What do Proctor and Gamble, Microsoft, and Google Adwords have in common? They’re all market leaders, and they all engage in similar practices to reduce the ability of consumers to choose their competition.

David Bau has an good post called Microsoft Brownie Mix which is informative for understanding the Google contextual advertising exclusivity strategy. Starting with a possibly apocryphal story about Ballmer’s experience marketing brownies at Proctor and Gamble, it explains Microsoft current Vista woes as part of a conscious strategy of bundling and complexity.

After graduating from Harvard but before dropping out of Stanford Business School to help Bill start Microsoft, Steve Ballmer worked at Procter and Gamble where he was the assistant product manager for Duncan Hines Brownie Mix. At the time, mix was sold in narrow boxes with the pretty product name splashed across every side of the box.

Steve noticed that corner grocery stores liked to stock his leading-brand mixes next to competitive brands. Grocers would line up the brownie mix choices side-to-side like books in a library. And shoppers could easily see the variety and pick what they wanted. Usually shoppers picked the leading brand, but they might sample a less well-known competitor once in a while.

But for the market leader, choice is a problem. Even if your product is vastly superior, you can lose a whole chunk of brownie mix market share based on the fact that consumers have only pennies to lose by sampling your neighbor.

The solution is classical marketing. Swim upstream. Require the store owners, who have more than pennies on the line, to make the choice instead.

So Steve (the apocryphal story goes) did a very simple thing: he changed the brownie mix packaging so that the narrow side couldn’t be pointed outward. Maybe he printed the ingredient list on that side, I don’t know. From a customer’s piont of view it doesn’t make much of a difference one way or the other. But for the little corner grocer, it has ramifications.

If you have 6 inches of shelf space for mixes, you see, you can fit several nice rows of narrow 2-inch boxes side-by-side, one for each competitive brand. But if the leading brand has to be placed sideways in a 6-inch-wide package? Well then you only have room for one brand. The storeowner has to choose.

So by the time the shopper comes into the store, the choice has already been made. That’s why sitting on the shelf, facing outward all by itself, is your one and only choice - the leading brand.

Interesting story, and we all know pretty well how Microsoft applied those ideas to Windows. What is perhaps less well known is that Google uses exactly the same strategy to limit the ability of publishers to choose competitors to Adsense in addition to adsense. The following is taken directly from the Adsense Program Policies; it says in essence that if you are using Google Adsense, you can’t use any other contextual advertising system on your pages.

The equivalent in Microsoft terms would be if Microsoft said “if you sell a system with Windows, you can’t sell systems with Linux or any other operating system.” In fact, Microsoft tried pretty much exactly that, and got in hot water for it, but Google has not (yet) been held to similar standards.

David Bau goes on to discuss how the strategy of bulking up Windows, when overapplied, did grevious harm to the Windows ecosystem and ultimately to Microsoft itself, causing them to forget their customers and their original mission of making home computers possible. The equivalent in Google-speak is that Google could focus on leveraging their search and advertising dominance to prevent competitors from gaining market share, the extent that they forget their core values like “don’t be evil”.

…bulking up Windows is done on purpose, because it is a shelf-space and bundling strategy. The job of shoving every technology into Windows is sometimes called the “Allchin Tax” because he has been the biggest advocate of the bulk-up-Windows strategy. For years, Jim Allchin has been working mightily to replicate Chris Peters’s master stroke of unifying Office back in the early 90’s.

The reorgs that slam together SQL and MSN and Windows and so on are done for a reason. They are done because Microsoft believes that Windows has got to include so much good stuff that the shopkeepers - ahem - the OEMs - have no reason - and no shelf space - to provide anything else.

You can’t leave room for Flash-Java-Adobe-Google neighbors. You have to put the product in a wide box that sits sideways on the shelf, leaving no extra space.

But imagine, if you will, your brownie mix brand already has 95% market share. What do you gain by expanding the package from 6 to 12 inches? 24 inches?

You will have to start to convince the world to change their diet so all they eat is brownies. Chocolate, Vanilla, Cheese-flavored Antivirus brownies. Consumer brownies, Enterprise brownies, Advanced Server brownies. What happens when you increase the box to 48 inches?

To succeed at selling brownies in a big 48-inch Vista-sized box, you have to suck all the oxygen out of the whole idea of a grocery store in the first place. Eventually, your huge display-case brownies are so difficult to stock, and grocers have so little wiggle room, that you end up driving the poor shopkeepers out of business. That’s what happens with brownie mix at market saturation.