Competitive Strategy Examined

Back in the 1990s, the dominant web browser was Netscape Navigator. I tried to negotiate a “bundle” deal that included a copy Netscape with every copy of the software we developed, Netscape wanted to charge me a commercial licensing fee. When I argued that “the other browser” was free for bundling, they simply dismissed me. Microsoft’s Internet Explorer effectively killed Netscape, the company and the browser. Today, no one makes money on browser licensing. The great browser war destroy that market, the real only victim was Netscape, as a commercial entity.

Microsoft succeeded in protecting its revenue and profit sources: Windows and Office. Had they did not kill Netscape, the platform will shift to browser and killed Windows, the new generations of application would replaced office suite. Had they not won the war, they wouldn’t have lasted to today or enjoy the dominance of Office 365.

Microsoft never made money in licensing browsers. By making IE free, they directly took away the Netscape’s sole profit source. IE was inferior then, but that did not matter. It was good enough as a free browser.

Google is trying the same with G-suite. By making them free, they prevented Microsoft from raising the price. This effectively took away a large chunk of Microsoft’s profit. Since Google never had any Office revenue, it does not hurt them. Note that “search” itself is free to the user to begin with. No one can compete with Google on pricing for search.

This is a lesser known competitive strategy. Different from the traditional way to find differentiators or addressing new customer demands. It under-cut the competitor’s profit margin and shift the playing field to where one is stronger. Microsoft’s strength was in Office and not browser. Google leads in search and not office suite. They both created an inferior product just to hurt the competitor’s profit margin and, therefore, force the war to be fought on where they are stronger.

Only those with deep pockets can play this game. In cloud-computing space, you can observe each player’s position. Each of the key players — AWS, Azure, Google, Oracle — has a leverage and anchor: retail, back-office, search, and ERP. Which will win when IaaS lost all profit margin like browser did? The answer is simple: which of the leverage is most profitable?

The answer was in their annual reports., the retail part, is actually not making lots of money at all. It really reminds me of Netscape in the 90s.

This, cloud IaaS, will be a 10-year war among the giants. We, the consumers, will benefit and enjoy the show on the side-line.

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