Tuesday, February 03, 2004

Co-opetition

I just got myself a copy of Co-opetition from the remainder bin at Borders, and have been having a bit of a read. Co-opetition was coined by Ray Noorda, the founder of Novell, who noted that in the computer industry "You have to compete and cooperate at the same time. Examples of this are setting standards and creating interoperable devices and software. You don't always have to cooperate, if your the biggest kid in the sandpit, but if you're a smaller or non-dominant competitor especially, you may have to do quite a lot of cooperating to stay alive. I'd already considered writing today about co-opetition in the computer industry, which is not very well understood by many industry commentators IMHO. The specific example I wanted to talk about was Apple's strategy with the iPod, after reading Show Time! (in Business Week, Asian edition, February 2, 2004).

People are quick to talk about the business genius of Bill Gates, or Larry Ellison, because they are so phenomenally rich, and especially in Bill's case because his company is so dominant in such a large market. I'm not putting Steve Job in Bill's league for business acumen, but I do think his story is fascinating, in that he has been so creative, in so many areas, from (allegedly) garage blue boxes (phone phreaking equiptment), to Apple ][e's to Macintoshs which commercialised the amazing R&D work being done at Xerox Parc at that time with mouse driven windowing systems, to convincing the CEO of Pepsi to become CEO of his company ("Do you want to sell fizzy drinks for the rest of your life, or do you want to be a part of the future?"), to his highly innovative NeXT Computer, Inc. which developed the NeXTSTEP OS, which OS X is based on, to founding Pixar, to returning to Apple & returning it profitibility and focus, to OS X, a snazzy commercial operating system based on some core open source components, to now iPods and iTunes and revolutionizing digital music. Phew, that was a long sentence, but Steve jobs has a long list of achievements. And whilst he isn't in Bill Gates' financial league, he isn't poor either, at approx. US$12 billion net worth.

But here's the issue, which I think Microsoft bloggers have already partially covered: Steve Jobs knows how to innovate, and built brand recognition, reputation and the elusive 'coolness', but does he know how to survive in the big bad mass market, not just in high priced niches? This is the important question to ask now that Jobs has gone cross platform with iPod and iTunes. In the mass market interoperability is king, which is a form of co-opetition in that you're competing with other companies in the same market, but you are cooperating by making your devices completely interoperable, so that the consumer has the freedom of choice, and can avoid lock-in, and hardware manufacturers further up the supply chain can provide the same standardised components to all competitors. Steve Jobs is promoting his own music format, called AAC, whilst most people use MP3 and Microsoft is pushing heavily their WMA evil format :)

My prediction: Steve Jobs is very smart but the iPod will likely become a niche product like Macs are, because he doesn't seem to or doesn't want to understand that most people want low prices and interoperability, and interoperability is also very important for many of the companies he will be dealing with. If Apple wants to not support WMA on their iPods initially that's fine, but they'd better make sure more and more companies use their format quickly, not just HP with their iPod clone, otherwise regular Joe consumers are going to avoid iPods and iTunes so they don't get locked in to a minority format. And in the longer term, Apple should support WMA on the iPod if that is what consumers want. Intolerant strategies which try to lock-in customers or lock-out opponents can work well in the short term, but in the long run tolerant strategies like openness, free choice and interoperability usually win out. Therefore in my opinion, if Appple want to suddenly have a mainstream, dominant in its sector product like the iPod, and not get annihalated by Microsoft and the big Taiwanese computer component manufacturers, he should heed Ray Noorda's advice and follow the co-opetitive path of interoperability. Eventually. Hopefully in the meantime he can stymie as much as he can the evil WMA format with it's highly restrictive evil DRM capabilities and give the big finger to Bill Gates while his at it.

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