I first heard the ugly word “Co-opetition” in 1995 in Silicon Valley – and assumed it was as meaningless as it was unpronounceable. But gradually I’ve come to appreciate what it means and why it’s so important … and since its Wikipedia entry doesn’t really do it justice, I thought I’d share some thoughts here. Let’s start off with a more familiar word…
Who are your Competition?
Those of us who’ve spent significant time pitching to investors and large channel customers (companies that we want to carry our product) will be familiar with this killer question. It sounds like an invitation to shoot yourself in the foot and spill the beans about why they should buy from someone else! So it’s tempting to respond defensively by explaining that your proposition is soooo good that there’s really no-one else in the same class.
But the savvy investor or customer will probably take this as a bad sign. Very few businesses have a natural monopoly position, so claiming you have no competition probably means either that you are clueless about your market and your competitive situation or (worse) that the market is so early that you really are the only player in it, so far … and perhaps “ever”!
Too early can be worse than too late.
Because the whole cost of creating the market then falls to you. Which means spending a fortune on marketing because you have to explain to your customers why they should even want this category of product before you can then explain to them the benefits of your particular product. And of course you may be wrong – in fact you probably are wrong about exactly what people want, because you don’t have enough sales validation yet (and hopefully you’re following a customer-led innovation approach known as co-creation). Which could put off potential investors.
The “rule of seven” says that customers will probably need to see your product seven times before they choose to buy it. If you can’t afford £1m/week on an Amazon drop then that can take a long time. During which you’ll be withering on the vine with inadequate revenues waiting for the world to catch up with your vision (I’ll do another post one day on “what to do if you find you are too early”).
As well as needing to hear multiple times about your whizzy new offering, potential customers will also judge its credibility by whether they see other people using it. This is the Catch 22 situation outlined in the excellent books Crossing the Chasm and The Innovator’s Dilemma. Yes, a few early adopters will buy your product sight-unseen, but the majority consumer you need to build a profitable business doesn’t like being out on a limb and seeks validation from their peers.
This is where Co-opetition comes in, being a portmanteau word formed from Co-operation and Competition. The key point is that Marketing aimed at raising awareness of your new category doesn’t just have to be your marketing. And peer validation doesn’t just have to come from your Sales.
Say a competitor suddenly comes along with a similar product. Disaster? Well, probably not. You might be worried that your sales will halve, or your margin will halve, but let’s face it you’re probably not selling much yet anyway. So you’ve captured 0.0001% of the potential market, and now your competitor has 0.0001% of the market too. Resist the temptation to bash the competition, because they are doing you a huge favour. Their marketing effort, like yours, will be spent largely on introducing the new category to the market. So it adds to yours in raising general awareness. And likewise their sales may well lead to referrals for your product, as people see their peers starting to “get” it and are motivated to go out and … discover your product instead of your competitor’s. Now you’re cooking. And investors and channel partners (who like all of us are often sheep-like in our behaviour) will take heart that other people are also investing in the space. The market is emerging.
Let’s look at a couple of specific recent examples of Co-opetition from my most recent startup, AlertMe:
In 2011 the UK government started defining the specifications for nationwide Smart Meter roll-out, but noticeably absent from the table were any vendors of consumer-side products and services. Since these are the offerings needed to drive consumer engagement (therefore success of the whole program), this was frustrating for each vendor as we individually tried to lobby to get our points across. It was also frustrating for government because they wanted to learn from our consumer experience but needed to hear a single coherent “industry” view. So the companies in the space decided to form CEDIG (for “Consumer Energy Display Industry Group”) – even though many of the members of the group are head-to-head competitors. Because in early markets the success of the program as a whole, in creating a vibrant, competitive market (making the cake bigger, quicker), is more important than beating each other up in the short term.
AlertMe is increasingly cited as an early example of the Internet of Things. IoT means connecting products up to the internet and turning them into services and of course everyone’s at it. But everyone’s doing it in their own way, creating their own end-to-end architectures, even though a lot of the fundamental problems are common, which is of course very inefficient. So in 2012 the processor company ARM, which stands to benefit from the explosion of the IoT market, called for an industry working group called IoTA (standing for Internet of Things Architecture) to tackle this so-called “Internet of Silos” problem. AlertMe was an enthusiastic founding member of IoTA because, as with CEDIG, every IoT player will benefit from a more rapidly emerging market.