Stratagem 9:Trouble the Water to Catch the Fish.
“When the enemy falls into internal chaos, exploit his weakened position and lack of direction and win him over to your side. This is as natural as people going to bed at the end of the day.”
—From The Thirty-Six Stratagems
Stratagem One (To catch something, first let it go) showed that cable companies need not lead. They can give a lead to more innovative companies (e.g., TiVo) and then close in if an innovation proves profitable. Cable companies are able to do this consistently because they have assets to stir the water around their customers.
In 2003, investors were writing obituaries for Comcast, the United States’ largest cable company. The company was fending off adversaries on two fronts. Satellite TV companies were convincing
customers to cut their cables in exchange for hundreds of channels delivered by air. Telephone companies, facing declining revenuefrom their traditional telephone business, were investing heavily in high-speed Internet access and video. To survive, Comcast would need to underwrite costly upgrades of its cable infrastructure, which investors feared would bring a low return on their investment. Comcast, the common wisdom held, was a dinosaur facing extinction. But what only a few investors saw was that the company possessed immense strategic potential because it was poised to implement the stratagem Trouble the water to catch the fish.
In the face of encroaching competition, Comcast bet on a strategy the industry later called the “triple play.” It upgraded its infrastructure so that it could bundle its core cable service with
high-speed Internet access and telephone service and thereby pull its offerings from direct comparison with Satellite TV and telephone companies. This new bundled service complicates consumers’ ability to compare offerings because doing so requires disaggregating the total cost into its elements. If your bundled service costs $100, for example, you must estimate how much of
this covers your telephone service, how much covers your television, and how much covers your Internet. If an apple pie costs $5, how much are you paying for the apples?
The results have taken investors by surprise. In October 2002, at the nadir of Comcast’s struggle, its stock fell to $19 per share. A few investors, including Warren Buffet’s Geico insurance company,
saw the strategic value of Comcast’s position. They began buying Comcast stock, and the market was happy to sell.
Over the subsequent four years, as the company put its strategy in play, consumers turned increasingly to cable for high-speed Internet access. Comcast’s high-speed Internet subscriber base
nearly doubled; its profitability began growing for the first time in years (operating profit rose to 38 percent by 2006 after stagnating at about 30 percent); and the company’s share price more than doubled to $40 per share.
Today Comcast and other cable companies are adding yet more mud to the water by adding wireless telephone service to their bundle (a “quadruple play”).19
“Confusing” the Software Consumer
As evidence of this stratagem’s potential for creating long-term advantage, consider Microsoft PowerPoint. It is the leading presentation software in the world. It has grown so popular that
many consumers forget that PowerPoint followed behind Harvard Graphics. As Microsoft has done many times (e.g., in the encyclopedia business), it grew from a weak position to oust an established
leader and dominate a new market. In this case, Microsoft’s success rested in a great part on troubling the water around Harvard Graphics consumers.
Microsoft bundled its PowerPoint product with other products to confuse consumers trying to value the product. Microsoft made significant advances on PowerPoint that brought the program’s
performance in line with that of Harvard Graphics. To cut into the market, Microsoft could have sold its new PowerPoint version for significantly less than the $290 that Harvard Graphics
charged. But if they did this, consumers might perceive PowerPoint to be inferior. Instead, Microsoft kept the stand-alone price of PowerPoint high ($339) but bundled it with Word and
Excel in its Office suite. Consumers believed they were getting a $399 program (PowerPoint) for free when they purchased Office. This pushed PowerPoint into the lead position.
Water around consumers can also be stirred by taking the opposite approach: decoupling products. Financial institutions, for example, have found attractive profits in decoupling financial products. A bank can split the cash flow of a foreign bond into separate pieces: the principal payments, the interest payments, the cash flow related to foreign currency movements, and so on. Although customers know how to value a complete foreign bond, they have much greater difficulty valuing its pieces. The cash flows from the currency fluctuations on the interest of a foreign bond are much more difficult to understand than the bond itself. Because of this confusion, banks can sell the parts for more than the whole.
Cao Cao Troubles the Enemy Camp
Cao Cao, the warlord of Wei who fell for the stratagem of sowing discord, faced a difficult decision while laying siege to a rival city. His forces had established a position outside an entrenched enemy.
His army was strong but was running low on supplies—so low, in fact, that his soldiers would likely starve before completing their mission. Cao Cao had two choices: He could retreat or risk losing to hunger. The logical choice was to retreat. This would at least allow him to succeed another day.
But Cao Cao decided to apply Trouble the water to catch the fish in the hope of winning the battle quickly.
Cao Cao dressed a group of soldiers in enemy uniforms and had them march toward the enemy camp. At the camp gates, his men convinced the guards that they were reinforcements and entered
the enemy camp. Soon after, his men set fire to the enemy’s tents and supplies.
As confusion ensued, the enemy’s army was torn between dousing the fires and battling the invaders. Complicating the situation, they could not distinguish between their own troops and Cao
Cao’s, who wore the same armor. Blinded by fire and chaos, the enemy did not see Cao Cao’s army advancing from beyond the stronghold’s walls. Cao Cao took the stronghold.