Umair Haque / Bubblegeneration
umair haque  


Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Tuesday, August 17, 2004

Strategy decay : Starter XP is so crippled, I think we can safely declare it dead on arrival. Constrained to run only three applications at a time? Wow!! We have seen a new level of strategic idiocy with this one.

Here's my take on how this "strategy", if I can call it that, might've been formulated : go through a list of checkboxes to de-feature standard XP to create "differentiated value" and position it in the "lower quadrangle of price-value map". Launch Starter XP at the low end of the product choice spectrum, and target it at the entry level value-seeker. This is classic marketing thinking, kinda like pitting the Saturn against the Civic. Since Microsoft is a monopoly, this is more like creating competition against Chevrolet by launching the Saturn.

However, from an economics perspective, there would be two more competitors in that spectrum : pirated copy of Standard XP and Linux. In economics parlance, these are substitute goods. Economics is the science of making choices and their causal relationships with incentives. What incentive does a value seeker have for choosing Starter XP? By definition, the value-seeker's prime motive is to get the highest value for lowest money. Where does he get the most bang for his buck? Considering that Linux has associated switching costs due to the value-seekers' unfamiliarity with the platform, the first choice is likely to be pirated XP. Is there any incentive for him to switch over to Starter XP? Nope. Why would he trade higher value/dollar derived from pirated XP for the lower value/dollar of Starter XP? The only additional benefit is the value of owning a "legal" copy. How much is that benefit worth? The expected value of this benefit is equivalent to the potential cost of prosecution and fine, which is the probability (risk) of prosecution multiplied by the legal fine. Since the rate or prosecution and conviction in cases of piracy is extremely low in the target markets, the expected value of the benefit ("marginal benefit" in economics parlance) is correspondingly low. Is it worth the additional cost of imposed de-featurization as well as the mark-up over the price of a pirated XP? Doh!

-- Mahashunyam // 6:39 PM // 1 comments


Very very nicely said.
// Blogger umair // 7:49 PM

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