Lock-in and customer value

I recently read Breaking Windows by David Bank. It tells the story of the Microsoft anti-trust trial and some of the activities that lead up to it.

One of the strategies that Microsoft used (and still uses, perhaps) is the interlocking of products. That is, designing Microsoft products to work well with other Microsoft products and poorly (or not at all) with competing products. You can see the result of this strategy with the compatibility of Microsoft products. MS SourceSafe uses MS SQL Server (but not other databases), MS Outlook connects to MS Exchange but not other e-mail clients, and Windows uses ActiveDirectory for authentication but not generic LDAP servers (at least not without third-party products).

In Breaking Windows, Banks claims that this strategy is pushed by Bill Gates. Gates was not satisfied with the strategy of winning market share by having the best product; he feared that a newer, better product could take market share. Gates wanted lock-in, a strategy that made it expensive (and difficult) for a customer to switch to a competing product, whether that product was the browser, the word processor, the database, or anything.

And the strategy seems to have worked. Microsoft gained (and still has) a dominant market share. MS Office leads the field, despite competing products offering compatible file formats. The one weakest area might be with the browser, and Microsoft still has eighty percent of the market.

But it strikes me that Microsoft may have missed some nuances of this strategy. I can see situations in which Microsoft loses market share. The problem is that using Microsoft technologies is an all-or-nothing deal. You have to buy into the entire stack, or leave the entire suite of Microsoft products out in the cold. Even shops that use multiple technologies (Microsoft and IBM, or Microsoft and Sun) are usually two well-separated operations, not a single unified shop.

Here's how the interlocking, all-or-nothing strategy hurts Microsoft:

First, non-Microsoft shops are reluctant to switch to Microsoft. Reluctant to switch anything, since any product becomes the "camel's nose under the tent". Not surprisingly, Microsoft has used this approach to get themselves into non-Microsoft shops. But I'm sure that some shops have issued dictums to the effect of "no Microsoft technology... at all". Microsoft, by sticking to their approach, has alienated these shops -- and lost their business.

Second, Microsoft shops, once they start migrating to another technology (despite the interlocking effort by Microsoft), are likely to dump all of the Microsoft technology. This depends a great deal on the specific starting point: a shop can more easily replace MS Office with OpenOffice than it can replace ActiveDirectory with LDAP. But once the "new tech" has been accepted, and people see that other Microsoft products do not work with it, I think the tendency is to consider the Microsoft technologies as "legacy" and less important than the shiney new stuff. (Probably not a rational approach, but much in our industry is not rational.)

Once people see that OpenOffice does the job, they are more willing to accept Linux. And then LDAP for authentication. And MySQL or SQlite databases.

And the whole Microsoft pyramid crashes to the ground.

Microsoft, by focussing on "hard to switch", lost sight of "better customer value". Customers are aware of "hard to switch", but they also keep their eyes on "value for me" -- if they don't, they go out of business.

Microsoft with their interlocking strategy is shooting for the whole pie, or nothing at all.

And they may just get it.

Silver and Golden ages

Does history repeat itself? Perhaps it does.

Let's look back at the "Great PC Event" of 1981 and the ages immediately prior and after. In September of 1981, IBM introduced its model 5150, otherwise known as the "PC", and the world changed.

Prior to the release of the PC, there was the "silver age" of microcomputers. This ran from 1977 to 1980, by my arbitrary standards. This is the age of the Apple II, the TRS-80, the Commodore 64, and my personal favorite the Heathkit H-89. I use the adjective "silver" because to many of us, these microcomputers were magical, and could solve just about any problem. They were the new silver bullets. (Yes, they were clunky. Yes, they had problems. And yes, they did *not* solve every problem, or even many problems. But we thought of them as magical.)

The golden age of IBM PCs started with the IBM PC and lasted until 1986, when Compaq started innovating beyond IBM. It was certainly over in 1987, when IBM introduced the PS/2, and many in the industry were disappointed and many did not follow IBM's lead. I use the adjective "golden" for this age because the IBM PC computers made a lot of gold for people, mostly IBM.

There are differences between these two ages. The silver age saw a collection of different computers, each with their own architectures, keyboards, disk formats, memory layouts, and operating systems. The golden age saw a standard architecture, a standard keyboard, a standard set of disk formats, a standard memory layout, and a standard operating system.

One big difference between the two ages was the level of corporate acceptance. Before IBM gave the stamp of legitimacy to PCs, corporations didn't really trust small computers. (Oh, there were a few that experimented, but in general microcomputers were considered fancy typewriters.)

After IBM defined the hardware and Lotus provided the "killer app" of the spreadsheet, corporations were willing to accept the PC. The earlier computers had no chance at success. The new legitimate standard was "the thing".

Corporations accepted the PC as a unit of computation, a place for work. The PC went from "fancy typewriter" to "small, stand-alone computing station". And it has stayed there since.

Let's fast-forward to the year 2009 and look at the state of PCs. The internals of the PC have changed: new processors, new buss technologies, better graphics, faster (and much more) memory, CDs and not floppy drives. But much has not changed.

Despite the advances in networking, the corporate mindset of the PC is still a small, stand-alone computing station. Microsoft and others have made some progress at collaborative tools, but their acceptance has been mild. The PC performs a specific task in the corporation, and the corporation is not ready to expand that role. I predict that PCs will keep that assigned role.

Something else that we have in 2009 are the portable devices, or mobile internet devices (MIDs). These devices include cell phones, smart phones, iPods, iPhones, internet tables, Zunes, PalmPilots, and the like. You can see them everywhere: in the office, at the gym, even in the library. People have accepted them as small, portable, networked units that provide information and entertainment. The important notions are "portable" and "networked".

MIDs are different from PCs. PCs are large, not easily carried, and attached to things like power and network connections. Laptop PCs are smaller than PCs but still inconvenient to carry. Bettery life is short, so you need power connections. And many corporations don't want wireless networking, so you have to use cables to attach to network points. MIDs are mobile; you can take them with you easily, and they are aware of their location. Because of these traits, MIDs will have different uses.

When corporations adopt MIDs, they will adopt them with the traits of "portable" and "networked". These ideas will be "baked in" to the corporate notion of a MID.

The new functions for MIDs will probably be based some combination of location awareness (GPS), constant internet connectivity (a Wi-Fi connection that can move like a cell phone), fast messaging (Twitter), and the old PDA functions (calendar, reminders, address book) but on-line to a central database. MIDs will allow people to share information in real-time.

Currently, every MID is its own thing. An iPhone is an iPhone, with it's screen and software. A Nokia N810 is a Nokia N810 with a different screen and different software. 

People use MIDs but corporations do not. (The one exception may be the Blackberry, but in the corporate mind that is simply a channel to e-mail.) There is no corporate notion of a MID; MIDs are not part of the corporation mindset.

History is repeating itself. Or perhaps, we are repeating a behavior. We are in the silver age.

I expect a standard to emerge, a combination of hardware and a "killer app". Corporations will accept MIDs (because of the killer app), and assign them a role different from the role of PCs. They will find a use for the MID and accept them.

The technology is almost ready. The applications have yet to appear.

I'm pretty sure that MIDs will *not* be used for e-mail, word processing, and spreadsheets. Their form serves those tasks poorly. In the corporate mind, the "proper" device for those tasks is a PC, and the corporate mind changes slowly.

The new applications for MIDs will use the "network effect" to gain popularity. Once your friend has it, you will have a use for it. Once you have it, all of your friends will have a need for it. In the corporate world, once your boss has it, you will have a use for it.

So I think that we are in the silver age of MIDs. We have different MIDs that can do different things. When we have the right application (the "killer app"), we will enter the golden age. At that point, one manufacturer may become dominant (like IBM with the PC) or many may become successful (such as the situation with cell phones).

And a new golden age will begin.

The new dinosaurs

Way back in the day, we were the young upstarts, the revolutionaries, the misfits. We were the users of microcomputers, which were later known as personal computers. We were the the people who would change the world.

We derided the mainframe users. We considered their legacy hardware bulky and clunky, hard to use, and encumbered with design decisions that favored backward compatibility. Their software was awkward too, and their languages were clumsy, lacking the modern style of our languages. "Who wants to work on those old things?" we would as ourselves, and anyone willing to listen to revolutionaries. We wanted the new, the shiney, the modern. We wanted MS-DOS and dBase II and Lotus 1-2-3, not COBOL or DB2 or CICS.

Our systems were sleek and efficient, with new designs and flexible architectures. Our languages (C and Pascal) were nimble and powerful. We were the new kings of the world, although perhaps the world did not know it. We left the dinosaurs at their table and set up our own table, and had conversations in the newspeak of PCs.

Today, I find myself in an interesting situation. Today, it is the almost thirty-year-old PC that is the clumsy beast, unable to keep up with the times. Today, the sleek and modern equipment is the iPod, the iPhone, and the netbook computers. The PC is the legacy beast, old and clumsy compared to the new equipment. Languages too have changed. The C and Pascal we considered modern are now relics. The super-modern C++ is a legacy language, the "COBOL of the nineties". Microsoft Windows is a bear, tolerated only because large corporations use it. The "new" languages of the past are now old, and languages such as Ruby, Lua, and Haskell are in the ascendent.

"Who wants to work on those old beasts?" the young revolutionaries ask. "Why use those old languages and those old PCs with their legacy compromises? Their not portable and lots of them don't even have wi-fi!"

The revolutionaries have left our table, leaving us to talk about the glory days of PCs and the conquests we made with our software. They are setting up their own table, with wi-fi and mobility and pocket-sized devices.

We have met the dinosaurs and they are us!