Principle number 3: Creating Value Before Capturing Value (The Microsoft-Netscape-AOL negotiation saga)

We want to share a fascinating negotiation story with you—one that exemplifies the power of principle number 3: Creating Value Before Capturing Value.

Let’s take a look at the compelling case of Microsoft and Netscape’s battle to secure AOL as a client back in 1996.

At the time, both Microsoft and Netscape Navigator were vying for AOL’s partnership, a significant milestone that could shape the future of the browser market. On the surface, Netscape held a decisive advantage with its technical superiority and market dominance. It seemed like a straightforward battle in which Netscape could easily capture value by demanding a high fee in a traditional “browser for dollars” deal. However, Microsoft took a different approach—one guided by the principle of creating value. Recognising the need to differentiate themselves and offer something beyond technical superiority, they devised a bold strategy. Microsoft’s team focused on understanding AOL’s needs, aspirations, and long-term goals. They aimed to forge a mutually beneficial partnership rather than engaging in a mere transactional negotiation.

Microsoft’s value creation proposition went beyond financial considerations. They proposed bundling AOL into their Windows operating system, effectively expanding the reach and exposure of AOL’s services. Not only that, but they went even further by offering to provide additional technical adaptations tailored to AOL’s requirements if a multi-year contract was signed. These gestures demonstrated a commitment to AOL’s success and addressed their unique needs.

The impact of Microsoft’s value-driven approach was profound. David Colburn, AOL’s chief negotiator and head of business development, acknowledged the critical role played by Microsoft’s willingness to bundle with the Windows operating system. This strategic move presented an invaluable competitive advantage that Netscape simply could not match. It showcased how creating value, beyond immediate financial gains, can open doors to unprecedented opportunities.

This negotiation saga serves as a prime example of Principle Number 3: “Create value before capturing value.” Microsoft’s decision to prioritise value creation paved the way for a transformative negotiation outcome. By focusing on the needs and aspirations of their counterpart, they forged a partnership that went far beyond a simple exchange of goods or services.

Wishing you impactful and value-driven negotiations ahead!

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