Just don't take stuff away from people

Alas, I never got to experience the taste of New Coke back in the eighties. And with just 12 signatures on an online petition to bring it back, it's likely I never will. As famous as the outcry against it was, the stories I read tell me that it wasn't actually an unpleasant drink: the bad taste in people's mouths had to do with their being deprived of the drink they'd loved for decades more than anything else. To quote an excellent Radiolab episode, 'loss hurts twice as much as gain feels good'. New Coke would had to have been pretty damn stunning to stand a chance.

Part of the opportunity of creating new brands, I've always thought (a new brand being, say, Tab, as opposed to a variation on an existing brand, like New Coke), is that it pretty much gives you license to put whatever random restrictions you like on a product or service, excused by 'this is a new thing. It works differently from other things, but that gives it some great benefits'.

Consider, as an example, the shopping model for furniture stores since time immemorial:

1. Customers visit the showroom, choose the items they like.
2. Delivery people show up at their homes, and, with full white-gloves treatment, install the items wherever they belong.

Now consider the IKEA shopping model:

1. Find a friend with a big heart, strong shoulders, and nothing to do on a weekend. Ideally he owns a huge car or small truck.
2. (Stop by a U-Haul if he doesn't)
3. Drive him to IKEA. Collectively pull heavy boxes from a shelf in a giant warehouse and cart them over to the checkout.
4. Lug the boxes into the vehicle, drive home, and try assemble the new furniture, from pieces, using your own tools and a cartoon that dare not use a single word of English to clarify the instructions.
5. Buy him dinner.

Now consider this: if you were a furniture retailer, already established by the time IKEA comes along, there is no way in hell that you can tell your customers that they're going to have to pick, carry and assemble their furniture themselves from now on. IKEA got away with it, and became phenomenally successful, because they were able to communicate to customers that theirs was a radically different shopping model. One that had clear drawbacks, but also great advantages. The only way you could compete with them would be to create a new brand, with the same up-front message on how the shopping model works. To do otherwise would be to lose the customers you already had. Why? Because they already associate your brand with convenience and white-gloves treatment, and you know that:

Customers don't forgive you when you take stuff away from them.

Which brings us to the Xbox One PR clusterfail. Apologists for the company will tell you that Microsoft are simply ahead of the curve on the DRM issue, and innovating their way to a solution for two very real, and very serious problems: one, the way that developers, publishers and console manufacturers have been cut out of the profits made when games are re-sold at retail, and, two, the inherent inability to prevent piracy of games where there isn't a central system verifying entitlements.

As with anything else, when there's an abundance, no-one rocks the boat: it's when resources start to get scarce that fights break out. In the gaming world, resources have been getting squeezed for years now. I could write pages on why, but I'll summarize instead:

1. Gaming has hit the mass market already. There isn't the opportunity for the kinds of exponential growth that drove profits up until around the PS2 days.
2. Gaming hardware gets a free ride on Moore's Law. Software isn't so lucky. Customers demand games that take full advantage of what the hardware can offer, which means that, just to keep up, some poor art team has to model the difference between an enemy getting shot in the stomach vs getting shot in the kneecaps (yeah, I don't like it either).
3. That art team is already the outsourced replacement for what used to be in-house development. The costs don't have much room to shrink.
4. Smartphone gaming has stolen attention from console gaming, and driven the perceived value of games way down.
5. The mid-sized developers have been dropping like flies throughout the 2000s. This gave the larger players less competition and hence room to expand in spite of the squeeze, but the corpses of former competitors are not a renewable resource.

So, kudos to Microsoft for firing the first shots in the war to reclaim profits? Well, put it this way: do you remember Qwikster? It's an eerily similar tale: Netflix could see which way the future was going (all content will be streamed, discs to become obsolete in a decade or so), and tried to get ahead of the game by going all-in with streaming, isolating the disc-based side of their business into a separate product (presumably so they could offload it to some poor sap before its money well dries up. Wouldn't you have loved to have been a fly on the wall for those negotiations?). But in blazing a trail to the future, they'd ignored the fact that the new bifurcated service would make things so much worse for their users: customers who used streaming and DVD-by-mail would now have two separate logins, on two different websites (how do you spell Qwikster again?), each of which having an independent billing configuration, and neither (presumably) would be sharing your viewing tastes with the other to make recommendations.

Fortunately, Netflix was able to pull the plug on the venture before rolling it out. The outcry was huge. And the one big message:

Customers don't forgive you when you take stuff away from them.

The real folly for Microsoft is that they knew as well as everyone else that disc-based gaming is going to be gone in a few years anyway, and had they waited just one generation for that to happen, they could have avoided alienating their entire customer base and handing Sony an easy victory.

Furthermore, they really could have had their cake and eaten it too. Suppose their E3 presser had gone like this instead: announce two products, an 'Xbox One' which competes head-on with the PS4 and maintains the status quo on DRM issues, and an 'Xbox On' which is the same hardware, minus optical drive. The Xbox On would be sold for less (and can be, since there's no optical drive in the bill of materials), and its games could be cheaper too (also without harming profits, since less value is lost through resale and piracy).

Customers get a clear choice. They can maintain the status quo if that's what they prefer (or, like many, have no choice), or they can move to the new system willingly (and, indeed, are incentivized to do so). Microsoft loses nothing. Everybody wins.

(Of course, I'm considering only the DRM issue here. Other factors, such as the live-TV-centered design and higher price point are separate mistakes).

But, it is not to be. The opening salvos in the next-gen console war have been fired, and Microsoft's shots were aimed, surprisingly, at their own feet. But maybe not so surprising: there's a clear pattern to their recent MO: force all their customers onto the same products; products which lack the variation that customers need to fit their circumstances, and for which the design priorities are aligned entirely with Microsoft's strategic interests, as opposed to the needs of their customers.

Kinda like with Windows 8. You're a desktop user? Don't want to use an interface designed for touch on your 27" display? Well too bad, we're trying to condition you to feel more familiar with our new smartphone OS.

That blinkered vision -- that customers would actually want to buy the smartphone variant of the OS whose new interface had been sapping their productivity ever since it was forced onto their desktops -- is the same kind of naïve wishful thinking as the belief that they can take away the freedoms that gamers have long enjoyed with discs. The outcry was entirely predictable; what's harder to guess is whether or not they'll capitulate.