Co-Opetition - Adam M. Brandenburger [55]
Holland Sweetener had no added value, but its entry lowered the added value of NutraSweet, and that helped Coke and Pepsi. Holland should have demanded to be paid up front for performing this service. Norfolk Southern had no added value, but its entry lowered the added value of CSX, and that helped Gainesville. Norfolk Southern shouldn’t have played without having got paid. BellSouth had little added value in the takeover game for LIN, but its presence lowered the added value of McCaw, and that was to LIN’s benefit. BellSouth understood the game and made sure it got paid—handsomely—to play.
If you can’t get paid, are you sure you should play? Sitting on the sidelines may be the best strategy. There are more costs to playing a game than are often recognized. Don’t ignore the Eight Hidden Costs of Bidding.
Once you’re in a game, you can try to change who else is in the game. Go around the Value Net and consider bringing in customers, suppliers, complementors, even competitors. Remember that these other players, just like you, are free to choose whether to play. You can’t force them to play, so you have to create the right incentives.
Sometimes that’s possible and very effective. American Express’s strategy of forming a buying coalition is a perfect example: it attracted many more bidders into the game by giving everyone a greater incentive to seek its business. With more bidders in the game, each had less added value, and that put the buying coalition in a stronger bargaining position. There are some roles, however, that you shouldn’t leave to others. An example is developing a complement that’s critical if you’re to have any added value. When the stakes are this high, don’t count on others. The best person to play the part may be you. That was the lesson of 3DO.
Anytime the cast of players changes, so do added values. Added values can also be changed more directly, as we’ll see in the next chapter.
5. Added Values
Nothing is more useful than water; but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.
—Adam Smith, Wealth of Nations. 1776
Two hundred years ago, Adam Smith presented a paradox concerning water and diamonds: Water is essential to life, while diamonds are not. Yet water is essentially free, while diamonds, alas, are not.
Had Adam Smith lived in the 1990s, he might have compared televisions and cars with video games. Televisions and cars are like water, practically essential to our modern lives. Video games are modern diamonds. They’re a kid’s best friend, but no more. So which business would you prefer to be in: consumer electronics, cars, or video games?
Let’s compare three prominent Japanese companies, one in each business: Sony, Nissan, and Nintendo. Sony makes televisions; Nissan makes cars; Nintendo makes video games, especially one about a plumber named Mario. Between July 1990 and June 1991, the average market values of these three companies were:
Nissan 2.0 trillion yen
Sony 2.2 trillion yen
Nintendo 2.4 trillion yen
Yes, for a while at least, Nintendo was worth more than either Sony or Nissan.1 How did Nintendo do it? Never mind how it surpassed Sony and Nissan; how did it even come close? The answer lies in added value.
1. Added Value of a Monopoly
One strong company and the rest weak.
—Hiroshi Yamauchi, President, Nintendo2
Video games date back to 1972 with the founding of Atari Corporation.3 Atari, although an American company, took its name from the Japanese game of Go. The meaning is akin to “check” in chess—the announcement that a rival’s territory is under attack. Having given fair warning, Atari proceeded to capture the market with a table tennis video game called Pong.
Atari’s success was dramatic but short-lived. In just ten years, the U.S. home video game market grew from nothing to $3 billion in retail sales. But the market was inundated