Understanding IBM

Part 23. Razor Blades

"Give away the razor, make money on the blades" was a popular way of summarizing the marketing techniques for razor blade companies. By making replacement blades available in large quantities, while giving away the tool required to use these blades, a habit was created. A habit of regular purchases of replacement blades replaced the previous habit of buying a good razor and keeping it for years. This meant a steady, long-term revenue stream for razor companies. It also made the value of a good razor become near-zero.

In the software marketplace, the "razor blades" that have produced a mass-market purchasing habit are the operating systems purchased for IBM-compatible PCs, particularly Microsoft's Windows products. The dramatic cost reductions in computing power over the past 20 years have made "giving away the razor" an effective way to put people on the treadmill of Windows purchases. Instead of buying an expensive computer with software that had long-term viability, the PC market turned this metric on its head. It became popular to buy a cheap computer with software that had no long-term value or reliability, to be replaced after a few years with another cheap piece of software or even a whole computer. A steady stream of upgrades, replacement systems, and new versions of the same product could now be sold, producing a long-term revenue stream as a reward to Microsoft and its cronies for reducing the inherent quality of the computing experience.

In fact, this practice of reducing the price of the entry-level machinery has been very effective in hiding the long-term costs of mediocre, unreliable Microsoft products. To a culture of short-sighted management, IBM's approach of selling quality razors with a long life-cycle began to look old-fashioned and greedy. Because the PCs and their deceptively low entry-cost appeared to be a ridiculously obvious choice to replace mainframe and midrange computers, businesses developed a cultural habit of buying PCs and related products. The value of large systems came to be perceived as near-zero by the general public and even many corporate managers, who failed to see the long-term implications of buying inherently unreliable software.

IBM's response has been to turn the tables on this approach. If people are going to use lots of personal computers and cheap software, IBM says "Let them." Instead of trying to compete in the market for razor blades, IBM has decided to sell bandages. As businesses begin realizing that they have bought into a losing proposition with Microsoft's unsafe products, IBM is making a killing on the "bandages" of services, server management software, and related products. If people refuse to return to the practice of buying quality products, IBM will be there to patch up the self-inflicted wounds of the mistake-prone business world.

Most recent revision: May 30, 1998
Copyright © 1998, Tom Nadeau
All Rights Reserved.