Given Microsoft’s track record, it certainly appears that pre-announcement of Chicago were an attempt to thwart competition from rival products. Microsoft knows that information technology is one industry that is extremely volatile and highly unpredictable. Here market share increases and decreases with the entry or just an announcement of a new product. For this reason, it was important for the firm to preserve its market share while Chicago was not ready for release. With competitors like IBM keenly observing every move of Microsoft to detect any loopholes in its strategy or product, it was important for Microsoft to make some concrete measures to keep customers interested in forthcoming products of MS because interest in new product was one thing that could stop them from switching loyalties and trying out rival products.
When competition is stiff as we noticed in the case of Microsoft, customers are usually as good to the firm as the product it offers. While they may all love MS products, they cannot be effectively stopped from testing new rival products and once they do so, they may even get hooked to the new product. Microsoft understood this problem and while it enjoys a new loyal and large customer base, it is also aware of the characteristics of its average target consumer. An average MS consumer is a person who is well aware of the pros and cons of using certain software and which companies offer better profits than the other. This average person has money concerns too and for this reason, a good rival product offered at lower price would always be more tempting than am equally good product offered by his favorite firm at very high rates.
Microsoft however did not want to lose his market share to IBM’s new operating system and for this reason; it announced the release of the product much before it was ready to appear on market shelves. “Ian Fraser, vice-president marketing for Concord, Ont.-based Merisel Canada explains the impact of pre-announcing on competing products. He says that if a “significant product is pre-announced, it can slow down on the buying of competing products, which is usually the objectives of the game.” (Casselman, 1991)
In other words, when customers know that their favorite firm is about to launch a new important product, they are willing to wait a little longer before opting for the rival product. Delays in the release of Windows 95 might not have been a planned strategy but making announcements of product release two years before it actually materialized was certainly a calculated move. Microsoft was aware of the fact that IBM was in the processing of releasing its new operating system OS/2.2 and in order to retain customers, Microsoft decided to pre-announce the product. This was done to retain market share and to weaken the sales of rival products.
Question 2- VAPORWARE and ETHICS
Many people believe that pre-announcing a product is ethically wrong because vaporware gives rise to serious ethical questions. However if we delve deeper into the issue, we might notice that while vaporware does hurt competition and is an unethical move, it can be justified on the basis of stiff competition that prevails in American corporate world today.
First let us see how vaporware gives birth to ethical issues. For one, when a company pre-announces its product, it puts its customers in an uncomfortable and rather odd position. They need a new tool and some rival products are available in the market, but they are not trying them out simply because they were keenly awaiting that ‘major’ product by the firm they trust. This certainly hurts customers’ work and may even stall the progress of their projects. Secondly, by pre-announcing vendors deliberately thwart competition and slow down expected sales of new rival products. This is unethical because stifling competition is directly connected with abuse of power and position.
In the corporate world, you are required to meet competition but stifle it by unethical moves. Therefore it is one thing to crush competition with the help of effective marketing strategies and completely another to suffocate competitors through misinformation and lies.
Dyson (1989) writes: “Perhaps they can rationalize it by frankly saying their tool won’t be out for two years. But in that time, key executives can leave, financing can dwindle, parts can become scarce or testing and flaw fixing can take way longer than expected. So companies deserve no sympathy. Leaving customers in the lurch when promised goods don’t arrive (or arrive late or half-baked) is hardly an honorable practice, particularly when it seems to become part of the business plan.”
For this reason vaporware creates serious ethical problems as it gives one vendor an edge over his competition not because of product quality but misinformation. Vendors simply fail to take into account the impact of delays on customers, rivals, and stakeholders.
However if we study the problem from the viewpoint of profits and competition, we might be able to justify pre-announcements. Vendors are in the business to make money. Profit is therefore the key consideration. However to increase profits, vendors need a large and loyal customer base and good standing at Wall Street. Losing customers is a constant threat, which needs to be addressed with the means of effective strategies, and pre-announcing is one such strategy. Vendors see it as only a way of retaining customers and this is indeed not something unethical. Apart from retaining customers, vendors also need to have a good ranking at Wall Street in order to keep their stock prices high. However with no news of a new product in the offing, vendors can lose their edge and stock prices may tumble. For this reason IT firms argue that, “it’s the Wall Street engine that forces them to remain ever-visible (to keep their market cap ever-high) by plying us with “news” of one far-off product after another.” (McCrory, 1999)
DID MICROSOFT DO SOMETHING WRONG?
And were pre-announcements required to remain competitive in the software industry. (Questions 3 & 4 answered together)
Yes it did. This is the clearest possible answer to this question. Ideally, Microsoft should have refrained from pre-announcing its product when it had not even reached anywhere near the testing stage. The company should have announced the product when it was in its final completion stage because even after that software firms take six to eight months to actually release the product. For this reason, pre-announcing the product two years before its release and giving one false release date after another were totally uncalled for.
Gary Reback of Wilson, Sonsini, Goodrich & Rosati, Silicon Valley’s leading intellectual property law firm, charged Microsoft for using unethical tactics to stifle competition and one of those tactics included “Announcing the pending introduction of fictitious or premature products, so-called “vaporware,” to discourage consumers from buying competing products by suggesting that a competitor’s product will soon be obsolete.” He supported this charge with “smoking-gun evidence of Microsoft’s vaporware tactics against competitor Borland International. One Microsoft marketing employee wrote, “I developed a rollout plan for QuickC and CS that focused on minimizing Borland’s first mover advantage by pre-announcing with an aggressive communications campaign.”(Wheat, 1995) However if we do not think about how customers and competitors suffered and simply concentrate on the industry and how it works, it might be able to justify Microsoft’s actions. We have already discussed the importance of staying one step ahead of your rivals in IT world and Microsoft had to prove it was working on something ‘big’ to retain its customers and its market share. Secondly Microsoft may not have delayed the product deliberately. Software even after completing requires intense testing and one reason for persistent delay in release was this testing process. Microsoft must have thought its product was ready for release and excitedly announced a release date, but upon testing it discovered some serious flaws in the operating system and thus stalled the release even further. Bringing a half-basked product to the market can seriously damage any company’s reputation. And therefore thorough testing is extremely important and this may take a long time. Dyson (1989) explains, “…most of the software needed today doesn’t require creativity and daring as much as craftsmanship, attention to detail and integration with existing systems. The real challenge with the new [software] is getting it to fit the rest of what’s out there. It has to look and feel familiar to the millions of people who have used earlier versions, and it has to run the models and custom applications built around the old product…Solving this kind of problem isn’t a matter of some character shouting Eureka! It involves lots of detailed input by lots of people.” This testing process must have taken a lot longer than Microsoft had initially anticipated. However to stay competitive in the industry, Microsoft had to pre-announce the product and thus we should excuse the firm for this mistake because we all know Microsoft is really good at what it does.
Anne McCrory Vaporware: It’s OK… In Name Only Publication: Computerworld; Date: 01/25/1999;
Dyson, Esther A surfeit of vaporware. (Random Access) (Column) Publication: Forbes; Date: 05/01/1989;
Casselman, Grace Vaporware: vile or valid? (The downside of product pre-announcements) (Special Report) Publication: Computing Canada; Date: 12/19/1991;
Wheat, Andrew The info-baron: Bill Gates and Microsoft. Publication: Multinational Monitor; Date: 05/01/1995
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