Two Types of Strategy Tax

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The Daily

There are two different types of strategy tax in a company. One for product strategy and one for corporate strategy. The former is what people usually refer to, and it often comes up when describing Microsoft and its strategy in the 90s. Blogging legend Dave Winer wrote a good explanation of this in 2001, for instance.

In more modern times, Ben Thompson from Stratechery has defined it like this:

A strategy tax is anything that makes a product less likely to succeed, yet is included to further larger corporate goals

Dave explains Microsoft holding back functionality from Internet Explorer to not cannibalize Word. Ben describes Google requiring Hangouts users to get a Google+ account. These are both good examples, albeit a bit dated now of course.

Expanding the definition
But there’s more to it than that. For me, The Strategy Tax illustrates not only questionable choices within existing product but also general strategic inaction. I think about it as an inevitable duality of the choices you make as a company. You cannot have a strategy without having a strategy tax. But the amount varies. And how you manage it varies too.

In my last post, I defined it like this:

It’s the cost of not taking a new opportunity, or passing on an acquisition. 

This makes for two different categories of a similar phenomenon. That would mean a definition that looks like this:

Product Strategy Tax
Suboptimizing new products to not inversely affect current ones.

Corporate Strategy Tax
Indefinitely postponing change, regardless of the world around you.

Both are relevant and useful models to apply when understanding a company and its choices. They are lenses through which you can analyze company’s choices to better understand why they do what they do – and what they don’t do.

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