Stratagem 2:Exchange a Brick for a Jade.
“Use a bait to lure the enemy and take him in.”
—From The Thirty-Six Stratagems
On the surface, Exchange a brick for a jade means simply to trade something of little value for something of more value, which may seem to be advice that is as wise and as useless as “Buy low, sell high.” But its deeper lesson has formed the core strategy with which companies such as Microsoft, Sony, and Gillette have established long-term control over their markets. Six of the most competitive companies of the decade succeed in part through their adherence to this principle. The keys to its success rest on two human tendencies that Taoism and Buddhism attempt to eliminate:
- Value is relative. Yet we act as if one value is commonly shared.
- We confuse what we value with what others value.
You give your adversary something on which you place relatively little value.
In exchange, your adversary gives you something you value much more.
Commitment as a Jade
Consumers often give up value because there is no market for it or because they have no way to realize the value. Companies such as Microsoft and Sony have built their businesses to a great extent on spinning these consumer tendencies into profit.
When you consider buying a product, you judge its fair price by comparison to alternatives. If you’re shopping for a video game console, for example, you might compare the price tag of, say, Sony’s PlayStation 3 to that of Microsoft’s Xbox 360. If no close substitutes exist, you might try a more distant comparison—comparing the price of the game console to the cost of seeing a movie every week for a year, for example.
Unfortunately, you may exclude an important variable from your calculations: the full value the seller (i.e., Sony or Microsoft) realizes from establishing a relationship with you. This value is almost always higher than the profit the seller generates from the first sale. In other words, jade is often given up for bricks because the consumer does not appreciate the worth of what he or she is trading. The jade being given up is dependence.
Sony is willing to lose $100 to $150 on each PlayStation 3 it sells because with each sale it establishes a codependent relationship with a new consumer. This allows Sony to shift from a one-off
relationship to a long-term one within which it can put polarity to work. It can use this relationship to generate attractive, long-term profits—initially from software sales, but eventually from Internet services, movie rentals, and any number of yet-to-be-imagined products.
Of course, modern Western strategists might name this strategy “switching costs,” a move that blocks a consumer from buying software for other systems. The ancient Eastern concept of Polarity— the accepting of good with bad or short-term loss for longterm gain—is a different explanation for the same strategy. And when the ancient Polarity concept is used rather than the modern “switching costs” concept to explain Sony’s strategy, Microsoft’s seemingly abrupt decision to enter the video game business in 2000 becomes less puzzling.
Microsoft also relies heavily on Exchange a brick for a jade. Indeed, some argue that Microsoft’s strategy is dictated as much by this principle as by its core product—software. Microsoft built its business by distributing DOS and Windows so widely that they became standards, thereby establishing millions of codependent relationships with computer makers and consumers. The resulting mass of relationships eventually resembled a monopoly position in
the software sector. Microsoft’s success comes from expanding and leveraging these relationships, not just from building better-performing software.
Microsoft’s rivals sometimes focus their criticism primarily on Microsoft’s technical abilities. They fail to understand that Microsoft depends on its relationships as much or more than it depends on its software competencies. Rivals mis-read the source of Microsoft’s power.
While Linux and other open-source programmers publicly scoff at Microsoft’s software (when, for example, Microsoft warns them against incorporating Microsoft code into their open-source products), they are blind to the fact that Microsoft’s dominance is built on relationships not purely on technical ability. While one-product software
companies must compete solely on technical ability, Microsoft can create more value, even with less technically capable software, through the relationships it affords consumers who use its software.
If Microsoft did not hold a strong position on nearly every computer, the source of its advantage might erode. This is probably why Microsoft responded more urgently to Sony’s video game console than to Linux’s community of programmers. Microsoft can beat even better software than Linux by enabling easier connectivity and communication. But if people were to shift to Sony’s hardware, Microsoft’s ability to ensure connectivity would fall under threat.
When Sony announced that it planned to add Internet capability to its PlayStation 2 game consol in 1999, it threatened Microsoft’s core asset: relationships. Microsoft, a software company that had never taken the video game segment seriously nor produced hardware, suddenly decided to do both. The company understood what Michael Ribero, an executive vice president of game publisher Midway Games Inc., saw: “Game consoles can be a kind of Trojan horse in the living room. You start playing games and then eventually use the console for other entertainment or for e-commerce.”
In the first half of 2000, Microsoft announced plans to enter the interactive gaming business with its first game console, the Xbox. While Microsoft’s new business was radically different than its traditional one, the company’s core strategy remained the same: Exchange a brick for a jade. Microsoft launched the Xbox prepared to lose about $125 on each console it sold. Its aim was to protect its consumer relationships and gain new ones, through which the
company could profit from future sales of games, Internet services, and e-commerce capabilities for the Xbox. Microsoft has since captured 30 percent of the game console market with industry analysts predicting it should command a 40 percent share in coming years.
Value Is Relative
Chuang Tzu, a Taoist philosopher and a contemporary of Lao Tzu, was known for his humorous and colorful stories. One of his favorite themes was that value is relative. In other words, what is considered good or bad, beautiful or ugly, valuable or worthless, does not exist as an absolute. Rather, it depends on one’s point of view.
One of his stories centers on an old tree most people found worthless. It was so knotted that it offered not an inch of flat wood, making it useless to carpenters. It was so ugly no painter wanted to paint it or gardener decorate it.
But the characteristics that made it worthless to carpenters, painters, and gardeners were considered quite important by the tree itself. Indeed they saved the tree’s life. Because no one saw value in cutting the tree down, it grew unharmed for hundreds of years. Chuang Tzu’s lesson is that value depends on perspective. It is not absolute.
You Confuse Your Value with Others
Another story, by an unknown author, describes an old monk who lived by himself in an ample but modest home. One evening a thief, believing the house empty, broke in. He found very little of value: some pots and some food. As he rustled around looking for something worth taking home, he was startled to find the monk quietly meditating in one of the rooms.
The monk greeted the thief and asked what he wanted. When the thief explained that he was there to rob whatever he could find of value, the monk apologized: “I am sorry you have gone through such trouble and I have nothing of worth to give you. Here, take my clothes. They will surely get you more money than those pots or that food.” The thief took the clothes and left the house.
The monk, now naked, returned to his meditation. Looking out his window at the sky, he thought, “I wish I could have given him the moon. It is so beautiful.”
One lesson from this story (and there are a few) is that outward measures of a thing’s value can hide its true worth. The thief was so entranced by the value of clothes that he could not appreciate the moon. Ironically, the thief had to steal the clothes, but he already “had” the moon in that he could use it to light his way home and enjoy its beauty. But because no market price for the moon existed, he had no basis for valuing it.