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So, that in a nutshell is the Microsoft method. Understand the market, and the customers, and then go pedal to the metal, with release after release focused on what the customers need, incorporating their feedback. That puts the competition into reaction mode. And of course it helps if they also make a strategic error because they are under so much pressure.

Chris Pratley has an interesting post about his time at Microsoft and the evolution of Japanese Word and, later, Word as a whole. There's lots of interesting little, uh, "product development" type anecdotes too, e.g.,

Word 6.0 for Japanese was already in the bag, so our main focus was on Word95 (Word 7). We decided to work on the biggest problem, which was that Japanese documents used a lot of really complex tables - in effect their documents were more like forms than memos. So we built the Table Drawing tool (you can see this in Word today in all languages). We did a few other things that Japanese users expected, and released the product.