Microsoft Product Upgrades: Ambiguity

Microsoft creates ambiguity for competitors when it publicly announces plans for a large set of potential upgrades, changes, or additions to its software or operating systems.

Competitors, whose software products must offer an array of features that at least match those offered by Microsoft, have little choice but to respond to every possibility. Microsoft s caginess about the ultimate configuration of its new products gives it a tremendous cost advantage over competitors: because it never implements all of the potential changes, it incurs costs only for those it actually upgrades, while competitors scramble.

Ambiguity at Microsoft has been highly publicized: journalists have coined the phrase vaporware to describe the uncertainty that its product announcements create, and many articles have highlighted Microsoft s use of ambiguity to confuse competitors. A representative article stated, Microsoft Inc. is particularly adept at this tactic and frequently announces new products that either never appear on the market or appear long after the announced date of introduction. ^[14]

Microsoft s use of ambiguity can be seen in its recent .NET umbrella initiative. .NET is evidently a set of web-based services that allow data to be exchanged seamlessly and efficiently online ”between customers and a small business or between that small business and its suppliers. Microsoft s difficult-to-interpret announcements say .NET covers a wide range of products, from its database and Internet servers to its Windows XP operating systems to its productivity software. ^[15]

Though competitors are doubtful that .NET will actually encompass all these products, they have little choice but to respond to the possibility that this will be the case. Thus, by forcing the competition s hand, Microsoft places itself in a position to gauge competitive response and then pursue its optimal course of action.

Leadership Lessons

Nothing about ambiguity implies a breach of integrity or a violation of the law. But, by merely announcing a large set of plausible product features, Microsoft effectively impairs rival firms decision-making abilities and preserves maximum flexibility for itself. Of course there are potential costs associated with such actions ”customers can become as confused as the competition, and courts may not look favorably on such dubiousness. Microsoft s ambiguous practices surfaced in the United States v. Microsoft proceedings in 2001, ^[16] and though U.S. courts ruled that its behavior was not anticompetitive, Microsoft s defense of its enigmatic behavior proved to be quite costly. In short, Microsoft shows us that forcing an opponent to respond to numerous threats, all plausible but only some real, causes him to spread himself so thinly that he deploys resources that could have been better used elsewhere in order to defend against threats that never materialize.

^[14] Prabhu, Jaideep, and Stewart, David W. Signaling Strategies in Competitive Interaction: Building Reputations and Hiding the Truth, Journal of Marketing and Research , February 1, 2001, 62.

^[15] Ricciuti, Mike, Microsoft Weaves a .Net over Win XP, ZDWire , October 18, 2001.

^[16] Bayus, Barry L.; Jain, Sanjay; and Rao, Ambar G., Truth or Consequences: An Analysis of Vaporware and New Product Announcements, Journal of Marketing and Research , revised March 2000.