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Friday, December 24, 2004

Microsoft And The Importance Of Product Integration

Michael Gartenberg writes, there are a lot of implications of the ruling for Microsoft - it's hardly game over as some would suggest with more appeals planned. Why is integration so important to Microsoft? As David Schatsky comments, if Microsoft offers a component separately it's nearly as effective as when they bundle it. Excerpts with edits and my comments added:

There are reasons why Microsoft bundles technology and views their ability to create synergy among products as an important way to both grow new product lines and protect existing franchises. To that end, it's important to understand that there are three main technology and/or product integration strategies that Microsoft has historically used.
- The first is intended to create a market for a new product that has little or no penetration but is strategically important to Microsoft as a platform to drive Windows forward. (e.g. Internet Explorer, Messenger, Windows Media). Microsoft bundles the new technology into the OS and gains immediate distribution breadth as a result. Market share is built in to the OS not the product. The challenge that Microsoft faces in this case is that it still must evangelize the market to make sure that the technology gets used. Although Redmond loses the opportunity to to charge for these products, the new technologies raises Windows profile and helps protect the core platform from competitive advances. This is one reason why Microsoft is fighting so hard to preserve the right to integrate Media Player into Windows.

- The second strategy is specifically designed to foster product upgrades by users. While some users are early adopters and will upgrade over time, Microsoft needs to create compelling scenarios to drive consumer upgrade incentives, promote product value and drive earlier upgrade cycles. In this case a new product may have no market share but can be connected to other product bundles and brands that are strong and therefore provide value to end users. As a result, this ultimately drives upgrades and future sales. (e.g. Office 2003/OneNote).

- Finally, Microsoft integrates new features to gain advantage over time in what we call competitive reaction cycles (e.g. PocketPC/Smartphone, X-Box). In this case Microsoft enters a new category where it has little or no share. To drive the product forward, Microsoft will continue to add new features and refine the product over time (without raising price) until the product is competitive or superior to alternatives.

The notion of success breeds success is a common theme for Microsoft. The ability to leverage technology platforms to drive new initiatives are important to the company and it is likely that they will continue to fight any efforts to curb their actions in integration or bundling.

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