Lock-in part deux

Following my post on whether lock-in is a good business strategy Joel Spolsky has written about the same thing. Coincidence I’m sure, I don’t think he reads my blog.

My conclusion was that it is no bad thing to allow customers to switch easily to a competitor but this was based more on gut feeling than hard facts. Now we have those facts: Joel says it costs him 2% of his revenues to make customer refunds. This is a sustainably low figure if his margins are reasonable and it is low despite a promise on the Copilot signup page that you “may cancel at any time, on the web, without hassle”.

Contrast this with my experience of cancelling a subscription to FT.com. I was duped by a similar promise of a web-based cancellation, but it led me to a page that just had a phone number to call where they tried to interrogate me about my cancellation and get me to change my mind. I will never subscribe to their services again, firstly because of the subterfuge and secondly because of the hard sell. If I needed Copilot, on the other hand, I would be only too glad to subscribe.

Joel points out another great post from his archives, one that is rich with irony. He used to be a member of the Microsoft Excel development team and recalls what made it a success in a market dominated by Lotus 123. The killer feature in Excel 4.0 was that it allowed the user to switch back to the Lotus 123 easily – it could write Lotus-format spreadsheets. This meant that the isolated Excel fans in an organisation could now use their favourite tool but still communicate with colleagues who used Lotus 123.

The irony? Microsoft Excel now has a 100% market share and the biggest reason why companies cannot switch to another product is the lock-in enforced by the lack of compatibility with today’s competitors. History would suggest that the first competitor to repeat the trick of Excel 4.0 will do well, but clearly this would be bad news for Microsoft.

Lock-in, therefore, is a good strategy when you have a monopoly position but a bad one if you are after market share. Thanks to Stu for pointing me to a post from Nicholas Carr that supports the first half of that statement. And thanks to Joel for the confirmation of my gut feeling.


4 Responses to “Lock-in part deux”

  1. 1 dominicsayers August 25, 2006 at 12:59

    Stu: do you have a blog yet? I checked out stuartberwick.com but it’s in a state of disrepair

  2. 2 Stu August 24, 2006 at 10:43

    And re. copilot, I can highly recommend it — I am a paying customer (it’s indispensible for resolving parental PC problems remotely), not only because it’s lock-in free, but because Joel’s writing convinced me that he was a guy who understood how to build quality products and it really is a quality product.

  3. 3 Stu August 24, 2006 at 10:29

    I think that’s exactly right Dom.

    The irony with Microsoft (and any big company for that matter) is that they play both games at once in different markets. Take Zune for example, their soon-to-launch putative iPod killer. Rumour has it that MS are going to buy all new Zune customers out of their iTunes libraries (i.e. resupply them with every track they own in a Zune-compatible format). Likely an enormous cost to MS — but that’s the price of winning locked-in market share from Apple.

    Another example recently is my (still favourite) RSS reader MyYahoo, which is the biggest web-based reader. It has no OPML export feature. All the challengers do.

    Product quality has a part to play though, since customer tolerance of lock-in is proportional to it. I am content to be locked in to my iPod, but the MyYahoo experience is now not that much better than its competitors and I’m very tempted to endure the pain of migrating to another reader just to win back ownership of my subscriptions.

    To complete the story, I noted that another Yahoo product — Mail — has some great lock-in busting technology: it will now import all emails, contacts, calendar items etc. from any other webmail provider (incl. gmail) with a couple of clicks!

  1. 1 Stop sending me these emails. Oh. Thanks. « Mushy’s Mumblings Trackback on September 6, 2006 at 23:30

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