Bundling value and offers you can’t refuse

Classroom daydreams

Although Harvard Business School student Dan Bricklin was physically present in class, his mind was elsewhere. He had become increasingly preoccupied with the inefficiency of analyzing business problems by means of calculator and paper, which often required tedious reworking of entire sequences when initial conditions changed. He envisioned a computer program that could reference data laid out in a grid and automatically recalculate it when needed, prefiguring the development of what is today known as the spreadsheet.

In early 1979 Bricklin cofounded a company that produced the first commercial spreadsheet software, named VisiCalc.1 Although it was the innovator, in the heady early days of the personal computing revolution his product would soon be eclipsed by the cryptically-named Lotus 1-2-3, not coincidentally developed by an early colleague of Bricklin’s. This program would go on to define the market through the 1980s. It had the good luck of being tied to the fortunes of the IBM PC, which went on to dominate the business world, unlike the Apple computers for which VisiCalc was first developed.

Those below a certain age will have never heard of either of these trailblazers, instead knowing the spreadsheet as the domain of Microsoft. Its now-ubiquitous Excel entered the fray late, but when paired with the growth of its Windows operating system it would go on to become the de facto global standard, relegating Lotus 1-2-3 and VisiCalc to historical footnotes.

Several factors conspired to support Excel’s dominance, but what helped cement its place on the hard drives of cubicle-dwellers the world over was Microsoft’s decision to include it as part of a pioneering bundle released in 1990, in a suite known as Office.2

Instead of buying a spreadsheet program or presentation software or a word processor by itself, users would now get all of them together at a much lower price than if bought separately. What’s more, the operating system on which they ran was usually Microsoft’s own Windows, so IT departments had strong incentives to go with the full set.

Although few people were intensive users of all three programs it would soon become unusual to buy just one. Each may not have been the absolute best in its field, but when accounting for the discounts the overall set was too good to pass up. With a product that was rapidly becoming outdated and with Lotus’s own attempt at an office suite arriving too late, Lotus 1-2-3 stumbled along and eventually disappeared entirely.

Package deals

The logic of the bundle similarly underpins the infomercial, that staple of late-night television hawking the newest contraption promising to revitalize some aspect of your life. The narrative of these advertisements follows the same arc of buildup and reveal, with an initial mildly-intriguing price stacked with more and more options until the overall offer crosses a viewer’s threshold for buying.3 If you didn’t think one knick-knack of dubious usefulness was compelling, how about three of them, with a free miniature version, plus a carrying case?

It may seem like the seller is giving away the store, but the reality is these deals remain profitable despite the added items. A package price that’s less than the sum of the parts still leaves significant margin, while nudging viewers to get out their credit cards.

A bundle can obscure the real cost of the individual elements, which for the seller is part of its design. In the travel sector, all-inclusive resorts provide a full range of services without individual prices, knowing that while vacationers may focus on one part of the package, they generally overestimate how much they will be able to use—after all one can only consume so much food and drink. Cable television providers usually lump a wide variety of channels under a single rate, and the subscriber has little ability to tailor it.4

In the case of resorts this can endure as a source of real benefit, particularly for those who value their time more than constantly calculating price-benefit trade-offs while on vacation. However, in the rapidly-fragmenting world of paid television and streaming services, it’s clear the bundles were not what many people wanted.

Sometime the bundle is way of inserting something new and untested into an existing package, providing a way of introducing users to something they haven’t experienced before. Microsoft understood this aspect well; when faced with threat of losing its software dominance to the upstart Netscape it began to integrate its Internet Explorer web browser into its Windows operating system. Government regulators didn’t look favorably on this behavior and forced the company to accommodate competitors, knowing that most consumers wouldn’t go to the effort to switch browsers.5

In the end it didn’t matter much, as the tightly-coupled Windows-Internet Explorer duo was ultimately blown apart by competitors untethered to any bundle, most notably Google’s Chrome, which used the internet as its unexpected launchpad. Microsoft’s browsers are now bit players at best.

VisiCalc was a little too early to reap the power of the bundle, but Excel continues its long run at the top, serving as a core part of a constantly-evolving productivity suite that has changed dramatically. The software is now sold primarily as a subscription, which comes with newer services like cloud storage that are useful to a growing number of people.

Put it all together

Fine-tuning the combinations of services or products you offer can create new ways of gaining traction. The concept of bundling can drive core strategic questions, for both individuals and organizations. For example:

• Which personal capabilities do you want to develop, and how can you couple those with existing strengths to make that happen? For instance, if you’re a strong writer but need to grow as a public speaker, can you find opportunities to present that are based on your written content?
• As a customer, in what ways do you end up with more than what you can use, and how can you tailor your spending specifically to what you need, without being distracted by extraneous features?6
• If your organization offers a product or service that is new, not well understood, or underappreciated, could it get traction if it was linked to something more established?7
• What bundles from competitors do you notice growing stale or disconnected from actual needs, and how could you pick off elements of them with something more focused? What’s the equivalent of the next television service that needs to be atomized?

Sometimes a different way of crafting the right package of value can help expand relationships with those you serve. If the viability of a bundle depends more on coercion rather than meaningful value, find ways to upend that status quo. And as with VisiCalc, the power of complementary offerings may have the potential to transform your industry. The ingredients may already be present, just waiting for a novel combination to create something more powerful.

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References

Bricklin’s journey is captured in a 1999 story in the HBS Alumni Bulletin, or you can go straight to the source on his personal website.

Why You’re Still Stuck Using Microsoft Office, from Wired.

University of Texas at Dallas Professor Stan Liebowitz has written extensively on Microsoft and market share, with a very detailed chapter on the spreadsheet.