Part 1: Asymmetric Marketing, Microsoft Style: Category Regime Change

The fines levied this year by the European Union against Microsoft demonstrate once again that Redmond’s competitors have failed to effectively develop countermeasures against them and so must resort to government intervention as a marketing strategy. But government intervention, even if upheld, is essentially ineffective against tech ‘natural monopolies’ because natural monopolies follow Professor Brian Arthur’s law of increasing returns

I like to think of asymmetric marketing as asymmetric warfare theory applied to technology markets, i.e. the ability of market combatant to wage unconventional or unorthodox market warfare (hence the brass knuckles metaphor on this weblog) against both emerging and market share leaders. For CEOs of today’s new crop of startups and emerging market leaders, it is absolutely essential to both study the history of Microsoft, as well as to have a ‘Microsoft strategy’ since their ability to move at will, short of government intervention, is a matter of public record. Here is a short list of 10 Microsoft best practices in asymmetric marketing that should form the basis for an introductory course on the Microsoft ‘way’.

1. Category Regime Change

Let’s describe market asymmetry in tech categories. One of the key indicators of an asymmetric marketer is the ability to systematically go on the offensive against, and out-compete, a market share leader in an adjacent category effectively ‘restructuring’ that adjacent category or market segment around one’s own rules. I call it Category Regime Change. Microsoft has done this in at least 4 major engagements and now has a set of best practices in place to replicate this almost on-demand in both emerging and mature categories. Here are four classic market restructurings in which Microsoft carried out ‘regime change’:

PC Standards: I’m dating myself here but I do seem to recall a time in the distant past of Middle Earth when today’s PC used to be known as an ‘IBM compatible PC’. Now it’s the ‘Wintel’ or simply Windows PC. Microsoft, in it’s first major regime change engagement, recognized that the rapidly expanding IBM clone industry of the early 90’s was more significant to their long term business than their original platinum customer, IBM. IBM, itself seeking to maintain control of the standard, wanted to impose OS/2 on Microsoft and pre-empt Redmond’s then emerging Windows franchise. Moving from a position of relative weakness and risk to one of absolute strength, Microsoft rejected IBM’s moves to make OS/2 the dominant x86 graphical OS and pushed forward into the clone ‘hurricane’ making Windows the standard for the hundreds and hundreds of 800# direct marketers and international ‘white box’ builders. Back in those days the so-called ‘all others’ (non-branded PCs) category was the volume brand in the U.S. and still is in many emerging international markets. IBM never regained control of the standard they created, today commands only single digit market share in PCs, while Microsoft realized from this historic engagement that it had begun perfecting the practice of asymmetric marketing.

Desktop Applications: Using OEM marketing clout, bundling deals, and technical innovation, Microsoft rolled over WordPerfect and Lotus with its Office package. It’s important to note that these 2 companies had 80 plus percent market share in their respective markets when Microsoft made its moves. When Microsoft undertakes regime change, it is usually against an incumbent with dominant market share. I remember having a dialog with the marketing VP at WordPerfect, inquiring as to his strategy to defeat Microsoft’s OEM marketing program for desktop apps. Sounding like he had just stepped out of a seminar run by fresh-out-of-b-school MBAs, he responded that ‘we’re the top-of-mind brand, we command strong retail pricing power, and we’re don’t need to have an OEM marketing program’. Oops. Regime change number two as both Lotus 1-2-3 and WordPerfect are brought low by the asymmetric marketers from Redmond.

Local Area Networks: The next market ‘regime change’ target was Novell. Novell also had overwhelming market share dominance in network server software and even purchased Digital Research to try to go after the DOS desktop market. But Microsoft’s NT server, based on internet protocols, overtook the more proprietary Netware. Strong product management that emphasized the same developer APIs for both the client and server turned the tide in Microsoft’s favor, helping them build an army of 3rd party developers and solutions providers. Hundreds of years ago, Sun Tzu described asymmetric warfare as ‘stones on eggs’. This army of third party developers that morphed into the Microsoft Partner network were the stones thrown onto the eggs of Novell’s disgruntled VAR channel.

Internet Technology: The Netscape/Microsoft ‘browser wars’ are well documented. Microsoft gave away Internet Explorer as part of the Windows OS, triggering the DOJ actions, which should be seen by industry marketing professionals for what they were---marketing countermeasures against Microsoft by a company that was unable to defend it’s own franchise in the marketplace. Microsoft also built their internet web server into it’s Windows server thus attacking Netscape’s intranet software business, which was the real revenue base in the year prior to their shared acquisition by AOL and Sun. The browser wars showed how Microsoft had really perfected the practice of category regime change, and how it’s competitors, having failed in the study of marketing best practices, resorted to government intervention to attempt to reverse the situation. The recent EU fines related to Windows Media Player must be seen in this context.

Microsoft has learned these lessons well and let me repeat once again that today every tech company in every tech category should at least ask themselves the question “Do I have a strategy to resist regime change should Microsoft enter my market? Do I have a strategy to either aggressively partner with them, or develop counter-measures against them? But what are the specific ingredients of regime change used by Microsoft that can be studied and applied by emerging category vendors. I will describe them in the next sections of this essay.