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.