Evolution of Microsoft and its Business Model

History of Microsoft
Revenue Streams of Microsoft

It all started with two computer geeks who were fascinated by the world of computers. Microsoft Corporation is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses, supports, and sells computer software, personal computers, and related services. Its best known software products are the Microsoft Windows line of operating systems, the Microsoft Office suite, and the Internet Explorer .

Its flagship hardware products are the Xbox video game consoles and the Microsoft Surface lineup of touchscreen personal computers. In 2016, it was the world's largest software maker by revenue. Microsoft is ranked No. 30 in the 2018 Fortune 500 rankings of the largest United States corporations by total revenue.

Microsoft is among the largest tech giants, which in 2018 made over $110 billion in revenues. While Microsoft Office remains the most successful product. Other parts of the business are related to advertising,  accessible home and business software solutions, secure online storage and search services. As a dominant tech company, Microsoft tries to keep innovating and acquiring companies that allow it to enter new markets, quickly.
In 2018, Microsoft surpassed Apple Inc. as the most valuable publicly traded company in the world after it was dethroned by Apple in 2010.In April 2019, Microsoft reached the trillion-dollar market cap, becoming the third U.S. public company to be valued at over $1 trillion after Apple and Amazon respectively.

History of Microsoft

Before Microsoft was founded, Paul Allen and Bill Gates were just two friends in an age where computers were not a frequent sight. They were avid geeks which once led them to hacking into their school’s computer. Instead of being expelled, the school asked them to help in strengthening the school’s computer performance. Maybe this kindled the spirit in them to one day serve the world with the most preferred Operating System.After this both moved their separate ways with Gates going to Harvard to pursue law in 1973 and Allen to Boston as a computer programmer. This is where faith stepped in.

In January 1975, Allen read an article in Popular Electronics magazine about the Altair 8800 microcomputer and showed it to Gates. Gates called  Micro Instrumentation and Telemetry Systems MITS, makers of the Altair, and offered his and Allen's services to write a version of the new BASIC programming language for the Altair.

After eight weeks, Allen and Gates demonstrated their program to MITS, which agreed to distribute and market the product under the name Altair BASIC. The deal inspired Gates and Allen to form their own software company. Thus, Microsoft was started on April 4,1975 in Albuquerque, New Mexico with Gates as the first CEO.

On July 29, 1975, Gates used the name "Micro-Soft"—which had been suggested by Allen—in a letter to Allen referring to their partnership. The name, a portmanteau of "microcomputer" and "software," was registered with the New Mexico secretary of state on Nov. 26, 1976.

In August 1977, the company opened its first international office, located in Japan, was called ASCII Microsoft. In 1979, the company moved to Bellevue, Washington, and two years later it incorporated under the name Microsoft Inc. Gates was president of the company and chairman of the board, and Allen was executive vice president.

Microsoft Operating Systems

As a newly formed company, Microsoft's first operating system product to be publicly released was a version of Unix called Xenix, released in 1980. Xenix was later used as the basis for Microsoft's first word processor—Multi-Tool Word—a predecessor to Microsoft Word.

Microsoft's first wildly successful operating system was MS-DOS (Microsoft Disk Operating System), which was written for IBM in 1981. In the deal of the century, Gates licensed MS-DOS to IBM but retained rights to the software. As a result, Gates made a fortune for Microsoft, which had become a major soft vendor.


Also in 1983, Microsoft's crowning achievement was released. The Microsoft Windows operating system had a novel graphical user interface and a multitasking environment for IBM computers. In 1986, the company went public, with the resulting rise in stock making an estimated four billionaires and 12,000 millionaires from Microsoft employees. The success meant that Gates became a billionaire at 31.

Microsoft Office

1989 marked the release of Microsoft Office, a software package that is a collection of programs for use in an office. Still used today, it includes a word processor, spreadsheet, mail program, business presentation software, and more.

Internet Explorer

Following Bill Gates' internal "Internet Tidal Wave memo" on May 26, 1995, Microsoft stepped into world of web.Other than Netscape, Microsoft was the only major and established company that acted fast enough to be a part of the World Wide Web practically from the start. The other companies acted slow, giving Microsoft a market dominance.The company released Windows 95 on August 24, 1995, featuring pre-emptive multitasking. Windows 95 Plus! was bundled with the online service MSN, and Internet Explorer, a Web browser.


In 2001, Microsoft introduced its first gaming unit, the Xbox system. Xbox faced stiff competition from Sony's PlayStation, and eventually, Microsoft discontinued the original Xbox in favour of later versions. In 2005, Microsoft released the Xbox 360 gaming console, which was a success.

After this from 2007-201, Microsoft launched a variety of services and products like Windows Vista, which focused on features and security.  Azure Services Platform, the company's entry into the cloud computing market for Windows, launched on October 27, 2008.On February 12, 2009, Microsoft announced opening a chain of Microsoft-branded retail stores, and on October 22, 2009, the first retail Microsoft Store opened in Scottsdale, Arizona; the same day Windows 7 was officially released to the public.

Windows 7's focus was on refining Vista with ease-of-use features and performance enhancements, rather than an extensive reworking of Windows.
As the smartphone industry boomed in 2007, Microsoft struggled to keep up with its rivals Apple and Google in providing a modern smartphone operating system. As a result, in 2010 it came up with Windows Phone OS. The strategy was to work more closely with smartphone manufacturers, such as Nokia. The new user Interface introduced the idea of minimalism.

Microsoft launched Windows 8 on October 26, 2012, an operating system designed to power both personal computers and tablet computers. The Surface was also launched, becoming the first computer in the company's history to have its hardware made by Microsoft.

In 2015, Microsoft began an advertising campaign centering on Windows 10, "Upgrade Your World” with the tagline "A more human way to do", emphasizing new features and technologies supported by Windows 10 that sought to provide a more "personal" experience to users.

Other than this products like HoloLens, mixed reality headsets, acquisitions of platforms like LinkedIn, GitHub have made Microsoft a pioneer in the Tech industry.

Also Read: Why Tech Companies Need Qualified IT Talents In Texas

Revenue Streams of Microsoft

Microsoft has branched its revenue and is routinely ranked among the world’s top 100 companies organised by revenue. The Company’s revenue is divided into three principal segments:

Productivity and Business Processes

This includes revenue gathered by the sale and licensing of its various software products and cloud services across a range of devices and platforms. This comprises commercial and consumer licensing of Microsoft’s suite of productivity products and cloud services, including those pertaining to the Office 365 suite, content management tool OneDrive, and call services provider Skype.

Intelligent Cloud segment

Comprises all revenue generated by its server products and cloud storage services, including the sale and licensing of Windows Server, Microsoft SQL Server, Visual Studio, System Center and Microsoft Azure services to commercial clients and general consumers. Revenue from the support and consulting services to develop innovative IT solutions for businesses – are also grouped into this segment.

More personal computing

This relates principally to its products and services that provide cross-platform utilities. This includes licensing of Windows operating systems, Microsoft patents, and Windows phones; the sale of Microsoft devices, including mobile phones and PC accessories, products relating to the Microsoft Xbox gaming platform, including Xbox Live subscriptions, transactions, third-party video game royalties and advertising.

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The key takeaway from the above analysis of Microsoft as a company and its revenue models, is that it has constantly evolved with the market and user requirements.
It strived to innovate and adapted to the market scenarios from time to time. For  an instance, when the industry switched to mobiles from PCs, Microsoft didn’t take a step back , instead it brainstormed to set its foot by merging with Nokia.

Another time when we saw its determination to stay in the stocks was when the company knew that Android is dominating the phone industry, it came up with platforms for cloud computing, explored the less travelled road of mixed reality by supplying HoolLens headsets.

Microsoft also stepped into active advertising, which used catchy themes to attract more people to its core home PC values. It held strong to its belief in the requirements of a normal computer user with simple yet varied expectations. This is what made it stand out from its competitors like Apple and Google.
At the rate at which both of its competitors are succeeding, it must be a task for Microsoft to stay in the race, but surely it hasn’t let the market or the customers get used to its absence.

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About Yash Gupta

A management enthusiast, an avid reader, and a traveler.