Source Of 3.5 Million Quotes

To learn why bundling sometimes works, and other times doesn’t, I went to the source. I asked Brad Silverberg, who in his decade at Microsoft headed up some of the company’s most important product efforts—including the much-celebrated release of Windows 95, accelerating the franchise from $50 million to $3.5 billion, as well as all the early releases of Internet Explorer. He’s been a mentor of mine for years, having served on the board of a startup I founded years back. I interviewed Brad for The Cold Start Problem over videoconference; he was mostly retired and spending time with family in Jackson Hole, Wyoming. But his experience from the 1980s and ’90s has made him the definitive authority on this topic, and perhaps surprisingly, he’s skeptical of the power of bundling: Bundling a product is not the silver bullet everyone thinks. If it were that easy, the version 1.0 for Internet Explorer would have won, by simply bundling it with Windows. It didn’t—IE 1.0 only got to 3% or 4% market share, because it just wasn’t good enough yet. Bing is another example, when Microsoft wanted to get into search. It was the default search engine across the operating system, not just in Internet Explorer but also MSN and everywhere Microsoft could jam it. But it went nowhere. The distribution advantages don’t win when the product is inferior.91 Even if bundling gets you a lot of new users trying out a product, they won’t stick around if there’s a huge gap in features.

Lucent, Not Transparent In mid-2000, Lucent Technologies Inc. was owned by more investors than any other U.S. stock. With a market capitalization of $192.9 billion, it was the 12th-most-valuable company in America. Was that giant valuation justified? Let’s look at some basics from Lucent’s financial report for the fiscal quarter ended June 30, 2000:1 FIGURE 17-1 Lucent Technologies Inc. All numbers in millions of dollars. * Other assets, which includes goodwill. Source: Lucent quarterly financial reports (Form 10-Q). A closer reading of Lucent’s report sets alarm bells jangling like an unanswered telephone switchboard: Lucent had just bought an optical equipment supplier, Chromatis Networks, for $4.8 billion—of which $4.2 billion was “goodwill” (or cost above book value). Chromatis had 150 employees, no customers, and zero revenues, so the term “goodwill” seems inadequate; perhaps “hope chest” is more accurate. If Chromatis’s embryonic products did not work out, Lucent would have to reverse the goodwill and charge it off against future earnings. A footnote discloses that Lucent had lent $1.5 billion to purchasers of its products. Lucent was also on the hook for $350 million in guarantees for money its customers had borrowed elsewhere. The total of these “customer financings” had doubled in a year—suggesting that purchasers were running out of cash to buy Lucent’s products. What if they ran out of cash to pay their debts? Finally, Lucent treated the cost of developing new software as a “capital asset.” Rather than an asset, wasn’t that a routine business expense that should come out of earnings? CONCLUSION: In August 2001, Lucent shut down the Chromatis division after its products reportedly attracted only two customers.2 In fiscal year 2001, Lucent lost $16.2 billion; in fiscal year 2002, it lost another $11.9 billion. Included in those losses were $3.5 billion in “provisions for bad debts and customer financings,” $4.1 billion in “impairment charges related to goodwill,” and $362 million in charges “related to capitalized software.” Lucent’s stock, at $51.062 on June 30, 2000, finished 2002 at $1.26—a loss of nearly $190 billion in market value in two-and-a-half years.