This article presents the Microsoft case analysis by applying PESTLE framework. Microsoft PESTLE analysis is conducted to assess the company’s external environment.
Before going through Microsoft PESTLE analysis, have a look over brief company overview.
1. Introduction
a. Company overview
| Name | Microsoft Incorporation |
| Type | Public |
| Founded | 04 April, 1975 |
| Headquarters | Redmond, USA |
| Area served | Worldwide |
| Products/services | Software development, hardware, consumer electronics, entertainment, cloud and social networking services |
| Total number of employees | 220,000 |
| Revenue | $198 billion |
| Operating income | $83 billion |
b. What industry is Microsoft in?
| Sector | Industry | Sub industry |
| Technology | Software and tech services | Software |
c. How many countries does Microsoft operate in?
Microsoft operates in more than 190 countries, and has more than 220,000 employees all over the world.
2. Microsoft PESTLE Analysis
By applying PESTLE framework, external Microsoft analysis is conducted to understand how company is managing the external environmental challenges.
Microsoft PESTLE analysis evaluates six key forces- political, economic, social, technological, legal and environmental. The article discusses each environmental force, evaluates its implications for the company, and presents recommendations at the end.
Each environmental force is marked as a ‘threat (T)’ or an ‘opportunity (O)’ depending on its implications for the Microsoft.
2.1. Political factors
2.1.1. Public policy engagement (O)
Microsoft actively contributes and participates in the public policy process. Company engages with the policy makers and governments across the world to raise voice over important issues. In 2021, Microsoft announced ‘Democracy Initiative’ to support groups that aim to preserve democracy.
2.1.2. Political lobbying (O)
Microsoft hires lobbyists to improve company image. Following graph shows a consistent rise in the Microsoft’s lobbying expenses from 2009 to 2021:
Source: Statista
2.1.3. Microsoft accused of monopoly (T)
Microsoft frequently faces anti-trust cases, and is accused of building monopoly. Washington Post reports that the company’s 2022 deal to acquire Activision Blizzard brought tech giant under anti-trust scrutiny.
2.1.4. Political tensions (T)
Microsoft is currently struggling due to US-China political tensions. As per CNN, Microsoft recorded only 2% rise in profit in China, which was lower than forecasts. Russia-Ukraine war is also hitting company’s earnings, as Microsoft spent $126 million to scale down operations in Russia.
Although, Microsoft has tensions with the European Union over its history, company was able to increase market share to 66% in 2021 when local EU companies’ market share reduced from 26% to 16%.
2.2. Economic factors
2.2.1.Global pandemic (O)
Although, pandemic has negatively affected various industries, but Microsoft is benefitting from the boost to the cloud computing market. Reuters reported 23% increase in Microsoft revenue in intelligent cloud segment, and 50% post pandemic growth in revenue from Azure
2.2.2. Trade war economic consequences (T)
The on-going trade war between USA and China has negative economic consequences for Microsoft. As per CNN, extended production shutdown in China has caused a $300 million hit to company’s annual earnings in 2022.
2.2.3. Overhaul H-1B visa program (T)
Overhaul H-1B visa program can cause visa difficulties for foreign employees. As per Forbes, it can affect the tech giants like Microsoft by hindering the innovation and creativity
2.2.4. Economic growth (O)
The US economy is likely to grow by 2.1% each year from 2021 to 2031:
Source: US Bureau of labor statistics
The positive growth projections create a favorable business environment for Microsoft.
2.2.5. Industry growth (T and O)
Microsoft operates in technology industry. The forecasts suggest that the PC market will slow-down by 5.6% in 2023. During 2022 to 2026, the market will grow with a CAGR rate of only 0.1%. It will have negative implications for Microsoft.
However, as company also operates in the cloud industry. The expected loss will be compensated in cloud sector. As per Grand View Research, cloud industry will grow with 15.7% CAGR from 2022 to 2030.
2.2.6. Exchange rate (T)
USD have risen by 25% since 2021, and is expected to raise further. Financial Times reports that a strong dollar can hamper the Microsoft’s business performance, as it will reduce the consumer spending, and will eventually cut the revenue growth forecasts.
2.2.7. Skilled talent shortage (T)
Shortage of skilled labor has become a serious issue for tech giants. As per IMF, around 85 million jobs will be unfilled due to lack of skilled labor by 2030. The tech talent gap has become a serious issue for tech giants like Microsoft.
2.3. Social factors
2.3.1. Growing digital literacy (O)
In post-pandemic world, the digital literacy is expected to increase. People are becoming more tech savvy and digitally literate, which presents a growth opportunities to tech giants like Microsoft.
2.3.2. Remote work trends (O)
Forbes reports that remote work trend is likely to stay, and will increase in the upcoming years. As per projections, around 25% of all jobs within North American region will be remote. It will boost the demand for software, and present an opportunity for Microsoft.
2.3.3. Mobile technology (T and O)
Consumers’ interests and preferences are changing. They now prefer mobile technologies more than the desktop PCs. However, Microsoft heavily relies on desktop devices, and has weak presence in mobile technology segment. So, rising mobile technology trends can weaken company performance if it does not proactively respond to the changing interests.
But if company acts proactively, it can turn the rising mobile technology trends from threat to growth opportunity.
2.4. Technological Factors
2.4.1. Research and development (O)
US government aims at increasing the research and development expenditure to accelerate the innovation in the tech industry. In 2021, US government spent around $157 billion on research and development, and aims to further increase the R&D budget by 9% in 2022 and upcoming years.
2.4.2. Growing AI trends (O)
AI trends are likely to grow, and may reshape the tech industry future. Considering the growing AI trends, US policy makers are also showing an interest in AI. Following graph shows increase in AI bills from 2015 to 2021:
Source: Stanford University
2.4.3. Cloud computing applications (O)
Alike AI, there is a consistent rise in demand for cloud applications, presenting an exciting growth opportunity to the Microsoft’s Azure-
Source: Precedence Research
2.5. Legal factors
2.5.1. Lawsuits (T)
Around 64 patent infringement cases were filed against Microsoft in 2021, and in 2022, the tech giant is again in trouble due to anti-trust lawsuit. New-York Times reports that the lawsuit has blocked the company’s $69 billion acquisition deal with Activision Blizzard. Such lawsuits damage the company’s reputation besides incurring negative economic consequences.
2.5.2. Changing tech regulations (T)
There will be a wave of new tech regulations to be introduced all over the world. It is compelling Microsoft to grow legal team global. In coming years, Microsoft will grow its global legal team by 20% to remain prepared for the regulatory changes.
2.5.3. Discrimination policies (T)
According to a gender discrimination report recently published by Microsoft, there were 781 gender discrimination and sexual harassment claims made internally from 2019-2021. The unclear sexual harassment and anti-discrimination policies have not only drawn the critics’ attention, but can affect the Microsoft’s employer brand image by increasing chances of reputation damaging lawsuits.
2.6. Environmental factors
2.6.1. Responsible waste management (O)
Tech industry is drawing criticism for its irresponsible waste disposal practices. Microsoft takes it as an opportunity to improve its corporate brand image, and aims to achieve zero waste goal by 2030.
2.6.2. Environmental regulations (O)
US government aims to reduce the carbon emissions by 50% to 52% 2030. Microsoft will remain unaffected by the strict environment regulations, as company has already achieved its carbon neutral objective. By 2030, Microsoft will likely be carbon negative.
2.6.3. Energy efficient data centers (O)
Due to increased stakeholder vigilance, tech giants are being compelled to make their data centers energy efficient. Considering it another opportunity, Microsoft is currently building three most energy-efficient data centers in the world.
3. Summary – Microsoft PESTLE Analysis
In light of PESTLE framework, Microsoft case analysis is summarized below:
Microsoft PESTLE analysis
| Political • Public policy engagement • Political lobbying • Accused of monopoly • Political tensions | Economic • Global pandemic • Trade warH1B visa program • Economic growth • Industry growth • Exchange rate • Skilled labor shortage | Social • Growing digital literacy • Remote work trends • Mobile technology |
| Technological • Research and development • Growing • AI trends • Cloud computing applications | Legal • Lawsuits • Changing tech regulations • Discrimination policies | Environmental • Responsible waste management • Environmental regulations • Energy efficient data centers |
4. Recommendations
Based on Microsoft PESTLE analysis, the article proposes some recommendations to the company:
• Invest on remote work software to benefit from market growth
• Strengthen presence in mobile technologies and cloud market
• Improve public relations to respond to the criticism over lawsuits
• Understand the consumers’ changing trends, and proactively respond to changing preferences
• Timely address the skilled labor shortage issue as its going to worsen with time.
• Invest more on CSR, and communicate its environment protection initiatives to improve the brand image as a responsible corporation
5. Concluding remarks
To conclude, Microsoft PESTLE analysis highlights various opportunities and threats. Tech giant is in a strong position to leverage the available opportunities and respond to threats by leveraging the internal strengths.
If you want to know Microsoft’s strengths and weaknesses, click here (create internal link)
6. References
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Statista. (2022a, July 18). U.S. lobbying expenses of Microsoft 2009-2021.
Iyengar, R. (2022, July 26). Microsoft says China and Russia hurt its earnings. CNN.
Vaughan-Nichols, S. (2021, November 29). EU companies issue formal complaint against Microsoft OneDrive Windows integration. ZDNET.
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Dubina, K. (2022, September 20). Projections of the U.S. economy, 2021–31 : Career Outlook: U.S. Bureau of Labor Statistics.
IDC Tracker Forecast Sees Further Contraction for the Global PC and Tablet Markets with Commercial PC Demand Remaining the One Clear Opportunity. (n.d.). IDC: The Premier Global Market Intelligence Company.
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Robinson, B., PhD. (2022, February 1). Remote Work Is Here To Stay And Will Increase Into 2023, Experts Say. Forbes.
The State of AI in 9 Charts. (n.d.). Stanford HAI.
Cloud Services Market Size to Hit US$ 1630 Billion by 2030. (n.d.).
Sorkin, A. R., Mattu, R., Gandel, S., & Merced, M. J. de la. (2022, December 9). The FTC’s Bet on Rewriting Antitrust by Taking on Microsoft. The New York Times.
Fried, I. (2021, June 29). Exclusive: Microsoft to grow legal team amid global tech regulation. Axios.
Claburn, T. (2022, November 16). After 47 years, Microsoft issues first sexual harassment and gender report.
Stiffler, L. (2020, August 14). Microsoft talks trash: Tech giant aims for zero waste by 2030 in latest environmental initiative. GeekWire.
US Government Sets Target to Reduce Emissions 50-52% by 2030. (n.d.). World Resources Institute.
Chambers, A. (2022, October 18). Microsoft builds world’s most energy-efficient data centres in Denmark. Technolog
