Part One: 3-D Negotiation in a Nutshell
CH 1: Negotiate in Three Dimensions
CH 2: Do a 3-D Audit of Barriers to Agreement
1. With a provisional agreement in mind, do a 3-D barriers audit.
1.1. What prevents you from reaching the potential of the deal you want?
1.2. Wrong parties? Wrong interests? Wrong no-deal options? Wrong sequence? Wrong basic process choices? Wrong deal design? Adverse tactics or interpersonal approach?
2. Assess setup barriers.
2.1. Have you mapped all the parties, their interests, and best no-deal options?
2.2. Have you assessed the full set of actually and potentially involved parties?
2.3. Have you probed the full set of interests at stake, yours and theirs, going behind bargaining positions?
2.4. Have you assessed each side’s best no-deal option, which sets the bar for any acceptable deal and influences negotiating “power”?
2.5. Have you checked the sequence and basic process choices?
3. Assess deal-design barriers.
3.1. Does the proposed agreement create the maximum possible value?
3.2. Does it meet the requirements and objectives of the parties?
4. Assess tactical and interpersonal barriers.
4.1. Do you face hardball or other difficult tactics?
4.2. Are there communication, trust, personality, style, or cross-cultural issues?
5. Watch for cross-cutting barriers.
5.1. An adverse deal/no-deal balance?
5.2. Missing or blurry information?
CH 3: Craft a 3-D Strategy to Overcome the Barriers
1. A 3-D strategy is an aligned combination of setup, deal design, and tactical moves to overcome barriers to agreement. It enables you to “let them have your way in 3-D.” Following a barriers audit, it requires that you:
1.1. Set up the right negotiation.
1.2. Get the parties right. Get the interests right. Get no-deal options and the deal/no-deal balance right. Get the sequence of approach right. Get basic process choices right.
1.3. Design value-creating deals.
1.4. Stress problem-solving tactics.
2. Remember that a barrier encountered in one dimension can often push you into other dimensions for a solution.
3. While we present the elements of 3-D strategies as separate classes of moves “away from the table,” “on the drawing board,” and “at the table,” they tend to happen more concurrently in practice.
Part Two: Set Up the Right Negotiation
“Away from the Table”
CH4: Get All the Parties Right
1. A vital part of getting the setup right is getting the parties right.
2. Think expansively to get the right all-party map.
3. To get the right all-party map, take a disciplined look beyond the usual suspects to figure out who might really matter: potential and actual parties, internal and external players, principals and agents, decision makers and influencers, allies and blockers, and high- and low-value parties, as well those who must approve and implement the deal.
4. Map the relationships among those on your all-party map by assessing the informal as well as the formal decision and governance processes.
CH 5: Get All the Interests Right
1. To get the setup right, get the interests right.
1.1. Whatever each party cares about that is at stake is an interest.
1.2. Make mapping interests—yours and theirs—a central priority, well before the formal negotiations begin and throughout the process.
1.3. Avoid the Reverse Midas Touch; don’t let price bulldoze a potentially richer set of interests including perceived fairness, self-image, reputation, relationships, the social contract, the negotiation process itself, and ethics.
2. Don’t mistake bargaining positions for the richer set of underlying interests.
3. Don’t forget to ask your counterparts directly and indirectly about interests, actively listen to the responses, and probe what you hear.
4. Use standard public sources to map interests.
5. Tap internal sources as well as others who have negotiated with your prospective counterparts.
6. Tap knowledgeable advisers appropriately.
7. Be aware of unconsciously skewed perceptions: the mythical fixed pie, self-serving role biases, and partisan perceptions.
8. Take deliberate steps to counteract the psychological mechanisms that can powerfully but unconsciously skew interest perceptions.
CH 6: Get the No-Deal Options Right
1. Use your best no-deal options, and those of the other negotiating parties, to determine whether and, if so, where a zone of possible agreement (ZOPA) exists. (Don’t neglect “internal” no-deal options in your assessment!)
2. Make sure the other side sees you as ultimately able and willing to walk away. When your counterpart(s) perceives a credible increase in your willingness to walk away—especially in the direction of an attractive no-deal option — your at-the-table outcomes often improve. Therefore, take steps to improve your best no-deal option and consider actions to worsen that of your counterpart.
3. Take care to protect—and do not inadvertently weaken—your no-deal options.
4. Consider worsening your own no-deal option, in certain very carefully selected circumstances.
5. When diagnosing a potential negotiation, use your understanding of no-deal options to distinguish between those situations in which negotiation can play a major role and those in which it must play a lesser role.
CH 7: Get the Sequence and Basic Process Choices Right
1. To sequence effectively:
1.1. Scan widely to map the range of potential parties as well as the relationships among them, including the costs and benefits of gaining each party’s agreement.
1.2. Map backward from the key players who are critical to the deal. With respect to a target player, ask which prior agreements among which of the other players might help persuade the target to say “yes.” Do the same for the penultimate player. Keep working backward in this fashion until you have found the most promising path through the cloud of possibilities.
1.3. Ask whether the parties should mainly meet together or separately at each stage of the process. Similarly, decide whether it would be more productive for the stages of the negotiation to be public or private.
1.4. Manage the flow of information carefully and think through how to frame each stage.
2. Beyond setup moves, negotiators should make basic process choices, including:
2.1. Classic process choices include whether to involve mediation, arbitration, other various alternative dispute resolution devices, and special procedures such as “Texas shootouts.”
2.2. Though a wide range of options is available, two polar sets of basic process choices can be captured in very different overall approaches to the negotiation process: a contractually oriented decide/announce/defend (DAD) method, and a stakeholder-relationship-focused full consensus (FC) option.
2.3. A useful checklist of basic process characteristics includes the auspices of the process, its mandate, participation rules, decision and procedural expectations, agenda considerations, staging, external communication norms, process support (from technical advice to third parties such as mediators or facilitators), and postdeal arrangements.
2.4. When considering the process elements on this checklist, think hard about whether it is better to deal with them explicitly, or leave them on a more ad hoc and implicit basis. You should also decide whether these elements should be put up for negotiation, or whether you should try to stipulate, or even impose, your basic process preferences.
Part Three: Design Value-Creating Deals
“On the Drawing Board”
CH 8: Move “Northeast”
1. Many people see the zone of possible agreement as a Battle Line, in which one side’s gain necessarily implies another side’s loss.
2. Negotiation also involves “northeasterly,” value-creating moves that simultaneously benefit all sides, at no cost to anyone. Such moves are fundamentally different than mutually acceptable compromises along a Battle Line.
3. While common ground and shared interests are important, value is often created by dovetailing differences of interest or priority.
4. Relentlessly probe for different interests that are relatively easy for one side to give—yet highly valuable for the other side to get. Such differences can be profitably unbundled or form the basis for mutually beneficial trades. Search for high benefit–low cost moves.
5. Thinking creatively and perhaps well beyond this specific deal, ask what could the two sides possibly do jointly to create the most value together? What specific steps could be taken to maximize the net value of the total pie?
6. If you encounter skepticism—or feel skeptical yourself—remember that there are good psychological reasons why people think that value-creation can’t be for real. At the same time, remember that these psychological blind spots sometimes prevent negotiators from spotting immense cooperative potential.
7. Don’t forget that creating value is only half the story; it must also be claimed. This tends to happen concurrently, rather than sequentially. The real challenge in negotiation is to productively manage the Negotiator’s Dilemma: the tension between the cooperative moves that are necessary to create value and the competitive moves needed to claim it.
CH 9: Dovetail Differences
1. A deal-design approach complements an interpersonal process view of negotiation with an understanding of the principles behind value creation. Knowing what you are looking for can counteract powerful psychological biases toward seeing the world in “fixed-pie” terms.
2. Rather than looking mainly for common ground and shared interests, deal designers probe for differences of many kinds to create value.
3. The basic “differences” principle counsels a search for high-benefit, low-cost items, or those that are relatively cheap for one side to give, but that the other side finds relatively valuable to get.
4. Develop a differences inventory, with clear knowledge of how characteristic deal designs can unlock joint gains from distinct classes of differences:
4.1. Differences of interest or priority can lead to mutually beneficial trades orcreative solutions that unbundle underlying interests.
4.2. Differences in cost and revenue structure suggest crafting arrangements of highest net value.
4.3. Complementary differences in capability can be profitably combined.
4.4. Differences in beliefs about the future can lead to joint gains from carefully crafted contingent agreements, paying careful attention to incentives and the informational underpinning of the difference.
4.5. Differences in attitudes toward risk—assessing, bearing, or influencing it—can lead to mutually preferable mechanisms. Differences in attitudes toward time, whether simple discount rate differences or more complex manifestations—can suggest collectively shifting benefits and costs to match differing time preferences.
4.6. Many other differences—in tax status, accounting or regulatory treatment, sensitivity to constituencies, etc.—can profitably be arbitraged, singly or in combination, by sophisticated deal designers to create value on a sustainable basis.
5. By looking beyond the immediately involved parties and issues, a differences orientation can often suggest moves to profitably change the setup for all sides—by adding or subtracting parties and issues that manifest complementary differences.
CH 10: Make Lasting Deals
1. Many of the moves described in earlier chapters do more than create a positive process, build good working relationships, and set the stage for good outcomes. They can also enhance the sustainability of agreements in the face of very significant change, whether internal or external.
2. While many negotiated agreements are clearly time- and task-limited, it may be a mistake to treat social and economic contracts as fixed and static. In many cases, the likelihood of new challenges and opportunities calls for the expectation of change—which calls, in turn, for deals designed for profitable evolution.
3. Think through the likely future evolution of agreements and accompanying attitudes. Design economic agreements and negotiate expectations that productively anticipate foreseeable changes in circumstances.
4. If possible, avoid simplexed negotiations and agreements, because they tend to be fragile.
Consider multiplexing both parties and issues of a potentially vulnerable agreement to broaden and deepen its supporting coalition, and to weave an interest web that is harder to dislodge.
5. After the deal is done, keep an eye out for likely adverse shifts in the continuing deal/no-deal balance.
6. In particular, beware of potentially insecure contracts—agreements in which, when one party makes an irrevocable or costly-to-reverse move,the other side has an incentive to defect from the deal.
7. To make insecure contracts more secure, consider:
7.1. Setup moves to render the situation more sustainable
7.2. Deal-design moves aimed at prevention; for example, contingent or more flexible contracts, performance bonds, linkages and multiplexing, and various compliance mechanisms
8. In some cases, the best prevention is to stay out of the deal altogether.
CH 11: Negotiate the Spirit of the Deal
Auditing Perceptions of the Underlying Social Contract
To negotiate truly compatible views, consider an explicit and periodic “audit” of all sides’ perceptions. Here’s a sample checklist:
Real nature and purpose. Do you envision a discrete transaction or partnership? A merger of equals or something different? Building an institution for the long term or making a financial investment? Do you see the driving culture as, for example, operational? Research-oriented? Marketing? Engineering? and so on.
Scope and duration. Are you focused on a discrete task in the short term or is it more open-ended? Is it a likely prelude to a larger or different arrangement? Of what actions, even outside the formal bounds of the deal, do each of us expect to be informed and over which do we expect some say? and so on.
Part Four: Stress Problem-Solving Tactics
“At the Table”
Chapter Twelve: Shape Perceptions to Claim Value
Thomas Edison's Universal Stock Ticker
Thomas Edison invented the “Universal” stock ticker, a device used for many years by brokerage houses. When Edison first offered this device for sale, he added up the time and effort he had put into inventing it and concluded he was entitled to $5,000 for it. That’s what he decided to ask for it.
Ultimately, though, he figured he would accept $3,000. When General Lefferts, the president of the Gold & Stock Telegraph Company, came to negotiate, Edison was going to name his price. But he couldn’t,
Edison said, because he “hadn’t the nerve toname such a large sum.” Instead Edison asked General Lefferts to make him an offer.
Lefferts offered $40,000. Edison said he thought that was “fair.” Edison would have lost $35,000 just by making the first offer.
Edison’s experience notwithstanding, we’d like to offer some contrarian advice here: In cases when you are not hopelessly uninformed, seriously consider going first.
1. Remember the Twin Tasks of haggling: learn about the true zone of possible agreement (ZOPA), and favorably shape perceptions of it.
2. Learn about the ZOPA by using prior research, analyzing your best no-deal option as well as the other side’s, and continuously mining the other side’s moves for real ZOPA-related information. Update your ZOPA assessment frequently.
3. Focus on the opportunity, rather than the downside; as part of your preparation consider writing a short paragraph on what you hope to accomplish, not what you want to avoid.
4. Set a fairly aggressive target.
5. Shape perceptions of the ZOPA by:
5.1. Meta-anchoring—implicitly shaping the definition of the problem the negotiation will solve. Brainstorm possible meta- anchors, assess their implications, and take the initiative to meta-anchor the negotiation favorably and head off unfavorable meta-anchors.
5.2. Anchoring directly with favorable offers, numbers or data, and “non-offer offers” and “extreme but flexible offers.” Don’t forget to justify your proposals.
6. Strongly consider making the first offer—an extreme but flexible or non-offer offer—to gain the benefits of anchoring.
7. Use the midpoint rule to respond to their offer; counteroffer so the midpoint between the two offers is your target.
8. Avoid being anchored by an extreme offer—clearly communicate that the offer is unacceptable, and shift the metric to unfreeze the anchor and drop your own more favorable counter-anchoring.
9. Use patterns of concession converging to a supposed limit, and be aware that your counterpart may use this tactic.
10. Use and be alert for the norm of reciprocity—your concession may induce one from them, and vice versa.
11. Use the contrast principle—the offer that follows an extreme offer may look more generous than it would have if it didn’t follow the extreme offer.
12. Be wary of splitting the difference and consider it only when when last offers are close and both acceptable.
13. Persuade your counterparts that saying yes to your price is better than their alternatives, that accepting a price that you like is a good (and fair) choice for them, and that the constraints upon you make it hard for you to move.
13.1. Prepare fairness arguments and prepare to respond to fairness arguments.
13.2. Avoid unsupported commitments. Consider making supported commitments.
13.3. Treat unsupported commitments as aspirations. When they support their attempted commitments with a clear rationale that certain interests would be damaged if they moved, undo their commitments by finding other ways to meet those interests.
Chapter Thirteen: Solve Joint Problems to Create and Claim Value
1. Effective tactics must productively manage the tension between the cooperative moves necessary to create value jointly and the competitive moves to claim it individually. This means eliciting enough information to generate good options while managing your vulnerability.
2. Ask, listen, and learn:
2.1. Listen actively.
2.2. Ask open-ended questions rather than yes/no questions: “What if? Why? Why not? How would that work for you?”
2.3. Bring a designated listener.
3. Divulge information strategically:
3.1. Begin with the end: at the beginning, jointly envision the pot of gold at the end of the rainbow, perhaps by writing a press release in advance on the hoped- for outcome that meets everyone’s core interests.
3.2. Use the norm of reciprocity to build trust and share/gain information: start by offering low-risk information and ratchet up.
3.3. Present multiple equivalent offers.
3.4. Sequence issues carefully and negotiate in packages.
4. Foster an appealing, productive negotiation process by establishing a positive atmosphere:
4.1. Psychologically place the parties side by side against the problem rather than face-to-face against each other.
4.2. Focus on advancing interests rather than arguing positions.
4.3. Focus on the future instead of the past and on problem solving instead of blaming.
4.4. Focus on disaggregated fact-based communications rather than high-level assertions.
5. Adopt a persuasive style.
5.1. Be open to persuasion.
5.2. Be both empathetic and assertive.
5.3. Tell stories as well as using facts and logic.
5.4. Inoculate against potentially disadvantageous arguments.
5.5. Match your appeal to where your counterparts are and how they process information.
5.6. Make your appeal work through their cultural filters.
6. For the deal that “lets them have your way,” write your counterparts’ victory speech, showing their key audiences why accepting your proposal was a wise decision.
Part Five: 3-D Strategies in Practice
“Let Them Have Your Way”
Chapter Fourteen: Map Backward to Craft a 3-D Strategy
Back to 1912: The Roosevelt Campaign and Moffett Studios
In 1912, Theodore Roosevelt was nearing the end of a 2 hard-fought presidential election campaign. Critical to his success was a final whistle-stop journey through the American heartland. At each stop, Roosevelt planned to inspire his audiences with his powerful oratorical skills, and give everyone in attendance a small pamphlet, some three million of which had been printed and packed away in boxcars. On the cover of the pamphlet was a stern, “presidential” portrait; inside was the transcript of a stirring speech called “Confession of Faith.” With luck, this strategy would clinch the critical votes.
The barnstorming campaign was about to begin when a campaign worker discovered a small line on each photograph that read, “Moffett Studios, Chicago.” Since Moffett held the copyright, the unauthorized use of each photo could each cost the campaign one dollar. The potential $3 million cost of distributing all the pamphlets would greatly exceed the campaign’s available resources.
The campaign workers were near panic. What should they do? What could they do? All the options looked bad. Not using the pamphlets might sink Roosevelt’s chances at the polls. But if the campaign used the pamphlets without Moffett’s permission and got caught, all kinds of bad things might result: they could be sued for copyright infringement, a scandal might break out very close to the election, andthe campaign might be liable for an unaffordable amount.
Quickly, the campaign workers reached a consensus: they would have to negotiate something with Moffett. At the same time, they realized that they had no idea how to approach this negotiation. Research by their Chicago operatives turned up discouraging news. While Moffett had been a photographer for years, with both artistic and commercial aspirations, he had achieved little critical success, and virtually no financial success. He was now approaching retirement, reportedly bitter and cynical, with a single-minded focus on money.
It’s not hard to put yourself in the shoes of those campaign workers as they tried to plot their negotiating strategy, or to imagine the queasy feelings in their stomachs. It must have seemed a hopelessly weak position: approaching a photographic studio whose owner had a keen interest in money, facing a pressing time deadline, thinking of three million pamphlets already packed in boxcars with no time to redo them, contemplating a potential $3 million price tag—or possibly worse, in the case of a lawsuit—and having nothing like the resources that they appeared to need.
If we were to translate their predicament into the language we’ve been developing in the preceding chapters, the campaign workers assessed their no-deal options in negotiations with Moffett as exceedingly weak.
As they saw the situation, if Moffett were to say “no” to any affordable price proposal, the campaign would either (1) face an unaffordably large financial exposure if it went ahead and used the photos, or (2) risk losing any shot at the presidency if it did not use the pictures. By contrast, Moffett seemed to enjoy a commanding option in the event of no deal. Given this assessment, the only deals that might induce a “yes” from Moffett would involve impossibly large payments. In brief, thecampaign faced a potent barrier: an exceedingly adverse deal/no-deal balance. Again: what on earth could they do, and should they do? Dispirited, the campaign workers approached George Perkins, noted financier, partner of J. P. Morgan,
California railroad builder, and Roosevelt’s campaign manager. Perkins lost no time summoning his stenographer to dispatch the following cable to Moffett Studios in Chicago: “We are planning to distribute millions of pamphlets with Roosevelt’s picture on the cover. It will be great publicity for the studio whose photograph we use. How much will you pay us to use yours? Respond immediately.” Virtually by return telegraph, he received the following reply from Moffett: “We’ve never done this before, but under the circumstances we’d be pleased to offer you $250.”
Reportedly, Perkins accepted the offer—without trying to get even more from Moffett.
# An effective 3-D strategy is an aligned and mutually reinforcing combination of setup, deal-design, and tactical moves chosen to overcome barriers to agreement.
# To help organize the elements of your strategy, map backward from your target deal to the deal/no-deal balance that will most likely induce them to make this choice, and then make your way back to the current situation. This enables you to determine the actions you must now take to face them with the right deal/no-deal balance.
Chapter Fifteen: Think Strategically, Act Opportunistically
AOL, Microsoft, and Netscape: Negotiating the Browser Wars Sometimes, you are simply outclassed on the central competitive aspects of a deal. For example, the customers of America Online (AOL) in 1996 were clamoring for an Internet browser. Despite its huge commercial success, AOL was developing an image as the “Internet for dummies.” Top management was concerned that this perception would spread, damage its franchise, and blunt future growth prospects. In short, AOL had a pressing need for a cutting-edge browser to improve its image and to allow its customers easy access to the Web that lay beyond AOL’s proprietary confines.
In a brutally competitive process, Netscape and Microsoft negotiated with AOL over which browser it 1 would adopt. Netscape’s technically superior Navigator, with a 75 to 85 percent market share, contended with Microsoft’s much buggier Explorer, then stuck at 3 to 4 percent and struggling for a market foothold, but a critical strategic priority for Bill Gates.
A confident, even arrogant, Netscape held out for a high per-copy fee from AOL, in effect defining a technically based “browser-for-dollars” deal. From the perspective of Steve Case, AOL’s CEO, “They [Netscape] were very aggressive about selling the browser, but they wanted a very high per-copy fee. The attitude was, ‘We’re 2 so hot, we’ll license to everyone, so you better take it.’”
And Netscape was playing a very strong hand vis-à-vis both its direct negotiating counterpart (AOL) and competitor (Microsoft). As AOL’s senior vice president Jean Villanueva later observed, “The deal was Netscape’s to lose. They were dominant. We needed to get what themarket wanted. Most importantly, we saw ourselves as 3 smaller companies fighting the same foe—Microsoft.”
So how did Microsoft prevail in this negotiation and, ultimately, win the browser wars? What kind of choice would lead AOL chief Steve Case to opt for Microsoft? In part, the answer can be found in the deal terms. When the deal was done, Microsoft’s Explorer would be provided to AOL for free, in contrast with the fee-based Navigator arrangement, with Microsoft also promising AOL a series of technical adaptations in a multiyear context.
Most remarkably to outside observers, Microsoft agreed that AOL client software would be bundled with the new Windows operating system. Even as a direct competitor to AOL, Microsoft would position the AOL icon on the Windows desktop right next to the icon for the Microsoft Network (MSN)—the online service created in direct response to AOL’s success. This positioning on “the most valuable desktop real estate in the world” would permit AOL to reach an additional 50 million people per year at effectively zero cost, compared to the $40 to $80 per-customer acquisition cost it currently incurred by “carpet bombing” the country with AOL disks. The value to AOL of having its icon on the Windows desktop was immense for marketing, distribution, and competitive reasons, in effect, blunting the threat posed by MSN. In effect, Bill Gates sacrificed the medium-term position of MSN to his larger goal of winning the browser wars.
Microsoft’s technically inferior browser meant that its prospects of winning on that battleground were poor regardless of its negotiating skills and tactics at the table.
Yet while Netscape was confidently playing a waiting game to bring AOL around, Microsoft undertook a 3-D effort to favorably shift the negotiating ground from Netscape’s technical “browser-for-dollars” deal towardwider business issues that keenly interested AOL and on which Microsoft held a decisive edge. Moreover, rather than focus on the technologists, Microsoft concentrated on AOL’s more business-oriented executives. As AOL’s lead negotiator and business development head David Colburn stated, “The willingness of Microsoft to bundle AOL... with the Windows operating system was a critically important competitive factor that was impossible for Netscape to match.” Rather than trying to play a poor tech hand well, Microsoft changed the negotiating setup to a business arena in which it had the edge.
This episode has important game-changing lessons: Are you in a weak position on issues A and B? Can you change the setup to emphasize issues D and E, on which you are strong? Moreover, are you dealing with person X, whose interests do not match your strengths? In tandem with your revised issues focus, can you shift the emphasis to person Y, who will be more receptive? Microsoft did not simply prevail by changing the issue setup. Perhaps unexpectedly, given the heavy-handed reputation Microsoft has in many quarters, Netscape’s arrogant actions at the table put it at a major disadvantage. As Alex Edelstein, Netscape senior product manager, put it, “We were too arrogant . . . Netscape thought its stuff was so good, it was enough to just put it out there.” On the receiving end, AOL CEO Steve Case observed, “[Netscape had] no desire to treat us as a partner; they only wanted to treat us like a customer.” In contrast, Microsoft deployed its massive resources toward meeting a much richer set of AOL’s interests than Netscape even appeared to acknowledge with its stubborn “browsers-for-dollars” hardball price proposal.
This reminds us that tactics—in tandem with the setup 5 and deal design—can carry, or lose, the day.Realistically, though, how could Netscape (David) have had a prayer against (Microsoft) Goliath? Wasn’t Microsoft’s victory inevitable, given its vast resources and powerful strategic interest in winning the browser wars? In our view, Netscape could indeed have carried the day. In January 1996, three months before the finale,
AOL chief Steve Case flew out to California to have dinner at Jim Barksdale’s home while discussing potential AOL links to Netscape. Case proposed that Netscape produce a special Navigator version for AOL that would serve as the principal browser for AOL’s 5 million subscribers. He also proposed that AOL run Netscape’s extremely popular but woefully underexploited Web site, which was receiving millions of hits daily. AOL certainly had the capacity to leverage the commercial potential of such massive traffic (it may also have wanted to control a potential competitor to its own site). Finally, Case suggested that Netscape and AOL actively cross-promote each other and that Netscape include an AOL seat on its board in order to cement the partnership. All Netscape had to do to shut out Microsoft was be more flexible on its price demands and “say yes!” to Case (while asking for a bulletproof exclusive).
Barksdale discussed this proposal with managers and engineers at Netscape. They opposed the move, citing the effort that would be required to create an AOL-specific Navigator, one that would be “componentized” to fit with AOL’s look and feel. Blocked by the failure of his internal negotiations, Barksdale ended up telling Case that the partnership proposal was a nonstarter. He countered by saying that AOL would be a “good distribution channel for Navigator” at a cost to AOL of $10 per downloaded copy.
Incredibly, Netscape failed to do the deal not once, but twice. Four months after the Microsoft-AOL agreement, the door to an AOL-Netscape deal reopened. Ram Shriram, then a vice president of Netscape, recounted what happened next: “AOL came to us again. AOL’s stock was tanking and it was getting sued by the attorneys general of various states. They were keen to come back to the table and forge a relationship with us.” Barksdale and Shriram met with AOL’s Steve Case, but Netscape’s engineering team rejected the proposed deal, saying, as Shriram put it, “‘Look, we’re all busy. We’re not really interested. Our focus is not consumers.’ We lost out another opportunity to take charge of another 10 to 12 million browsers.” Thus Netscape lost another opportunity to make a deal that would keep its control of the browser market.
Given these facts, it’s hard to see Microsoft’s victory as a foregone conclusion. Had Netscape acted on a clearer analysis of the full set of parties (internal as well as external), their interests (beyond the technical aspects of a browser and price), and no-deal options (for itself,
AOL, and Microsoft)—and had it looked for ways to create as well as try to arrogantly claim value with AOL— the outcome of these negotiations could have been far more favorable. But Netscape did not, and its failure to do so gave Microsoft the opening to reset the table, design a value-creating deal behind which to put its massive resources, and ultimately win the browser wars.
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