Free-Product Competitors Challenge Microsoft52 Since 2007, Microsoft's Office software, a highly profitable product that has long enjoyed a near monopoly position in the office applicationsbusinoesfsfi, che.asRebleuecn-under attack from free alternatives: Google Docs and Oracle's Open tantly, Microsoft responded in 2010 with Microsoft Live, a free "cloud" version of Office that, unlike Open Office, cannot be downloaded to and operated from an indi-vidual computer. Based on high switching costs along with concerns about file incompatibility and the lack of functions in the competing free offerings, Microsoft has been able to retain the vast majority of its target corporate customers.

However, the free offerings are being widely adopted by college students, small businesses, and some large edu-cational institutions. To illustrate, a recent survey indicates that 20 percent of college students exclusively use free alternatives. Available evidence also suggests that Google Docs have been adopted by over 3 million small business users as well as some large educational institutions, including the University of Minnesota, the University of Virginia, the California State University System, and a host of others.

Discussion Questions

1. Adopting a cautious stance, Microsoft strategists have not aggressively promoted its free-product offering. Some experts argue that Microsoft should be taking the defection among price-sensitive customers more seriously. Agree or disagree? Support your position.

2. What steps should Microsoft take to retain its most valuable customers and pre-vent rivals from expanding their foothold in the market?