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h the next generation.

It has also been producing these systems long enough to understand how to minimize its costs with the components they choose, leaving little chance for cost advantage.

3.2.THREAT OF RIVALRY

The threat of rivalry is relatively low for Microsoft. From an operating system standpoint, there are not many competitors who make operating systems. Because of this, Microsoft does not feel that they need to constantly be surveying a large amount of companies to see what price or sales trends are occurring. Prices are rather static because of this.

The only type of differentiation created between operating systems is what software it can run. However, the numbers of software packages that are only available on one platform are getting smaller every year. One thing to mention would be that Windows can be installed on Apple hardware, while Mac OS X cannot be installed on a large majority of non-Apple products (with the exception of building a Mackintosh which would require more knowledge than most casual computer users have.)However, the gaming division of Microsoft is under a high threat of rivalry from Nintendo and Sony.

It is standard practice to make large price cuts to game consoles every six to twelve months as production costs decrease, and there is a constant “console war” going on. As soon as a console is released, a new one begins R&D.

3.3.THREAT OF SUBSTITUTES

Microsoft’s gaming division has a moderately high threat of substitute. I say this because there are two gaming audiences: casual and hardcore. A hardcore gamer will likely own multiple consoles to make sure they get to play every game they want to due to exclusive titles on separate consoles.

This group would likely not contribute to a threat of substitute. However, casual gamers will easily substitute for a Nintendo or Sony console, or even just buy a few games on their smart phone. While Microsoft’s Xbox 360 offers many other services (Netflix, Hulu, YouTube, Last.fm, etc.) these services could be found elsewhere if someone is not interested in the games available on the console.

3.4.THREAT OF POWERFUL SUPPLIERS

For both Windows and the Xbox 360, there is a relatively low threat of powerful suppliers. All of the resources that would need to be supplied to Microsoft by outside suppliers are available from a large number of firms. Blank media, circuit boards, processors, etc. are not in short supply in any way. Given the size and brand recognition that Microsoft has and the number of other suppliers available, many suppliers know they would have to offer a good price in order to work with them. None of the items supplied are necessarily unique, and the very few times that a supplier has tried to enter a videogame market through forward vertical integration, it has not gone very well.

The only threat a supplier could hold is that the physical items needed by Microsoft are used in a wide variety of electronics. Memory chips, processors, hard drives, DVDs, capacitors, circuit boards, etc. are all used in everything now. However, a large number of game consoles have been sold by Microsoft (66 million units as of 1/9/2012.).This would suggest that the components inside each console would pass as a decent side of a supplier’s business.

3.5.THREAT OF POWERFUL BUYERS

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