Strategic Computing and Communications Technology
CS 294-3, EE290X, BA296-11, and SIMS 290-2
Microsoft co-founder Bill Gates' vision
is, "A computer on every desktop, in every home." This was the beginning
of a new paradigm within the computer industry from large centralized mainframes
to decentralized personal computers dedicated to single users. As
we enter the 21st century, a new paradigm promises to radically
alter the landscape of the computer industry once again: the era of networked
Networked computing implies that
all computers (from large mainframes to desktop PCs to handheld PDAs) are
networked together to allow communication with one another. From a technological
standpoint, networked computing results in the convergence of two traditionally
separate industries -- computers and telecommunications. But the social
and economic ramifications of this convergence are huge -- the ability
to see and hear people from across the world as if they were next door,
instant dissemination of timely information, collaboration and sharing
of data, and mass product and service customization are just a few of the
applications networked computing promises. The Internet has provided us
with a glimpse of what networked computing can offer, but this is only
the tip of the iceberg for this new era of "Connected: anytime, anywhere."
For companies hoping to ride the
networked computing wave to financial success, it is imperative that they
understand the dynamics of this new infrastructure paradigm. Entrepreneurial
cowboys need to be aware of the characteristics and behaviors of developing
new markets. Established companies must be open to change in order to adapt
to new business conditions. Indeed, networked computing has changed the
game. You need to understand the rules if you want to play, and win,
this new game.
This paper discusses several strategies
for competing in the era of networked computing, with emphasis on a unique
strategy called "co-opetition." As the name implies, co-opetition
is a combination of competition and cooperation. As we shall see, in many
circumstances co-opetition is a more optimal strategy than the traditional
methods of competition. In this paper we discuss 1) the motivation
and fundamentals of networked computing, 2) a survey of traditional business
strategies, 3) co-opetition as an emerging business strategy, 4) a brief
presentation of the Technology Adoption Life Cycle, and an analysis of
the different business strategies applied to networked computing.
1.1 Rules of the New Game
The computer industry has gradually
evolved from a centralized computing model to a decentralized model.
In conjunction with this technological
evolution, several industry trends have also emerged:
In the 1950s-60s mainframe computers
emerged. Since these were large and expensive, they were only affordable
by large corporations.
The shift to time-shared computing in
the 70s allowed more users to interact with applications on the mainframes
through dumb terminals.
The 80s saw a shift to decentralized
computing with the emergence of the PC, which provided users with their
own suite of desktop applications.
As we move towards networked computing
these trends are likely to continue. In addition, networked computing introduces
even more rules:
The computer industry has embraced open
systems and standards. The PC is a classic example of this. Since
it has an open architecture, each component of the PC can be supplied by
a separate vendor -- microprocessors from Intel, modems from 3Com, memory
from Micron, OS from Microsoft, etc. This environment promotes competition
and innovation at each level (component) of the PC, allows faster time-to-market
by allowing vendors to specialize by working on their parts in parallel,
provides interoperability among vendors, and reduces vendor lock-in.
A trend from vertically integrated companies
to horizontally diversified companies. In the old mainframe era, vertically
integrated companies competed by offering the best full system solution.
In the open systems model, companies compete by offering the best solution
within their horizontal layer (i.e. component of the PC).
Network effects and network externalities
become much more influential in the networked model of computing. This
is true since network applications only have value if there is someone
else to connect to. For example, the first fax machine sold had little
immediate value since it could not send faxes to anyone. Once the
second fax machine was sold however, the first machine was immediately
worth something since it could then send faxes to the second machine.
Thus, each subsequent fax machine sold adds value to the first machine
since it represents another machine to send faxes to. Mathematically
stated, as the number of nodes in a network increases linearly, the value
of the network increases exponentially.
Industry convergence. Networked computing
results in the convergence of two very different industries: computing
and telecommunications. Traditionally, not only were these two industries
technologically different, but also fundamentally different. The computer
industry has a history of rapid-change and high-competition. The telecommunications
industry, on the other hand, has a more stable history due to its dominance
by the AT&T monopoly. Indeed, as these two industries converge, merging
the two ways of thinking may be more difficult than merging the two technologies.
1.2 Winning the Game
Just as the mainframe and PC eras produced
the likes of IBM, Intel, and Microsoft, networked computing will likely
produce immensely successful companies as well. Indeed, the networked
computing industry will be so large that many companies will emerge victorious
-- that is, profiting from the networked computing wave. However,
without an understanding of the rules of this new game, a company has no
chance of winning. But, simply understanding the rules does not guarantee
winning. You must be actively aware of your position within the industry,
and select appropriate strategies to carry out your business plan.
Furthermore, you must be willing to change strategies as your position
in the industry changes and/or the industry itself evolves. A summary
of traditional business models follows.
2.1 Traditional Business Strategies
In deciding how to conduct your business,
one of the traditional and most widely accepted approaches of the past
twenty years has been to conduct a competitive analysis. Harvard
Business School professor and independent consultant Michael Porter formalized
this approach with his competitive forces model which identifies five basic
forces with which a commercial organization must contend. This model
provides a framework for collecting and organizing industry information.
Traditional business strategy emphasized a firm's internal strengths and
weaknesses while neglecting or considering only one aspect of industry
structure. Porter's notion of competitive strategy requires a knowledge
of both the firm's internal strengths and weaknesses and the industry structure.
His thesis is that the more competitive an industry is, the thinner the
profit margins are likely to be, and vice versa.
As mentioned above, the competitive
forces model considers five forces for a competitive analysis. These
The Threat of Potential New Entrants
Assessing the threat of new entrants
can be accomplished by identifying barriers to entry. Potential barriers
to entry include economies of scale, proprietary product differences, capital
requirements, and absolute cost advantages.
Customer Bargaining Power
In some instances buyers can exert
considerable influence upon the providers of goods and services (e.g. volume
purchases, long-term contracts).
The Threat of Substitution
When assessing how readily buyers
will substitute a different type of product for the one the commercial
organization sells, four factors should be considered.
Supplier Bargaining Power
Availability of substitutes
Relative price performance of substitutes
Buyer propensity to substitute
Factors that determine how powerful
an organization's suppliers are in setting the price of supplies include:
Rivalry Among Competition
Differentiation of inputs
Presence of substitute inputs
Importance of volume to the supplier
Cost relative to total purchase
Impact of inputs on cost or differentiation
of the final product / service
Assessing the level of competition
that exists between the various players in an industry can become a very
involved exercise. In lieu of a comprehensive industry analysis,
one should at least appraise
The industry's growth prospects
Competitors’ capacity to take aggressive
The quality and size of competitors
Barriers to exit – the effort and costs
associated with withdrawing from this market
Although it is not part of Porter’s
model, it is generally accepted that government regulation is a sixth and
very important force which must be considered. As a barrier to entry,
Porter considers the impact of regulatory influences when evaluating the
threat of potential entrants. In some industries / economies, government
regulation may represent a pervasive factor which needs to be considered
explicitly as a competitive force (e.g. utilities, airlines, People’s Republic
2.2 Generic Competitive Strategies
In his book, Porter also outlines three
generic competitive strategies upon which firms may embark. In his
view, failure to focus on one of the strategies significantly limits an
organization's performance potential. These are:
Cost Leadership Strategy
An organization pursuing a cost
leadership strategy gains a competitive advantage by becoming the low cost
provider of a product or service. Characteristics of a cost leadership
Lower cost producers or declining volumes
represent significant threats to organizations pursuing this strategy.
According to Porter, this is not an advisable strategy for highly segmented
markets nor markets characterized by rapid changes in technology and customer
Pursue high volumes, large market share
Low costs derived from economies of
scale and the experience curve (volumes)
Minimal market segmentation
Suitable for homogenous markets, standardized
Offering a product or service that
buyers consider unique and to have a valuable difference enables the product
or service to be sold at a premium price, thereby yielding a higher profit
margin. Characteristics of a differentiation strategy include:
The ability to differentiate is only
valuable if it is valuable to your customer. The challenge in pursuing
a differentiation stratgey is to maintain costs that do not affect differentiation
in parity with competitors. Differentiation requires that a company
emphasize product and promotion. As an industry matures, differentiation
Product innovation and superior quality
Fast product development
Often requires a perception of exclusivity
which is incompatible with market share
Differentiation along several dimensions
(brand image, technology, features, customer service, distribution
network) is ideal
In any market, there will be only
a few successful, differentiated competitors and usually only one cost
leader. According to Porter, the other companies in an industry must
choose a focus or niche strategy under which the company concentrates on
a narrow segment of the market and produces a specialized offering.
The pursuit of a focus strategy entails identifying a narrow segment of
the market with specialized needs and then devising a mix of cost leadership
and differentiation to attract this segment. While this strategy
does not achieve low cost or differentiation from the perspective of the
market as a whole, it does achieve one or both of these positions in its
narrow target markets. Through specialization the firm justifies
higher prices than supported by a differentiation strategy and captures
higher unit profit margins.
2.3 New Business Strategies
These traditional strategies have recently
been reevaluated. Until recently it was believed that the only three
generic models to choose from were Cost Leadership, Differentiation,
or Niche strategies. Adding to the strategic fray, Joseph
Pine in his 1993 book Mass Customization, outlines a creative new
strategy in his Dynamic Stability model: Mass Customization.
Pine says industries are characterized by their products and their processes.
The degree of change in those products and processes as measured on the
Dynamic Stability Product/Process matrix (see figure 1) defines
what kind of strategy the company is pursuing.
Figure 1. Dynamic Stability
So, for example, a traditional production
strategy such as Mass Production concentrates on generating economies
of scale by specializing in standardized, unchanging processes to manufacture
cookie cutter products. This represents a low degree of change in
products and process and is one alternative route toward Porter's Cost
Leadership strategy. Another traditional strategy involves Invention
in which there are constant changes in processes and products (eg. Thomas
Edison, Bell Labs). This reflects a high degree of both product and
process change and gibes with Porter's Differentiation strategy.
In the past 30 years Japanese manufacturing companies, especially auto
manufacturers, have championed another quadrant on this matrix known as
Continuous Improvement. Instead of seeking occasional revolutionary
changes to achieve improvement, these companies have continually sought
incremental improvements in an evolutionary strategy. When these
incremental improvements are summed up, they often are more significant
than occasional changes brought about by a revolutionary change strategy.
This is another route companies take to achieve Cost Leadership
with fairly standardized products. Finally, imagine if you will,
a strategy in which you are able to benefit from your ability to customize
your products to individual customer specifications while still maintaining
the capacity to produce with economies of scale. This scenario describes
a situation in which your products change as needed but you are able to
specialize and generate economies of scale by utilizing stable processes.
This fourth quadrant which is considered outside the realm of Porter's
traditional business and production strategies is called Mass Customization.
Mass Customization, however, is not necessarily the most exciting new business
In deciding how to conduct a business
in an increasingly complex world, it now seems an oversimplification to
limit one’s analysis to the competitive environment. Furthermore,
the reliance on competitive analyses implies the existence of purely adversarial
relationships between the players in a given industry. In reality,
there may be cooperative relationships within a competitive industry without
resorting to unfair or non-competitive monopolistic practices. In
fact, cooperation and competition often exist concurrently between the
same two players. For example, General Motors and Toyota produce
a nearly identical car (Chevrolet Prizm / Toyota Corolla) which they collaborated
to design; but they go out into the marketplace and try to outdo each other.
Recently on network television, the first part of a crossover story began
on Fox’s Monday night program, Ally McBeal with characters from
ABC’s Law and Order program. The following night, the program
concluded on Law and Order with characters from Ally McBeal.
So, cooperative strategies can be used to create a new market (or expand
an existing market), and once it is created, competitive strategies can
be used to divide it up amongst the players. This is based on the
premise that business is not necessarily a zero sum game where each situation
is win-lose. There can actually be scenarios in which win-win is
achieved by cooperation and others in which lose-lose occurs without it.
In fact, without cooperation often times there exists a lose-lose-lose
situation because not only do the competitors end up losing out on a potential
market, but the market gets underserved because consumers lose out on a
potentially useful product or service.
In highly segmented industries with
strong network effects, such as the information technology industry, cooperation
and competition, or Co-opetition, may be the only way to conduct
business. Because of strong network effects it is often difficult
in the information technology industry to get new products off the ground.
In addition, the market demands more and more interoperability and this
requires technical standards. However, the establishment of technical
standards by competitive market forces in and of themselves is usually
a rocky road. Frequently, it leads many incipient companies down
the road to bankruptcy and established companies down the road of product
abandonment before their contributions can get any wind in their sails.
Many years of fruitless, cutthroat competition in which no clear winner
emerges inhibits the overall health of the market, in terms of company
profitability and in terms of interoperability and high customer investments
which often become stranded once a clear winner does emerge. New
strategies are needed to avoid this undesirable situation. Co-opetition,
which has its theoretical foundations in game theory, does just that.
3.1 Game Theory
The classical formulation of game theory
was presented in the highly acclaimed book Theory of Games and Economic
Behavior by John Von Neumann and Oskar Morgenstern in 1944. This
theory studies the "game of strategies" in a social exchange economy, as
distinct from the "Robinson Crusoe" economic model. The latter consists
of an economy of an isolated single person or otherwise organized under
a single will. Consider the following scenario:
"Crusoe is given certain physical
data (wants and commodities) and his task is to combine and apply them
in such a fashion as to obtain a maximum resulting satisfaction. There
can be no doubt that he controls exclusively all the variables upon which
his result depends - say the allocating of resources, the determination
of the uses of the same commodity for different wants, etc."
This is an ordinary maximization
problem, posing mostly practical rather than theoretical difficulty. In
a social exchange economy, a participant also tries to obtain an optimum
result. "But in order to achieve this, he must enter into relations of
exchange with others. If two or more persons exchange goods with each other,
then the result for each one will depend in general not merely upon his
own action but on those of the others as well. Thus each participant attempts
to maximize a function of which he does not control all variables. This
is certainly no maximum problem, but a peculiar and disconcerting mixture
of several conflicting maximum problems. Every participant is guided by
another principle and neither determines all variables which affect his
This characterization leads to the
primary insight of game theory for business strategies, summarized by Brandenburger
and Nalebuff, as "the importance of focusing on others -- of putting yourself
in the shoes of other players and trying to play out all the reactions
to their actions as far ahead as possible. By adopting this perspective,
a company may, for example, discover that its chances for success are greater
if it creates a win-win, rather than a win-lose, situation with other players.
In other words, companies should consider both cooperative and competitive
ways to change the game."
The idea of looking for win-win as
well as win-lose opportunities is captured by the term "co-opetition."
According to Brandenburger and Nalebuff, this portmanteau word can be traced
to Ray Noorda, CEO of Novell, who has used it to describe relationships
in the information technology business: "You have to cooperate and compete
at the same time" (Electronic Business Buyer, December 1993).
Co-opetition comes down to communication
and ways to negotiate win-win scenarios. The Harvard Negotiation
Project also embraces the concept of win-win scenarios. By negotiating
based on your legitimate interests and not from rigid positions, participants
in many negotiations can find ways to create win-win situations.
As an example, take the case of the two sisters who were arguing over who
would get the last orange in the fruit bowl. They argued based on
positions, each one asserting that she had the right to the whole orange.
In the end they settled their differences "half way" by slicing the orange
down the middle, taking half each and going their separate ways.
The first sister peeled her half, threw away the peel and ate the sweet
juicy pulp. The second sister peeled her half, threw away the sweet
juicy pulp and used the peel to make an orange cake. Now, if they
had only seen their way clear to negotiating based on their legitimate
interests (one wanted to eat the orange pulp, the other wanted to use the
orange peel), both sisters could have gotten more out of the agreement.
However, they turned a potential win-win situation into a lose-lose situation
by negotiating based on positions (each wanted the whole orange).
When looking at what stage your business is at and deciding how to conduct
it, you should evaluate the existence of potential win-win situations.
If your company is negotiating from a position of weakness, then it may
be in your interest to cooperate. If your company is negotiating
from a position of great strength, then it may be in your best interest
to all-out compete. However, this strategy should not be pursued
without properly addressing the possibility of a win-win scenario.
3.1.1 Prisoner's Dilemma
An example that illustrates the potential
benefits from cooperation is the prisoner's dilemma. This is a problem
presented by two RAND scients Flood and Dresher in 1950. A modern version
of the formulation is given by William Poundstone in his book Prisoner's
Suppose you have stolen the Hope
Diamond and are trying to sell it to a potential buyer, Mr. Big. You suggest
to execute the trade this way: You hide the diamond in a wheat field in
North Dakota, while Mr. Big hides his money in a wheat field in South Dakota.
Then both of you go to the nearest public phone and exchange directions
on how to find the hidden goods.
As you are about the hide the diamond
in the field, an idea pops into your head, why not just keep the diamond?
By the time Mr. Big finds out, you would have already been on a plane to
Rio. But before you get excited, you realize that Mr. Big must be thinking
the exact same thing. Both of you have equal incentive to betray the other.
This situation is summarized below in figure 2:
Figure 2. Extrapolation of the
Big sticks to agreement
stick to agreement
||Deal goes through: you get money,
Mr. Big gets diamond.
||You get nothing, Mr. Big walks away
with diamond and money.
||You walk away with money and diamond,
Mr. Big gets nothing.
||A lot of trouble for nothing: you
keep diamond, Mr. Big keeps money.
In the business world, many transactions
are potential prisoner's dilemma. When facing competition, how do you decide
whether to lower the price? If you take a selfish approach and lower the
price, you can garner increased market share. However, your competitor
could adopt the exact same strategy and a price war would start resulting
in both sides being worse off. On the other hand, if both agree not to
enter a price war, you may still split the market with your competitors
but at higher profit levels. Both sides benefit from such cooperatiuon.
According to game theory, the game has
five elements: players, added values, rules, tactics, and scope -- PARTS
The players are customers, suppliers,
substitutors (competitors), and complementors. It is important
to realize that none of the players are fixed, including yourself. An effective
business strategy may entail bringing in new players or pushing out existing
ones. For example, if you only have one supplier, you may want to pay for
other suppliers to enter the game in order to make the raw material market
for your business more competitive, or even to commoditize your supplier's
products. On the other hand, if you are considering becoming a new player
as a supplier to big companies, you should try to get compensated by the
future customer for the competition you create. Within the players
element, the concept of the Value Net expresses the relations amongst the
The Value Net (figure 3)
is a sub-component of PARTS which explains who the game's players
are. Brandenburger and Nalebuff also use the Value Net to explain the interdependencies
amongst the players. They argue that there are both vertical and horizontal
symmetries in the Value Net. Vertically, it demonstrates that customers
and suppliers are both "equal partners in creating value." Organizations
need to listen to the needs and wants of both players. They cannot
follow the convention of just placing the customer first. They must
also nurture supplier relations, a strategy which at present is not always
the norm. Listening to suppliers allows organizations to create partnerships
and possibilities to improve the supply process. Horizontally, Brandenburger
and Nalebuff state that "complementors are just the mirror image of competitors."
Customers value your product more when there are complementors whereas
they value your product less when there are substitutors. Understanding
this relationship highlights a deficiency in current competitive practices
- only focusing on how to eliminate one's competitors. Rather organizations
should also attempt to develop commodity complementors which in the long-term
increases an organization's overall value to a customer.
Figure 3. Value Net
By understanding these two symmetries,
the Value Net carries greater potential for successful application. Instead
of focusing on only the conventional players like customers and competitors,
the Value Net shows that organizations really have four players to choose
from when developing business strategies. This alone may be enough to give
a company a competitive advantage over other players playing the game.
3.2.2 Added Values
Added values are what each player brings
to the game. Trying to raise your added value or lower the added values
of other players can make yourself a more valuable player. Some ways to
raise your added value are tailoring your product to customers' needs,
build a brand, use resources more efficiently, etc. One the other hand,
creating competition among your suppliers, controling production to generate
shortage of your products, using commodity parts in your products, etc,
are some possible ways to lower the values of others.
Just as the players and added values
of the game are mutable, so are the rules. In business, most of the rules
people play by are well-established laws and customs. But there are other
rules that can be changed or negotiated with other players, such as contracts.
Players may want to revise the rules to their advantage. For example, a
meet-the competition(MCC) clause in the contracts give the incumbent seller
the right to make the last bid, which allows the producer to sustain a
higher price and reduce the chance of a price war. This in turn also helps
the challenger some room to raise prices to its own customers. And for
the customers, their producers are more willing to invest in serving them
since MCC guarantee producers a long-term relationship if they so choose.
In addition, the imitation of MCC will allow the producers to push the
prices up further, so they have even more to lose from starting a share
war. This is a typical case in co-opetition to create a win-win situation.
From Game theory point of view, the function of rules is to limit the possible
reactions to any action. To analyze the effect of a rule, a player must
look forward and reason backward.
Business is a complicated game, mired
in uncertainty. Tactics are used to influence the way other players perceive
the uncertainty and mold their behavior. Some tactics work by reducing
misconceptions, other work by creating or maintaining uncertainty. For
example, if Netscape decided not to compete directly with Microsoft in
the browser business, and just go after a niche market, it could have been
able to avoid the price war on browers. To do this, it would have had to
make it clear to Microsoft that it was not going after the whole market.
And both companies could have co-existed and divided the market. If Microsoft
had been convinced, it would not have reduced the price of Internet Explorer
to nothing and tried to drive Netscape out of business.
Games are not static, they evolve over
time and are linked across space. Scope describes the boundaries of the
game. Managers should constantly evaluate the possibility of expanding
or shrinking those boundaries. For the Netscape example discussed above,
when Netscape lost market share to Microsoft on the browser market, it
expended the scope by including the server software as a major part of
their business. In fact, it is plausible to conjecture that this was just
their strategy. Since the browser and server software markets are tightly
linked, commoditizing the browser software by inducing competition is actually
helpful for increasing the server software market.
The Value Net and PARTS are important
frameworks for managers to find co-opetition opportunities. However, there
are many potential traps that must be avoided. First, you must realize
that you don't have to accept the game you find yourself in. The bottom
line is that you can change the game to your advantage and it is far more
rewarding to be a game maker than a game taker. Secondly, it is important
to know that changing the game doesn't have to come at the expense of others.
This mind-set is critical for finding the win-win strategy. The third trap
is to believe that you have to find something to do that others can't.
Some textbooks on strategy warn that if others can imitate something you
do, you can't make money at it. But in the world of co-opetition, imitation
can actually be healthy, as shown by Brandenburger and Nalebuff. Another
trap is to only focus on part of the game. If you fail to see the whole
game, you can't change the part you don't see. Lastly, alway keep in mind
that business is a dynamic process. Other player are also trying to change
the game. Their changes could either be beneficial to you or not. You often
need to change the game again to maintain a game maker position. And there
is no end of game.
3.3 Using Tactics to Gain Advantage:
The Dispute between Sun Microsystems and Microsoft over Java
The Java dispute between Sun and Microsoft
is based on Microsoft's attempt to change the game and Sun's unwillingness
to let this happen. The original game focused on conquering the operating
systems industry. Sun introduced Java technology to facilitate cross-platform
compatibility. Once Java was firmly entrenched, it could serve as
"a mini-operating system that would be an alternative to the Windows platform"
(Bowman). Even though Java usage was far from achieving this goal,
Microsoft recognized Sun as a potentially strong competitor capable of
stealing part or even all of its market share. Because a cross-platform
operating system (OS) would hold a stronger added value than an OS strictly
for PCs, Microsoft's market share was endangered. Without an installed
base of OS consumers, Microsoft could lose its competitive advantage not
only in the OS market but in markets for its complementary products.
Rather than compete according to
the game that Sun laid out, Microsoft chose an alternative option.
It used co-opetition to turn the tables on Sun. It cooperated initially
with Sun and fellow Java licensees to develop Java technology and applications.
This let Microsoft keep an eye on its future competitors by collaborating
with them until it could create a strong enough counterattack to Java.
When it found itself in a position to compete, it used two tactics to decrease
the scope of Java, thereby limiting the number of potential players capable
of competing in the OS market.
•The first tactic introduced a renegade
version of Java in IE 4.0 that was incompatible with Sun endorsed versions
of Java. The second tactic presented a Microsoft substitute to Java
in the form of Dynamic HTML. The first tactic eroded Java's claim
of "Write Once Run Anywhere." Because software developers could not
use a single development kit to interface with all versions of Java, developers
would be forced to write two versions of each Java application -
one compatible with Microsoft IE 4.0 (and possibly higher) and one for
the rest of the Java community. This obstacle defeated the original
added value and appeal of Java to software developers, the elimination
of writing multiple versions of code to suit different platforms.
•With the introduction of Dynamic
HTML, Microsoft also undermined Sun's marketing position of Java as the
only cross-platform programming language. Now programmers had the
option of using an alternative language. This reinforced the perception
Microsoft was trying to achieve by making Java look like "just a programming
language" one of several options - one of which happened to be proprietary
to Microsoft (Bowman).
By using these two tactics, Microsoft
at the very least delayed Sun's capability to reach a critical mass of
Java developers and applications. Without this critical mass, neither
Sun nor any licensee will be in a position to market a Java OS. With
fewer potential players in the OS market, Microsoft could retain its market
share better. Despite the legal fees and time involved in being sued
by Sun, Microsoft still maintains the upper hand. If Microsoft can
continue delay or diversionary tactics it may be able to dampen Java enthusiasm
enough to stamp it out completely. Or if it only delays the general
community from adopting Java technology, the delay might be long enough
for Microsoft to formulate another tactic to protect its OS market share.
Using game theory principles, Microsoft's legal battles do not seem so
unfortunate after all. In fact, it may actually serve Microsoft's
3.4 Technological Standardization: Co-opetition
in Action at the Object Management Group
As mentioned above, without cooperation
often times there exists a lose-lose-lose situation because not only do
suppliers end up losing out on a potential market, but the market itself
gets underserved because consumers lose out on potentially useful products
To head this undesirable outcome
off at the pass, standards initiatives, such as the Object Management Group’s
(OMG) efforts to unify 700 software companies’ object-oriented technology
development efforts by endorsing individual technologies such as CORBA
(Common Object Request Brokerage Architecture), embody the need for and
benefits from co-opetition. This situation is clearly win-win for
the 700 companies involved in the OMG’s efforts. They are cooperating
to create a pie now and will later compete in the division of that pie.
However, without co-opetition, there might not be a pie in the first place
or the pie might take an extremely long time to form. In these cases,
not only do the companies suffer but the consumers do too, as mentioned
above, by being unserved or underserved.
An interesting case is Microsoft’s
participation in OMG which is tangential at best. Because they are
operating from a position of great market strength, Microsoft sees an opportunity
to benefit from a winner-take-all effect and therefore, are proposing their
own answer to CORBA, ie. DCOM (Distributed Common Object Management).
This is the traditional adversarial tack which may work for Microsoft or
may come back to haunt them if OMG’s mass outweighs Microsoft’s.
3.5 ADVANTAGES AND DISADVANTAGES OF
Co-opetition can provide organizations
a portfolio of potential opportunities if used properly.
•It provides organizations with a
new model by which to devise strategies that incorporate both competitive
and cooperative tactics. Traditional organizations that rely exclusively
on competitive models will be at a disadvantage from their peers who are
willing to consider a new model pointing to new and perhaps even better
strategies. These strategies could even lead to win-win situations where
all competitors receive some benefit from their participation in the industry.
•Brandenburger and Nalebuff provide
organizations with a systematic approach to manipulate their business environment.
This new conceptual framework consists of the Value Net and PARTS.
Both aspects of the framework apply game theory principles to the business
world and provide ways to change the game if it is more advantageous to
an organization and if others allow it.
•Co-opetition could result in greater
profits. If co-opetition increases the total market, organizations
can compete for market share of a bigger pie. In some cases, this
turns out to be more profitable than having a larger market share of a
smaller pie. Without considering co-opetition, an organization could have
settled for lower profits, without realizing it had the capacity to earn
even more money.
Co-opetition is a double-edged sword.
In some instances, it can give organizations a larger market share and
even a larger market. In other cases, it can lead to legal disputes
or it can create stronger competitors who take market share away from you.
Therefore, great care should be taken in selecting when and how to use
co-opetion to your organization's advantage.
220.127.116.11 The Potential for Legal Disputes
Organizations engaging in co-opetition
run the risk of breaking the Sherman Anti-Trust Act of 1890 and the Clayton
Anti-Trust Act which attempt to prevent organizations from controlling
prices, discriminating in pricing, driving out their competition, or developing
a monopoly. In both acts, conspiratorial activities are not limited
to organizations which explicitly communicate their intent to one another.
The Supreme Court has upheld in numerous cases like Interstate Circuit,
Inc. vs. United States (1939) that conspiracy exists even if there is no
explicit communication (verbal, written, or otherwise) between organizations.
This form of collusion, known as tacit collusion, is punishable by law
and receives the same penalities as explicit collusion. No distinction
is made in the eyes of the court.
The unfortunate aspect of co-opetition
is that it could be perceived as tacit collusion. For instance, in
The Right Game, Brandenburger and Nalebuff describe how the New
York Post was able to get the New York Daily News to raise its price ten
cents above the original price both competitors had been selling newspapers
at. Rather than explicitly agree to a price hike, the Post used an
ingenious method to tacitly get the Daily News to agree to a price hike.
As Brandenburger and Nalebuff explain it, the two newspapers were not colluding
to raise prices so much as avoiding a price war. But the same scenario
could be seen from a collusory perspective.
The Co-opetition Argument:
In response to a price cut from
the Daily News, the Post cut its newspaper price by 25 cents on Staten
Island. When the Daily News saw that it did not have enough added
value to retain its customers, it had to follow some course of action before
the Post expanded its price cut to rest of New York. If it chose
to compete it would have to engage in a price war that would have no winners.
But if it choose to co-opetete, it could match the Post's price of 50 cents,
thereby regaining its subscribers as well as making an extra 10 cents on
each newpaper it sold. It chose the latter.
The Collusion Argument:
Both the Post and the Daily News
wanted to increase profits. They both knew that a price war would
decrease their long-term profits so they chose the option by which they
could both squeeze more money out of their subscribers without needing
to directly compete with each other on price. Subscribers were left
in a position where there was potentially no other competitor with a lower
price for subscribers to choose. Therefore, the New York Post and
the Daily News were able to control newspaper pricing.
There is some degree of validity
to both arguments. In either event, the result is the same.
Consumers pay a higher price that would not have been possible without
competitors agreeing, whether explicitly or implicitly. Nalebuff
and Brandenburger attempt to address this issue in R (short for Rules)
of their PARTS model. They argue that organizations engaging in co-opetition
should consider the legal and regulatory environment in which they operate.
They advocate considering all legislation that may lead to legal disputes,
but this short warning glosses over the fact that tacit conduct of anti-trust
activities can be just as illegal as explicitly conspiring with competitors.
Therefore, organizations should carefully consider not only what they do
but how the law may perceive its actions.
18.104.22.168 Strengthening Competitors at
In the process of co-opeteting, organizations
may find themselves in a worse predicament than when they started.
They may actually determine that co-opetition has led to stronger competitors
or new entrants into the market. Hamel probes this issue in Collaborate
with Your Competitors - and Win. He identifies the fact that
even though competitive collaboration is on the rise, the long-term effects
may compromise a company's ability to compete in the future. He uses
examples of "Asian companies and their Western rivals" who forge temporary
alliances only to have the weaker Asian company become more successful
and profitable than its former ally e.g. Rover and Honda. He hypothesizes
that this is in part due to the Asian company's willingness to learn as
much as it can from its ally even if it is not directly correlated to the
work at hand. An example of this ocurred when the authors, "accompanied
a Japanese development engineer on a tour through a partner's factory.
This engineer dutifully took notes on plan layout, the number of production
stages, the rate at which the line was running, and the number of employees.
He recorded all this despite the fact that he had no manufacturing responsibility
in his own company, and that the alliance didn't encompass joint manufacturing."
This example points to one key lesson:
in the event of formal alliances, competing organizations should limit
the amount and type of information conveyed to their allies. They
should remember that today's allies are tomorrow's competitors, or even
today's. They should control the transfer of information to current
allies whether this be through facility security or having one central
office serve as the gatekeeper for information requests. Following
this same line of reasoning, you should try to learn as much information
as possible from your allies. If your ally does not have the forethought
to limit your access, why should you waste such a valuable opportunity?
4. THE TECHNOLOGY
ADOPTION LIFE CYCLE
In the 1950s, research on how communities
respond to discontinuous innovations introduced a model known as the Technology
Adoption Life Cycle. Discontinuous, or revolutionary, innovations often
lead to paradigm shifts, since the new products or services require users
to dramatically alter their past behavior in return for dramatic benefits.
This is contrasted with evolutionary innovations, which offer improvements
(speed, functionality, etc.) but do not require dramatic behavior changes.
The Technology Adoption Life Cycle
model states that people will segregate into 5 distinct groups when faced
with a discontinuous innovation, depending on their risk aversion -- innovators,
early adopters, early majority, late majority, and laggards. In Inside
the Tornado, Geoffrey Moore provides a profile of these groups:
The Technology Adoption Life Cycle is
depicted as a bell shaped curve (figure 4), which shows both
the approximate size of each segment and the sequence in which each segment
adopts the new technology. On the x-axis is time and on the y-axis is the
number of people adopting the new technology at a given point in time.
The Early and Late Majority are the largest segments (the largest markets)
and, as such, are the most lucrative from a business standpoint. An important
point to remember is that the Technology Adoption Life Cycle is a graph
of technology adoption vs. time, not sales vs. time. Indeed, assuming
constant prices, the graph of sales vs. time for the new technology would
simply be the integral of the Technology Adoption Life Cycle curve (figure
Innovators (Technology Enthusiasts)
These techies are the people who typically are the first to try anything
new. They enjoy tinkering with new technologies since they fundamentally
believe new technology will improve their lives.
Early Adopters (Visionaries)
Visionaries see an unproven new technology as a potential competitive advantage.
By being an early adopter, they hope to exploit the technology before the
majority in order gain leadership status.
Early Majority (Pragmatists)
These people prefer evolution over revolution, and are thus initially skeptical
about any new discontinuous innovation. However, once the new technology
has proven that it can provide benefits to the pragmatist, he/she will
adopt the new technology.
Late Majority (Conservatives)
These people are highly skeptical about any new technologies, and are even
a little afraid of change. However, conservatives will eventually adopt
a technology when the only other alternative is letting the world pass
Laggards (Skeptics) These people
are more critics of new technologies than they are customers. They are
extremely skeptical and highly adverse to change.
Figure 4. The Technology Adoption
Figure 5. Graph of Sales vs.
The Technology Adoption Life Cycle can
be applied to both products and entire industries. For example, the PC
revolution in the 1980s was a discontinuous industry revolution since it
forced people to alter their behavior from centralized mainframe computing
to decentralized PC computing. Within an industry life cycle, there can
be many individual product life cycles. Product life cycles can likewise
be revolutionary (Windows was a revolutionary innovation over DOS since
it required a substantial change in behavior) or evolutionary (the x86
family of microprocessors from Intel were evolutionary innovations since
they all used the x86 architecture).
4.1 The Tipping Point
A very crucial point on the Technology
Adoption Life Cycle lies between the Early Adopters and the Early Majority
part of the curve. This point is often called the Tipping Point or, in
order to emphasize its perils, is sometimes referred to as "the Chasm."
The Tipping Point is the point that separates the small early market from
the much larger mainstream market. As can be seen by the non-linearity
of the Technology Adoption Life Cycle at the Tipping Point, getting past
the Tipping Point and entering the mainstream market can result in a rapid
growth in success.
This picture of non-linear success
has many examples from high technology. During its first ten years, Microsoft's
profits were negligible. But around 1985, when its profits began to rise,
they exploded, helping Microsoft's market capitalization grow to over 200
billion dollars. It took Sony 7 years to ship its first 10 million
CD-ROM players. But the next 10 million were shipped in seven months!
These examples of tremendous success exemplify the importance of crossing
the Tipping Point.
However, getting past the Tipping
Point is not a simple task. It is like rolling a boulder uphill.
Before getting to the Tipping Point is where co-opetition has its greatest
value, ie. creating a market.
4.2 Different Segment, Different Strategy
The early market of any new technology
is predominantly composed of innovators and early adopters. Innovators
(technology enthusiasts) eagerly adopt the new technology because they
like to tinker. Early Adopters (visionaries) enter the early market because
they can envision dramatic benefits from the new technology. However, since
the technology is still unproven, the Early and Late Majorities are hesitant
to adopt the new technology. Thus, the early market is a small market.
The main goals of any business whose products are in this early stage of
the Technology Adoption Life Cycle are to gain a foothold in the early
market and to create the necessary demand to achieve critical mass (pass
the tipping point between the early market and the mainstream market).
The mainstream market is composed
of two segments, the Early Majority and the Late Majority, which as their
names suggest, make up the majority of the population. In terms of the
Technology Adoption Life Cycle, the Early Majority corresponds to a period
of tremendous growth and the Late Majority corresponds to one of high volumes.
The Early Majority are pragmatists, since they do not like to adopt a technology
until its benefits have been proven. But, once they do decide to adopt
the technology, they do all at once in a herd. This leads to tremendous
growth, which Moore dubs "the Tornado." In the tornado, the goal is to
gain market share, since the Early Majority herd has decided to adopt and
thus enter the market. Conversely, the Late Majority is more conservative
and thus more price sensitive. In order to get them to adopt, it is necessary
to lower prices. This period of high volumes and low margins is known as
"Main Street." On Main Street, the goals are to differentiate your products
in order to maximize margins and to prevent new discontinuous innovations
from emerging and stealing your markets.
According to Moore, since each of
the segments of the Technology Adoption Life Cycle has a different response
to a new technology, a company must continually change its business strategies
and tactics in order to deal with the different behaviors of the different
segments. Effectively, this means a business cannot simply choose one of
the business strategies discussed above (co-opetition, volume cost leadership,
differentiation, niches, or mass customization) and simply stick with it
for the life of the business. Instead, different strategies may have different
applicability depending on the target market segment, the timing and the
This implies two crucial decisions
you need to make: 1) deciding where you are on the Technology Adoption
Life Cycle (i.e. which segment you are targeting), and 2) deciding what
business strategy to use given your position on the cycle and the industry
Brandenburger and Nalebuff state
rather bluntly, "(T)he game of business is all about value: creating it
and capturing it." In mathematical terms, this can be rephrased as:
Total Revenues = Market Size *
That is, a company can increase its
revenues by either increasing the size of the market (making a bigger pie)
or by increasing its market share (getting a bigger piece of the pie).
In the early market, creating value is more important than capturing value
since having a large market share is useless if the market is not a pie
but only crumbs. However, once a technology has proven its worth, we progress
to the mainstream market, where capturing value is the game.
5. NETWORKED COMPUTING
Networked computing can be considered
a discontinuous revolutionary innovation since it requires people to drastically
alter their behaviors in order to gain dramatic new benefits. For example,
online banking promises faster, more convenient banking. But, in order
to achieve the benefits promised, people must change their old behaviors.
Instead of driving to the bank, filling out a transaction form, and waiting
in line for a teller, online banking requires the user to log onto the
network, go to the bank's website, and fill out an online form. Since it
is a discontinuous innovation, the Technology Adoption Life Cycle can be
applied to networked computing, which can give businesses a good idea of
what business strategies they should follow.
5.1 Networked Computing: The Early Market
Networked computing presents several
hurdles for businesses in the early market stage of the Technology Adoption
The computing industry is accustomed
to rapid change and turnover. In fact, it is not uncommon for new technologies
to supplant old ones every few years. Thus, for the computing industry,
the switching costs associated with adopting networked computing may not
be an excessive burden, but rather an accepted industry cost for adopting
new technologies. However, the telecommunications industry has historically
been much more stable and thus has not often been forced to deal with switching
costs related to new technologies. For this reason, it may be more resistant
to change. The telcos, for example, might be hesitant to upgrade their
networks to handle data traffic because of the huge upfront investment
costs and the fear of cannibalizing their own profitable businesses. Ordinary
consumers might likewise be hesitant to switch from their old telephones
to new ones based on packet switched technologies.
Switching Costs. Since networked computing
results in the convergence of the computing and telecommunications industries,
customers must bear substantial switching costs in order to adopt the networked
computing paradigm. These include tangible costs such as building infrastructure,
hardware/software upgrades, and training, as well as intangible costs such
as changing behaviors and routines, time, and hassles.
As a corollary, network effects
can amplify fears of stranded investments. In the early market, when a
new network application has been introduced but has not yet proven its
benefits, people may be wary of anteing up the initial costs for the new
application, fearing that if the product does not become popular it may
have little value or support, leaving the consumer with a useless product
and possibly large stranded investments. This is especially true for network
applications, since their value depends on a number of network externalities
that the consumer cannot control.
Network effects and network externalities.
Since network applications only have value when they have something to
connect to, they have little value during the early market stage when very
few people have adopted the technology. This is a catch-22; network applications
with few users have little value, but mainstream users (Early and Late
Majorities) are only willing to adopt an application if it has a high value.
Products, not solutions. In the fast-paced
world of high-technology, often times new products come to market based
on a hot new technology. For example, a new breakthrough in audio compression
technology might lead to a new voice capture product. While this is great
for techies who love to tinker with new toys, by itself it would have little
value to mainstream consumers. Mainstream consumers want solutions that
work and don't want to spend time tinkering. Thus, a solution they might
be interested in would be Internet telephony, which could include the voice
capture product with a matching playback application, microphone,
speakers, equalizer, network transmission protocols, etc. Unfortunately,
in the early market stage, companies often do not have complete solutions
but rather only individual products.
5.1.1 So how do you tell if you are
in the early market stage of the Technology Adoption Life Cycle?
Here are some hints:
Co-opetition, in its various forms,
can be an extremely valuable business strategy for networked computing
companies in the early market. Since the early market is small, competing
for market share does not make much sense. Instead, in the early market
stage, companies should focus on creating demand and getting past the Tipping
Point. In light of this, co-opetition can create a win-win situation for
all companies by actually lowering the Tipping Point for reaching the mainstream
market. We shall describe how this can occur.
Technical standards bodies activity.
During the early market stage, there will often be considerable activity
from technical standards bodies. Technical standards help network applications
overcome the network effects catch-22 by defining interoperability among
competing products. For example, before the 56k modem standard was established,
people were hesitant to purchase 56k modems out of fear that if they purchased
a modem with the losing 56k technology, their modem would be useless since
they would have nobody to connect to. However, once the standard was established,
the 56k modem market boomed, since people knew any 56k modem could connect
to any other 56k modem. Standards can also help overcome the products-only
hurdle by defining interoperability between products. For example, the
HTTP protocol defines a standard language for WWW interactions. Suppose
a company developed a standalone client browser product. By itself it would
have little value, but if it understood HTTP, it would become an information
retrieval solution since it could interact with all servers which also
Press and reviews. Since products in
the early market stage are predominantly used by Innovators (technology
enthusiasts) and Early Adopters (visionaries), much of the press and reviews
will focus on the technological benefits of the new product. For example,
a review of competing handheld personal communicators might compare features
such as network connection speed, screen size, battery life, etc. Since
these are targeted to technology-savvy consumers, they will often use technology-jargon.
The hand-held personal communicator review might contain the phrases, "3MB
RAM", "100Kbit/sec modem", "100 MHz processor", "SCSI I/O", etc.
Hot topic of applied academic research.
Often times, people in academia are the Innovators (technology enthusiasts)
since they enjoy tinkering with new technology and furthermore pursue research
based on the new ideas. Thus, a survey of current applied research in computer
science is likely to find much more work related to networked computing
than mainframe computing (theoretical research, on the other hand, transcends
individual technologies and is thus consistently popular).
A very effective method of co-opeteting
during the early market stage is by participating in and developing for
open systems and open standards. Open systems provide a good system framework
that allows multiple vendors to supply individual components of the system
rather than requiring each vendor supply complete proprietary systems.
This can be beneficial for two reasons: a company may not have enough capital
to develop an entire proprietary system, and a company can gain efficiencies
by focusing on a specific component of the system. Open standards, on the
other hand, help define interoperability between products. This is very
important in networked computing in which value is dependent on the number
of other entities you can communicate with.
Open systems and standards can lower
the Tipping Point by reducing fears of stranded investments. Suppose a
customer was faced with three different implementations of a new network
application. The fear of choosing the wrong technology and being left with
a stranded investment might be enough to prevent this customer from purchasing
any of them. But if the three companies decided to cooperate and develop
one open system architecture or a standard for interoperability, this would
eliminate the customer's fears, as long as he/she chose a product conforming
to the open system or standard. By providing consumers an industry-supported
solution, all cooperating companies benefit from the resulting greater
total market size.
An example where co-opetition to
form open standards might be beneficial is broadband access to the home.
Currently, this technology is in the early market stage and several alternatives
exist -- xDSL, cable modems, wireless, satellite, fiber optic cables, for
instance. Without any standards, consumers (and the broadband access providers)
might be fearful of choosing the wrong technology and being left with large
stranded investments. Instead, an open standard for interoperability between
the different alternatives (and between competing choices within the same
alternative, as well) could help expedite the adoption of broadband access
to the home.
However, as the name co-opetition
implies, cooperating on developing open systems or open standards does
not necessarily compromise away all of a company's competitive advantages.
Instead, it provides a common architecture on which companies can compete
by adding proprietary added-value features. In an open systems architecture,
a company's added value might be the efficiencies it gains from focusing
on a specific component (layer) of the open system rather developing a
whole proprietary system. With open standards, added value might take the
form of added performance or features while still retaining complete interoperability
and standards conformance.
In the early market stage, co-opetition
may also be beneficial in order to develop whole product solutions. This
might take the form of strategic alliances or partnerships. As previously
mentioned, new technologies in the early market stage are often single
products, not complete solutions. By themselves, single products have little
value. It is only when they are integrated into a whole product solution
are they valuable. This is crucial for getting over the Tipping Point and
entering the mainstream market. In order to get over the Tipping Point,
the Early Majority (Pragmatists) must decide to adopt the technology. As
defined by Moore, Pragmatists will only adopt a technology if there is
a proven real-world benefit from using the new technology. Real-world benefits
require whole product solutions, not single products. The Internet telephony
(whole product solution) vs. audio compression scheme (single product)
example presented above is a good example of this.
However, companies in the early market
stage often do not have the money or the time to develop a whole product
solution. Enter co-opetition. By entering strategic alliances or partnerships
with other companies, a whole product solution can be developed without
requiring large capital or time expenditures. If successful, the benefits
for each company are great. By getting the Pragmatists (Early Majority)
to adopt, the whole product solution has effectively crossed the Tipping
Point and entered into the much more profitable mainstream market.
Thus, in the early market stage co-opetition
can be a very good strategy for overcoming the hurdles networked computing
presents. By co-opetiting to form open systems and standards, companies
benefit by removing market fragmentation and developing a larger common
market. By co-opeteting to develop whole product solutions, companies benefit
by providing a compelling reason to buy the new technology. This can eliminate
the network effects catch-22 and, since network effects increase the value
of the solution, reduces the impact of switching costs.
5.2 Networked Computing: The Tornado
The Tornado is a period of rapid growth.
This is because the Early Majority has decided that the new technology
is actually beneficial; it is worth adopting because the benefits outweigh
the switching costs. The rapid growth appears because the Early Majority
moves in a herd to adopt the technology all at once. In networked computing,
positive network effects amplify the Tornado into a period of hyper-growth.
As more and more people adopt the technology, positive network effects
cause its value to rise. As the value rises, more people decide to adopt
the technology, and thus a fortuitous cycle emerges. Indeed, the tornado
is an exciting and very profitable stage of the Technology Adoption Life
So how do you tell if you are in
Returning to the example of the
World Wide Web, a good indication that it had crossed the Tipping Point
and entered the tornado stage of the mainstream market was a shift in the
focus of the press. In the early market days of the WWW, the press focused
on the technological aspects of the Web -- HTML allowed people to easily
create and publish content, hypertext allowed easy "surfing" of data, browsers
enabled multimedia webpages. This was great for the Innovators (Technology
Enthusiasts) but the WWW had not yet proven its capability to provide a
solution to a real world problem; it was not yet ready for the mainstream
market. Thus, in the early market stage, the WWW saw a proliferation of
personal homepages created by techies tinkering with the new technology.
However, once the WWW crossed the Tipping Point and entered the tornado
stage of the mainstream market, we witnessed a shift in the focus of the
press. Nowadays, much of the press deals with the real world solutions
the Web promises -- e-commerce, information dissemination, distance learning,
A company must change its business strategies
once it crosses the Tipping Point and enters the tornado stage of the mainstream
market. While strategies in the early market stage were primarily
focused on market creation, in the tornado the primary focus is gaining
market share. The Early Majority have decided to adopt and thus the
mainstream market has been created. Thus business strategies in the
tornado should focus on competing for as large a share of the Early Majority
as possible. There are several reasons for such a strategy:
Incredible demand. The Early Majority
is moving so fast to adopt the new technology that they are buying anything
and everything. Witness the Internet. Recent press has suggested that the
WWW has reached 50 million users faster than any technology ever
-- faster than radio, television, or even computers on which the Web runs.
What caused this explosion? The Technology Adoption Life Cycle shows a
rapid increase in the rate of adoption after the Tipping Point is crossed.
This is because the Early Majority has determined that the technology can
provide a solution to a real-world problem. But why was the rise of the
WWW so much faster than other technologies? This is likely attributable
to the positive network effects associated with applications of networked
computing. As more and more people adopt a new network application (ie.
the WWW) its value increases exponentially, since there are more people
to connect to.
Press and reviews. While press and reviews
focused primarily on technological features during the early market stage,
during the tornado they will focus more on the solutions and benefits the
new technology promises. This is because the tornado-like growth is the
result of the Early Majority entering the market. They will only adopt
a new technology once it has proven its benefits and can provide a specific
real-world solution. Thus, the majority of press and reviews of products
in the tornado stage will focus on these factors.
Because of these reasons, the tornado
stage of the mainstream market can be considered a zero-sum game. In zero-sum
games, a player can either win or lose; there are no win-win situations.
Larry Ellison, CEO of Oracle, was once quoted, " [in the Tornado] it is
not enough that we win -- all others must lose." Thus, the tornado can
be considered a zero-sum game since it is a period of intense competition
and once a customer is lost to a competitor, he/she is likely lost for
the life of the technology.
While most would agree having multiple
supply vendors is beneficial, most Early Majority actually prefer a dominant
supplier. This is because the Early Majority is composed of pragmatists
who prefer practical, dependable solutions to tinkering and experimentation.
Thus, they prefer a dominant supplier because it provides the security
of a well-supported vendor.
As a corollary to the point above, since
the Early Majority prefers a dominant supplier, once a dominant supplier
has emerged, they will most likely stick with it for the life of the technology
-- barring any enormous blunders from the supplier. This results from lock-in
-- both technological (from adopting the technology) and vendor (from choosing
the dominant supplier). This exemplifies the need to win over customers
early on in the tornado in order to guarantee their continued business
Thus, in the tornado stage, a good
business strategy might be volume cost leadership which relies on economies
5.3 Networked Computing:
Sometime during the mainstream market
a shift occurs from the Early Majority to the Late Majority. While this
is a subtle shift, companies in the mainstream market must recognize the
shift and likewise adjust their business strategies to compensate. Why
does this shift occur? As we have seen, the Early Majority are pragmatists
and will adopt a new technology once it has a proven benefit. However,
the Late Majority is slower to adopt a new technology because it is more
skeptical of change and is even a little afraid of change. For example
the Late Majority might include people who are extremely skeptical about
the benefits of the Web. They might believe that old routines are simpler
than the Web, or even that the Web is too hard to use. Alternatively, they
might believe that the WWW does not have any "useful" content -- but rather
is full of useless junk or pornography. Thus they are highly skeptical.
Generally, the Late Majority will only adopt a technology for several reasons:
The price has gotten extremely low.
Since the Late Majority is extremely skeptical, one motivation for adopting
a new technology might be an extremely low price. This way, if the technology
indeed does not provide and real benefits, the actual money lost in the
investment is not very high.
Fear of having the world pass them by.
Another reason the Late Majority might choose to adopt a new technology
is fear of letting the world pass them by. This might be a sense of urgency
or a feeling that there is no choice but adopting. For example, a highly
skeptical Late Majority consumer might only learn to use a computer out
of fear that he/she might be unemployable if he/she did not have any computer
5.3.1 So how can you tell if the mainstream
market has entered main street?
The different dynamics of the main street
stage of the mainstream market require that a company rethink its business
strategies and evaluate whether those utilitized in the early market and
tornado stages remain appropriate. In this stage, it would be appropriate
for companies to focus on product differentiation strategies including
niche marketing (focus strategy) and mass customization.
Product differentiation. Since costs
have been driven down by manufacturing efficiencies and competition, the
actual technology might have become rather commoditized. Thus, companies
will try various strategies in order to differentiate their products and
increase margins. These might include versioning, value-added features,
mass customization, or entering related niche markets.
Press and reviews. In the main street
stage of the mainstream market, companies will often focus on differentiating
themselves from their competitors. This might include brand awareness campaigns
in order to build brand loyalty. Intel was highly successful in launching
their "Intel Inside" ad campaign. Recently, many WWW search engine companies
have begun advertisements on broadcast television in order to build brand
awareness and loyalty from the mainstream market.
As a secondary focus, companies should
consider strategies in order to prevent new discontinuous innovations from
emerging and stealing the existing market (or from becoming a new revolution
which could sweep the company aside). This squarely places co-opetition
within the theoretical bounds of Porter's competitive strategy analysis
in addressing the threat of new entrants in order to prevent new technologies
from stealing the market.
After maturing market and industry analysis
over the past twenty years, there is a whole new set of business strategies
which companies have at their disposal in order to decide how to conduct
their business, how to compete. The term co-opetition serves as an
umbrella for a significant portion of these. After evaluating whether
its internal characteristics and competitive position and market dynamics
call for it, using co-opetition organizations can climb up the product
adoption life cycle and achieve the critical mass necessary to hurdle over
the tipping point in order to create a market. Once they get past
this point, it is up to every organization to re-evaluate its competitive
and cooperative opportunities in order to determine where each has the
greatest comparative advantage (or least comparative disadvantage).
An organization may decide to compete if it determines that it is in a
strong position and that it feels it is in a zero-sum game. Or it
may decide that the pie can be expanded by further cooperative initiatives.
In order to reap the benefits of exciting market opportunities, combinations
of these two strategies, ie. co-opetition, will become increasingly prevalent
as companies realize that business is rarely a zero-sum game.
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to the Network Economy, Carl Shapiro and Hal Varian, University of
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Inside the Tornado, Geoffrey
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New Rules for the New Economy,
Kevin Kelly, Wired Magazine, issue 5.09, September 1997.
Networking our Computers: A Primer
from an Application Perspective (tentative title),
D. G. Messerschmitt, University of California, Berkeley, Morgan Kauffmann
Theory of Games and Economic Behavior,
John Von Neumann and Oskar Morgenstern, Science Editions, John Wiley &
Sons, Inc. New York, 1964.
The Right Games: Use Game Theory
to Shape Strategy, Adam, M. Brandenburger and Barry J. Nalebuff, Harvard
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Prisoner's Dilemma, William Poundstone,
Sun Microsystems Sues Microsoft,
USA Today, October 7, 1997.
continues its Java assault, ZDNet, May 8, 1998.
Mass Customization, Joseph Pine,
Harvard Business Press, 1993.
Competitive Strategy: Techniques
for Analyzing Industries and Competitors, Michael E. Porter, Free Press,
Getting to Yes, Negotiating Agreement
Without Giving In, Roger Fisher and William Ury & for Second Edition,
Bruce Patton of the Harvard Negotiation Project, Penguin Books, 1991.