Microsoft Windows

In 1990 Microsoft got 30 pc manufacturers to preinstall Windows 3.0 on their machines. That move effectively locked in millions of users into the Microsoft ecosystem and generated recurring revenues for over two decades.

Source: The Invincible Company, by Strategyzer, published by Wiley

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Microsoft originally launched Windows in 1985 as an add-on to MS-DOS, the original operating system of the PC. However, in 1990, when Microsoft launched Windows 3.0, it leveraged its relationships with PC manufacturers to preinstall the operating system (rather than shipping it separately). More than 30 manufacturers agreed to include the program for free and preinstalled it with every machine. As a result Windows rapidly gained in popularity — shipping over one million copies just two months after launch.

Once consumers had learned how to use Windows and compatible programs, most of them were reluctant to invest the time, cost, and effort to learn a new operating system and new programs. PC users effectively got themselves locked into the Microsoft ecosystem once they purchased their first Windows-equipped PC.


Spot a Market with Low Switching Costs for Customers

The early computer market is rather fragmented, and each computer manufacturer operates their own unique operating system. At this time it is relatively easy for customers to switch from one system to another.


Create a Value Proposition That Locks Customers In

Windows 3.0 increases switching costs in three ways: (1) PC manufacturers preinstall Windows, increasing the effort needed to switch, (2) the graphical interface and new features steepen the learning curve, (3) Microsoft builds an ecosystem of Windows compatible software to lock customers in via interoperability.


Focus on Scaling First-Time Customer Acquisition

Microsoft scales first-time customer acquisition of Windows 3.0 users in 1990 by getting 30 of the main PC manufacturers to preinstall Windows 3.0 and sign long-term licensing agreements. That puts Windows in the hands of millions of users and effectively locks them in.


Enjoy the Benefits of Lock-in

Due to the learning curve and software compatibility advantages, customers continuously come back to buy Windows PCs. This lock-in guarantees recurring licensing royalties from PC manufacturers and Windows sales to retail customers for over two decades.


Boost Windows Compatible Software

A key component of Microsoft’s lock-in strategy is to boost acquisition of developers to quickly increase the number of software applications available for the Windows ecosystem: Windows-compatible software rises from 700 before the launch of 3.0 to 1,200 one year later, and 5,000 by 1992.

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