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is always very welcome...
Michael Cusumano and David Yoffee (1998), Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft (New York: Free Press: 0684853191).
J. Bradford DeLong
Professor of Economics, University of California at Berkeley,
and Research Associate, National Bureau of Economic Research
Microsoft's lawyers tried to subpoena the notes for this book as evidence in the 1998-1999 Microsoft antitrust trial--as evidence that Netscape's loss of market share in internet browsers to Microsoft had been the result of Netscape's own mistakes in corporate strategy, rather than of Microsoft's monopolistic, anti-competitive business practices.
When the authors began their research in July 1997, the first question that they asked--of Netscape's president and CEO, James Barksdale--was: "Why will Netscape still be around when we finish this book a year and a half from now?" The premise of the question turned out to be false: Netscape was not around a year and a half later. Some of its software is now Sun's. Its internet portal--Netscape Netcenter--and the rest of the compnay is now part of America On-Line, AOL. Netscape may, as Barksdale said, have had "passion... [and] promotion.... got[ten its]... brand known quicker than any company in history." But the "Internet Time" of Cusumano and Yoffee's title--the telescoping of the normal phases of business development into amazingly short time spans--seems to have been a very real phenomenon in the case of Netscape. "Life was not like this before!" write Cusumano and Yoffee. "In past decades many companies extolled the virtues of long-term planning--looking forward five to ten years into the future." The industry changed so fast, and Netscape's place in the product cycle changed with it, so that evolving and instituting a true strategy for the corporation proved very, very difficult: close your eyes, and when you open them the industry environment--and thus the corporation's goals--had changed.
Cusumano and Yoffee believe that "Internet time" carries with it three large changes in the way that corporations should operate.
First, companies competing on "Internet time" need to be able to move rapidly to new products and markets. This can only be possible if they are willing to do two things. First, they need to figure out how to tap external resources to aid their product development and technology strategies--in Netscape's case, turning to the internet community to help first with bughunting and then with actual feature design in order to accelerate product development. Second, they need to work in parallel--products need to be started not one after the other, but in rapid and staggered succession, with one group working on the next release and one working on the next-plus-one release.
And such rapid movement is only possible if companies are willing to "eat their own dog food'--used their products under development internally, because only by eating their own dog food can companies get rapid enough feedback to make rapid movement successful.
Second, companies competing on "Internet time" need to be willing and able to fly beneath the radar of their established potential competitors for considerable periods of time. This is what Cusumano and Yoffee call the "Trojan Horse" strategy, which they claim has "been at the core of the most enduring franchises in information technology in the past three decades." As they assess the situation:
When Intel started to sell its microprocessors in the late 1970s and Microsoft offered very favorable terms on its operating system, DOS, in the early 19890s, few people really understood what they were buying.... Yet IBM and others failed to see the Trojan horse, and neither Intel nor Microsoft told them!...
The power and effectiveness of Trojan Horse strategies carries two lessons. First, if you are a customer "'beware of information technology companies bearing gifts": beware of becoming locked-in to a single-source supplier. Second, if you are a company attempting to operate a Trojan Horse strategy:
...avoid "mooning the giant".... [Netscape's] repeatedly telling the world that Microsoft's operating system would become nothing more than a "mundane collection of not entirely debugged device drivers" got Bill Gates's attention. And once the enemy was awake, the soldiers in[side] the [Trojan] horse became vulnerable...
"Internet time" carries additional lessons for how corporations should not operate. Companies cannot afford to have customers postpone purchasing their current products because their future products will be much, much better: don't depend on the revolution coming tomorrow. Companies need to be able to think long-term--because the long term arrives very quickly. Some of Netscape's biggest problems came from its excessive enthusiasm for generating profits now rather than market share and relationship benefits that would pay off later. Cusumano and Yoffee criticize Netscape for its willingness to " lose market share, delay important strategic decisions (such as reducing the price of the browser), and weaken potentially valuable long-term relationships (with content companies like CNET)..." in an attempt to produce better short-term earnings.
Companies cannot compromise on quality: it is better to ship late than to ship buggy products. Thus companies have to cultivate contradictory skills: flexibility in design and innovation coupled with rigorous and careful testing and quality control. Companies cannot be afraid of cannibalizing their existing markets. Here Cusumano and Yoffee hold up Microsoft as an example:
Rather than allow someone else to do it, Gates chose to risk cannibalizing his own business... proprietary technologies... ActiveX... Blackbird... Microsoft Network.... Microsoft sank hundreds of millions of dollars into MSN before the Internet moved to the top of Gagtes's agenda. But rather than allow these commitments to slow Microsoft down, Gates was willing to do everything and anything to get share for Internet Explorer... [ p. 318]
Yet not everything has changed as a result of the rise of the Internet. Core elements of comparative advantage--vision, leadership, innovation, quality, barriers to entry, customer lock-in, switching costs, and partner relationships--remain critical to corporate success. But in the information age many standard sources of competitive advantage can be fleeting. The important thing is to find and hold onto those relatively few sources of long-term competitive advantage that can endure.
p. 3: "The 'Internet future' has been unfolding so fast that managers in the industry tell us that they cannot confidently predict exactly what products and features to build, what technologies to use, or what customers will buy more than six months to a year in advance."
p. 4: "In past decades, many companies extolled the virtues of long-term planning--looking forward five to ten years into the future."
p. 5: "Several core elements of comparative advantage--vision, leadership, innovation, quality, barriers to entry, customer lock-in, switching costs, and partner relationships--remain critical to the overall equation for creating a successful company."
p. 6: "Competing on Internet time is about more than just being fast. The apparent compression of time is only one dimension of life in and around the Internet. For us, competing on Internet time is about moving rapidly to new products and markets; becoming flexible in strategy, structure, and operations; and exploiting all points of leverage for competitive advantage. The Internet demands that firms identify emerging opportunities quickly and move with great speed... managers must be flexible enough to change direction, change their organization, and change their day-to-day operations. Finally, in an information world where too many competitive advantages can be fleeting and new entrants can easily challenge incumbents, companies must find sources of leverage that can endure..."
pp. 6-7: "Netscape's decision to ship a new browser electronically over the Internet every few months, with 'beta' or pilot versions even more frequently... made the company an immediate symbol of competing on Internet time."
p. 9: "A Web browser was not part of the original Windows 95 product specification."
Web Server market, April 1998: Netscape--22%; Microsoft--21%; Apache--35%; other--22%.
p. 16: "... three central struggles--the browser wars, the server wars, and the portal wars..."
pp. 298-9: "In the 'old' pre-Internet world, PC software companies had the luxury of 24- to 36-month development cycles for major products like operating systems.... In... browsers and Web servers... Netscape and Microsoft planned to introduce new products roughly every 18 months. But in emerging fields, such as electronic commerce on Web portal[s]... Internet time... demand[s] significant product and feature changes every three to six months."
p. 299: "In 1999, a standard desktop computer ran at roughly 150 million instructions per second. By the year 2010... computers... should have the capability to process 100 billion instructions per second!"
p. 300: "... managers should avoid proclaiming the revolution before its time."
p. 300: "[Managers] should also be wary of underestimating the importance of quality and service for enterprise customers in the race for greater speed."
p. 300: "Judo technique #1: move rapidly to new products and markets"
pp. 302-3: "Tapping external resources. To implement its strategy, Netscape drew heavily on resources.... Netscape... turned to the community of the Web [for bug hunting], with a beta release policy that enrolled millions of users in the search for bugs and design suggestions."
p. 303: "Parallel development... two teams woul d sstart and work simultaneously on... the next and the next-plus-one release. Small groups of engineers... developed individual features independent of particular projects but in parallel and then merged their code when it was ready..."
p. 304: "'Eating your own dog food'... employees at both companies used product under development internally in order to get immediate and intimate feedback..."
p. 304: "Judo technique #2: be flexible in strategy and implementation"
p. 305: "Netscape was highly flexible at the tactical level.... In mid-1997, for example, Netscape responded to Microsoft's announcements about push technology by reshuffling its development strategy to add a push component to Communicator."
p. 306: "The joke in Silicon Valley likens competing on Internet time to leading a dog's life--compressing seven years into one."
p. 307: "Microsoft executives identified competitive threats. Then they set deadlines for public events, in order to force the organization to commit to a new path..."
p. 309: "Judo technique #3: exploit all points of leverage"
pp. 309-10: "In industry after industry, the Internet is changing the rules of the game. This creates openings for new, innovative firms to take on the old, well-established players who are weighed down by their success in the bricks-and-mortar world.... [I]f you are competing on Internet time, slowness to respond can be deadly. Give Amazon.com a year or two to build traffic, a brand, and a loyal following, and it might be hard (and extremely costly) to catch up."
p. 312: "Don't depend on the revolution coming tomorrow... the tyranny of the installed base is real."
p. 314: "Don't underestimate the importance of quality and process.... [T]o live on Internet time, companies have to cultivate seemingly contradictory skills: They have to be flexible in design and promote constant innovation, but still retain control over schedules and quality. They must invent new features, but they must also test them--continuously and repeatedly..."
p. 316: "Trojan horse strategies have been at the core of the most enduring franchises in information technology in the past three decades. When Intel started to sell its microprocessors in the late 1970s and Microsoft offered very favorable terms on its operating system, DOS, in the early 19890s, few people really understood what they were buying.... Yet IBM and others failed to see the Trojan horse, and neither Intel nor Microsoft told them!... There are two important lessons.... First, if you are a customer, 'beware of information technology companies bearing gifts'. Second, if you are a company employing Trojan horse strategies, avoid 'mooning the giant'.... [Netscape's] repeatedly telling the world that Microsoft's operating system would become nothing more than a 'mundane collection of not entirely debugged device drivers' got Bill Gates's attention. And once the enemy was awake, the soldiers in[side] the [Trojan] horse became vulnerable..."
p. 317: "Don't be afraid of cannibalization..."
p. 318: "Rather than allow someone else to do it, Gates chose to risk cannibalizing his own business... proprietary technologies... ActiveX... Blackbird... Microsoft Network.... Microsoft sank hundreds of millions of dollars into MSN before the Internet moved to the top of Gagtes's agenda. But rather than allow these commitments to slow Microsoft down, Gates was willing to do everything and anything to get share for Internet Explorer..."
p. 318: "Don't be too greedy.... In Netscape's case, there was excessive enthusiasm for extracting cash from every relationship and excessive enthusiasm for pleasing Wall Street.... In the rush to go public and demonstrate their success, they were willing to lose market share, delay important strategic decisions (such as reducing the price of the browser), and weaken potentialy valuable long-term relationships (with content companies like CNET)..."
p. 320: "Can a diversified Netscape deliver better products and services than Microsoft and a host of strong, focused competitors? The answer, of course, is maybe..."
p. 321: "The logic of increasing returns and network effects, however, suggests that ultimately there will be one dominant player in this [browser] market."
pp. 324-5: "Netscape's challenge [in the server market] is that great technology and first mover advantages are not enough. There are huge scale economies in this business, especially in sales and service, that favor IBM, Microsoft, Oracle, and others..."
p. 326: "The winners [in the portal wars]... will emerge... when they successfully hook (through personalization, virtual communities, and specialized content) as many customers as they can.... Netscape enters, though, with a strong position and a number of big advantages... one of the strongest brand names on the Internet and one of the most heavily trafficked sites on the Web.... Netscape has one significant advantage in the portal wars that only Microsoft shares. It can build functionaliyt into its browser that could make Netcenter easier to use and better than most of its portal competitors..."
|Professor of Economics J. Bradford DeLong, 601 Evans, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
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