A case study in launching and defending platforms

1. A case study in launching and defending platforms • A. Background • In the PC industry prior to the browser wars • B. Early strategy • At Netscape and at Microsoft • C. How Netscape and Microsoft changed behavior/strategies • D. Where we are today M&S 463, browser wars

2. A. Were there any strategic lessons from this episode? • After the trial little public discussion of general lessons. Why? • The trial was genuinely complicated • Public forums became bumper sticker debates • Brain candy in the news • It became a soap opera with a twisted plot • Psychoanalysis of relationship b/w Gates & Ballmer & Judge Jackson • News coverage emphasizes legal tactics & public relations blunders, not long term issues • General strategic lessons got lost in the noise M&S 463, browser wars

3. A. Why study the strategies in the browser wars? • It was about more than browsers • Almost once in a life time structural change in IT • Growth tactics • How difficult it is to establish a new platform; how difficult it is to dislodge existing platform • How the strengths of an established firm sets stage • Entry from complementary providers • It is still in the news • Aftermath of antitrust suit will last a while • Some tactics may be defined as “illegal” M&S 463, browser wars

4. A. How the PC market worked in the early/mid 1990s • How did assembly of PC work? • MS is a dominant component, w/very high market share of IBM-compatible PCs • Assemblers have role in design/distribution • Final product market is fiercely competitive in price and non-price dimensions • How well do players know each other and track each other’s moves? • Not many “surprises” among major players • Contracting b/w all players legally and strategically complicated  shapes final outcomes M&S 463, browser wars

5. A. Other pertinent background • Browser represented more than browser • Alter interface (Window, Icon, Menu, Pointer) • Network communications (inter, intra, extra) • Distribution model for software over Internet • To the Internet insiders this was finally a revolution • Life in a fishbowl at the new entrant • Mosaic is being licensed widely • Andreesen, Clark, Barksdale, and John Doerr • The distraction of Windows 95 at MS • Enormous & risky project, Top priority at MS • Assumed disdain at MS for non-commercial revolutionaries M&S 463, browser wars

6. B. Netscape’s early strategy and the potential for browser • Browsers are a big market to exploit, but how? • Feasible to build a revenue model around browsers? • Distribute by the web as a new experiment (talked about in theory, but never implemented on this scale) • Free but not free as a commercial innovation • Early move to Intranets presents new opportunities • Internet commerce not sufficiently developed yet • Complementary sw offerings across range of functions • Establish “listening posts” for new opportunities • Anticipate frequent re-evaluation and quick development of new offerings M&S 463, browser wars

7. B. Netscape talks about creating “platform” around the browser • Create w/centrality & inevitability • Use hype & noise to gain attention • The publicity behind the IPO • Use the “fish-bowl” to create expectations • Question: Is it a good or a bad idea to have the CTO talking to newspapers regularly? • Build platform support • Sign ISVs & ICPs & VARs to use tools • Make APIs available for browser & networking tools • Question: Is it easier or harder for a young firm to do this? M&S 463, browser wars

8. B. Designing an organization for Netscape so the firm can grow • Structure the firm for growth • Over invest in internal systems • Flat organization, small teams & top exec involvement • Q: What type of CEO style works best in this org? • Hire for minimal hand-holding • Only hire technical & managerial experience & talent • Employees already have experience so they enter needed to learn NS’s business, not the job • Could any small firm do that today? • Building external relationships & platform support • Strains inside: reponding to ISVs, ICPs, VARs requests • What activities/priorities get dropped under high stress? M&S 463, browser wars

9. B. Microsoft’s strengths shape the early competition • It is a PC-centric platform • Operating systems pace change at 3 years • Little revenue in supporting old PC OS systems • Almost no revenue in cross platform support • Centrality w/EOMs, ISVs & PC consumers • Cannot orphans many users who are source of revenue • Technical users resent s/w for majority • Vulnerable to distribution mode other than thru OEM • Their reputation precedes them • When is this an advantage? When not? • Early attempts to buy NS, to limit information to them M&S 463, browser wars

10. C. Netscape’s strategies change with the competitive landscape • Redefine competitive landscape w/new uses • Browser ==> internet ==>intranet ==>extranet • Flexible, but appears as strategic confusion to outsiders • Redefine pricing/distribution model • Avoid the OEM bottleneck by using web • Distribute & support entire installed base of PC users • Build centrality with users & with developers • Use as stepping stone for market building, add capability • Q: Strategically managing expectations. What part of future plans are stealth & what part are publicly known? M&S 463, browser wars

11. C. Microsoft’s goals change with the competitive landscape • Align priorities against new platform • Embrace and extend all widely used standards • Short run loss of proprietary control (would they have lost it anyway under any scenario?) • Strategic issue: sacrifice today for battle tomorrow • Easier said than done: working out the details • Slow down the new platform to give your own troops time to catch up • Establish a beach head for later growth • Getting the troops to take the threat seriously • Instill panic: The Internet Tidal Wave M&S 463, browser wars

12. C. How to shape a fight into one that plays to own strength • End sense of inevitability at NS • Cut into rival’s revenue model • Pre-announce, use FUD, publicize • Turn one-on-one into one-against-many • Threaten existing business partners (Compaq, HP, OEMs) • Bribe others into cooperating (AOL, Intuit) • Raise rival’s cost of distribution (OEMs again) • Remove others ISVs, ICP from other platform • Establish & achieve thresholds • The 30 % rule as beachhead, the 60% rule as inevitable M&S 463, browser wars

13. C. Platform “do”s and “don’t”s • New platforms need new users and uses • Identify what the established platform won’t do • Build to grow • Establish a platform one component at a time • Flexibility, using external resources • Requires investing in organizational infrastructure • Market opportunities are temporary • Pace of change matters to everyone • How to speed up and how to slow down • New platforms need to surprise incumbents • Gaining centrality w/o waking the giant • Is it better to use stealth or to use noise? M&S 463, browser wars

14. D. Where we are today: the appellate court decisions • Argued in fall, unanimous ruling in late June • Upholds relevance of antitrust • New economy no special exemption • MS looks, acts, behaves like a monopolist • Monopoly maintenance upheld • Contracting practices ruled illegal • Compare anti/pro competitive features of actions • Monopolization attempt thrown out • Tying claims & remedy sent back for reconsideration to new judge M&S 463, browser wars

15. D. Where we are today: What Microsoft did • Announced intention to remove specific contracting features rules illegal • Allow OEM to remove Internet Explorer • Allow OEM to add new buttons to desktop • Had already renounced exclusive contracts with ISPs, ICPs, ISVs, etc. • Narrow or broad action on Microsoft’s part? • Does not allow OEM to remove other new features • Negotiating with Real Networks/AOL/Kodak/etc. • Releasing XP with many bundled services M&S 463, browser wars

16. D. Where we are today: What the DOJ did most recently • New judge must review any agreement and/or hold hearing about remedies • Told to try to reach negotiated settlement • DoJ announced no longer seeks break up • Charles James negotiates 12 page deal • Involves few staff, mostly lawyer to lawyer • 9 states (of 18) sign w/ a few add’l changes • Deal is a “conduct remedy” • Sharing info, no retaliation, pricing, networking • Little about design & bundling • Oversight & loop holes? For security M&S 463, browser wars

17. D. Anti-trust do’s and don’ts • Anti-trust compliance programs at large firms • Why does such a firm leave such a paper trail? • Allowable: Raising FUD, incompatibility • Restrictions on distribution still matter • Problem: Slowing down a rival when it also hurts users  e.g., the OEM contracts too restrictive • Pro consumer feature of exclusive contract? • Borderline: Timely information to complementor • Keep negotiations out of the public eye • Never ever tape a deposition or conversation w/reporter (that goes for both the defendant and the judge). • Find a way for all parties to declare victory and go home. M&S 463, browser wars

18. Learning points • Case study in growing a platform • Tactics and point/counter-point • Bringing strategic order to chaos • Understanding competitive strengths and weaknesses in a new platform • Strategic cost/benefit of flexibility and commitment in a fast changing environment M&S 463, browser wars