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A case study in launching and defending platforms

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.

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A case study in launching and defending platforms

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  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

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