Co-Opetition - Adam M. Brandenburger [121]
Professor Dorothy Leonard-Barton of Harvard Business School explains that an organization’s core competencies in one generation of technology can turn into “core rigidities” as far as the next is concerned.9 That’s one reason that established players often find it hard to make the transition to the next-generation technology, and that’s one reason why technological change often gives challengers opportunities to overturn incumbents. The story of how Sega got a window of opportunity is different, though. Nintendo had the 16-bit technology but deliberately chose to delay entering the 16-bit game.
Many people have criticized Nintendo for its delay, saying that it would have been understandable if no one else had yet introduced a 16-bit system. But once Sega brought out the Genesis, Nintendo should have been hot on its heels with its own 16-bit entry. In delaying, Nintendo gave away the farm—to a hedgehog. It apparently forgot the adage that it’s better to eat your own lunch than to have someone else eat it for you. Cannibalize yourself rather than let someone else eat you alive.
We think the decision to delay wasn’t obviously an error. Nintendo faced the classic dilemma that most successful companies eventually face. You’ve come up with a great product and you dominate a market, but then a challenger comes along with a new and superior technology. As long as the challenger has a monopoly on the new technology, it has an incentive to charge a high price. That limits the pace of adoption—which is good news for you, since that extends the life of your product. Once you jump into the new technology, you force the challenger to compete head-to-head with you. The price of the new technology will fall and, along with it, the added value of your old product.10 Epson learned this lesson the hard way. Nintendo was more careful. While you can’t wait forever to make the transition, that doesn’t mean you should jump right in.
As for Sega, it parlayed Nintendo’s 8-bit strength into a 16-bit weakness—but only because it didn’t decimate the 8-bit market. Had Sega priced its 16-bit system to compete with 8-bit systems, Nintendo wouldn’t have faced a dilemma. Nintendo would have had nothing to lose by jumping quickly into the 16-bit game, and that would have made life much harder for Sega. The judo strategy is based on the idea that a challenger has nothing to gain if the incumbent has nothing to lose.
The story of Sega and Nintendo in 16-bit video games shows how a challenger can create a window of opportunity for itself by turning the incumbent’s strength into weakness. Even if that’s not possible, a challenger may still be able to use the judo approach to at least neutralize the incumbent’s advantage.
Fear of Failure In the Added Values chapter, we told the story of entrepreneur Robert Taylor and his innovative Softsoap liquid-soap product. Taylor’s problem was how to prevent the likes of Procter & Gamble and Lever Brothers from copying his idea. He got a window of opportunity when the majors adopted a wait-and-see stance.11
Why did the majors play wait-and-see? Early on, the success of liquid soap was far from assured. Although liquid soap was convenient and eliminated the puddle of soap ooze left behind by bar soaps, it wasn’t a technical breakthrough. There was no compelling reason for people to switch from bar soap.
Given the uncertainty over the liquid-soap concept, it made sense for the majors to sit back, save their money, and hope that Taylor failed. For a major, jumping into liquid soap would only help validate a category that offered it very little upside. Liquid soap was unlikely to expand the overall soap market. If successful, sales of liquid soap would surely come almost entirely at the expense of bar soap.12
The majors probably assumed that if Taylor did start taking share away from bar soap, they could deal with the problem when it arose. At