also improved. However, the growth in the use of mobile technology could have a negative effect on the business of the brand. Microsoft’s acquisition of Nokia did not prove to be highly favorable. Its phone hardware business too did not do very well last year. Trevis Team wrote for Forbes, “Microsoft’s devices continued to perform poorly as revenue decreased 35% (down 34% in constant currency) due to an 81% (81% in CC) decline in phone hardware revenue. Additionally, Surface revenue decreased 2% (flat in constant currency), driven by fatigue in its product line”.
Environmental factors have grown to become increasingly important for businesses in the 21st century. The technological companies that make laptops, PCs and smartphones especially hold a major responsibility towards the environment and the planet. These products are difficult to dispose and contain dangerous materials which can have a significant negative impact on the environment if they are not disposed properly. So, apart from proper disposal of the products, environmental impact of the entire brand also becomes a major concern for any technological company.
Microsoft is also focused on managing its environmental impact and has made significant investment in this direction. It has been carbon neutral since June, 2012. The brand has also invested in renewable energy as a part of its sustainability strategy. It has explained on its website how it is working with its partners to minimize its impact on the environment and to deliver sustainable solutions that are better for the planet.
Legal factors are another major force which can have a deep impact on business. Law is virtually everywhere and for businesses a legal tussle can mean a big loss. As the size of the fine in EU anti trust violation case proved, tussle with law can be very bad for the financial health of the company. There are several laws related to labor and products that affect the business of Microsoft. Apart from it, technology and IT related laws too affect its business. Microsoft and all other big technological companies need to remain careful about laws and compliance. Otherwise legal issues mean both financial loss and loss of image.