Strategy Tax

Monday, April 30, 2001 by Dave Winer.

Ben Slivka 

This is a brief piece to introduce a term that I first heard a few weeks ago talking with an ex-Microsoft engineer, Ben Slivka. I got to know Ben in the mid-90s when he was the lead on Microsoft's earliest versions of Internet Explorer and Java. These projects were pure strategy, neither generated revenue, but they gave Microsoft a seat at the table in the evolution of the Web.

Ben left Microsoft in 1999, went to Amazon, and then went home to spend time with his family and enjoy life. That's why he had time to talk with me on the phone to explain how strategy at Microsoft worked when he was there, and perhaps still does.

What is a strategy tax? 

Ben explained that sometimes products developed inside a company such as Microsoft have to accept constraints that go against competitiveness, or might displease users, in order to further the cause of another product. I recognized the concept but had never heard the term.

An example. Consider a company that develops both a Web browser and a word processor. The product team for the browser might get lots of input from users saying "We'd like a better editor in the browser." It would be natural to give the users what they want. So they put the feature in their project plan, but when it comes up for review, the CEO shoots them down. "They should use the word processor," he says.

Another example. An electronics company makes a portable music player, and also owns a recording studio. The team working on the music player knows that there's a big market for players that work with a format that's popular with computer users, but lacks sophisticated copy protection. They project huge sales. But when the product comes up for review, the CEO shoots them down. "We'll lose sales of our music," he says.

My experience 

In the 1980s I was a member of the "have the courage to compete with yourself" school. This meant that I disavowed strategy taxes altogether. It got me in trouble, I almost lost my company this way.

In 1984 we had a steady provider, ThinkTank, it was selling two to three thousand copies a month, providing enough revenue for a staff of about 25 people. In 1985, a new kind of program became the rage, exemplified by Borland's Sidekick, which had the unique ability, for the day, of staying in memory while you used other software. Our users said "That's for us!" and we said "Stay tuned."

We developed a beautiful little program, that was very popular for a few months, but then quickly tailed off. We thought ThinkTank would cease to exist after we shipped the new product (the strategy tax thinking, in reverse), but quite the contrary, ThinkTank kept selling at the same two to three thousand units a month level. It never skipped a beat.

Not content to leave a good thing alone, we then shipped another product, which did kill ThinkTank, finally, but luckily for us sold even more units at a higher price, so the story had a happy ending.

Two schools of thought 

First, every company has strategy taxes. There's no way to eliminate them if you serve more than one constituency. You have to trade the interests off against each other, otherwise your products become mush, they mean nothing to anyone. But do you worry about another vendor giving your customers what they want? If so, you're probably wise to overlook the problems it might create.

Viewed another way, it seems a company can sell so much product in a month. It hardly matters what the product is, things just seem to balance out. If that's true, what guiding principle should strategists follow? In my opinion, try to do the best thing for the most users, but also keep the lines between the products clear. This builds goodwill and keeps it simple for the product teams, and that often leads to happier users. Let the teams compete with each other, let the market shift, and build momentum that's sustainable.

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Dave Winer