December 3, 2005
Attenuate Goliath’s Bundling Strength
This post is part of the overall posting “How Can David Beat Goliath?- Strategy #7: Attenuate Goliath’s Strength“:
Bundling is offering a set of products at a price for the package. In some cases the products are tightly coupled via proprietary software interfaces, but in many cases they are independent products that are sold together.
Large companies bundle their products to lock out the small competitors who do not have the product breadth. It is a great strategy (If I were advising the large companies, I would approach the world in a similar way). That said, I think that the way many companies are approaching bundling may actually create a disadvantage for them in at least some of the cases (which is an advantage for the emerging growth company!).
From a “get users” perspective, the results are positive, as certain users will give the bundled products a try. However, there are a few disadvantages to the large company, especially in instances where the products are independent (that is when they are not connected via a unique API):
- Many users will not use the products, even though the price for the product is “free.” This is because customers also look at implementation and configuration cost, longer-term cost of ownership, and product benefits in addition to the purchase price. Much (most?) of the time, these other costs and benefits greatly outweigh the benefit of the product being “free”.
- Many times the large companies lose their focus on the smaller products, as they are lost when included with the large company’s larger products.
- Most of the time, the large company doesn’t understand the true economics of the smaller products because of the bundling (both cost and revenue allocations are impossibly difficult to do when products are bundled). This makes it difficult for them to make solid business decisions with respect to these products.
The problems that large companies have can result in their products not realizing their full potential…which is a real opportunity for the emerging growth company.
The emerging growth company doesn’t need to do anything more than execute against the strategies that I have already outlined in prior posts. You may lose a few sales because of bundling, but I have seen many emerging growth companies that compete quite well against bundling by focusing on the customer and delivering the best products and services available. Also, the sales that you lose may have been to prospects that do not have the unique needs that you can sell into, so they may not actually be lost sales.)