In the economic model of perfect competition, price equals marginal cost, so margins will be zero, as you say. Though you don't explicitly argue it, it is worth making clear that capitalism doesn't mean that the perfect competition model will always hold for all markets. There are plenty of reasons why monopolistic competition could occur, even in a strawman version of capitalism. People could pay attention to branding, for instance. Firms that spend more on branding might be able to maintain higher margins. So even in the strawman capitalism, margins could be high for reasons other than a lack of competition.

In the real world the technology industry does tend to have higher margins than other industries. There might be perfectly normal explanations for that, such as network effects, but there are also government policies that have the effect of reducing competition. For instance, intellectual property laws reduce competition in order to attempt to encourage innovation. The strawman version of capitalism doesn't exist in the real world. Margins can remain high for some time.

That being said, there are competitors for Microsoft's bread and butter products. If you want an alternative to Windows, try Linux. If you want an alternative to Office, try Open Office. For many users, however, they get a better experience with the Microsoft products than these alternatives, even though they are free. Microsoft has to keep making their products better than the alternatives or people will use others (though there are costs of switching and network effects that mean that MS probably doesn't need to have the absolute best product on the market in order for customers to keep using them).