Microsoft and Its Cost Value Message
April 21, 2009
We live in an era of knowledge value. I encountered this phrase after a visit to Japan 20 years ago. The idea is set forth in a very important book called The Knowledge Value Revolution. You can get a copy here. Taichi Sakaiya will require some effort, but I think the time will be well spent. One idea in the book is the notion of value. When I read articles or hear speeches that use the term “value” I wonder if the speaker has internalized Mr. Sakaiya’s explication.
I read the CNet article “Microsoft to Open Source: Please Don’t Compete on Price” here. As reported by Matt Asay, the Microsoft plea is for open source vendors to shift from marketing that pitches price as an advantage and start talking about value. I had to read the summary of Sam Ramji’s comments twice to make sure I understood his angle.
The notion of “value” is quite different from cost. A cost is easy to describe and measure. To soften the edges of the cost analysis, MBAs and other grifters have chopped up costs into indirect and direct costs. Some add notions of “burdened” and “unburdented”. Systems designed to track costs in certain government agencies simply don’t work. These systems were set up to put some costs in one silo and other costs in different silos. Then guidelines were put in place to prevent one silo from reporting costs is exactly the same way as another silo. In self defense, most savvy managers pick a specific cost factor and hang the project on that cost. The idea is to make an apple to apple comparison of the cost of licensing a search system or the cost of running an on site training program for 10 people. The manager ignores indirects and otehr types of MBA and accounting embroidery.
Value, particularly value in an information centric organization, is even fuzzier. Value sucks in costs and runs them through a denin stressing machine so the dollars become soft and edges get frayed. The “value” becomes fuzzy and it is more difficult to pull off an apple to apples comparison of a soft, fuzzy concept that a licensing cost. Marketers thrives in the value space. Heck, that’s what Shakespeare would be doing if he were alive today. There’s big money in the jargon, buzzword, and euphemism business.
“Knowledge value” kicks up the argument several levels. The perception of value pivots on the information available and how those data exist in a context. Mr. Sakaiya analyzes the concept of “knowledge value” in such a way that even I could figure out the brilliance of the Toyota Corporation’s Lexus pricing tactic.
What Microsoft is doing is remarkable. On one hand, the company is making many separate products available in one shopping basket component. The price for these shopping baskets is very attractive. XP for a netbook is a bargain because Microsoft is using price to shut the door on Linux. SharePoint includes search, collaboration, work flow, Web design, and content management for a flexible price that is usually lower than competitors’ price points for comparable features.
Microsoft competes on the basis of price. Sam Ramji wants everyone else, particularly the open source vendors, to compete on value. The idea is that Microsoft imparts more value to its products because of its widespread adoption, its dominance on the desktop, the number of junior college programmers who can use VisualStudio, and the vast Microsfot support network. The value is so great that the low price suddenly is put in a context of serious investment in the Microsoft ecosystem.
The way I understand Mr. Ramji’s argument is that Microsoft can compete on price. Everyone else can compete on value.
I am not sure if Mr. Ramji would agree with my interpretation. I have a hunch that open source vendors who provide software at a lower license cost are prepared to argue that their service fees are more competitive than Microsoft’s. The value, therefore, is a combination of lower licnesing costs and going-forward strategy that gives an organization greater control of those hockey stick cost overruns that often plague some enterprise software deployments.
Open source is gaining traction. How do I know? The “plea” expressed in this summary of Mr. Ranji’s remarks underscore the fact that open source is an issue for Microsoft. Google is a problem but open source may be an even bigger problem going forward. I am looking forware to a bargain priced copy of Windows 7.
Part of the knowledge value revolution is that buyers are getting better at determing which companies deliver knowledge value, not just lower prices and basic value.
Stephen Arnold, April 21, 2009
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