【Reading Notes】Co-Opetition
Co-Opetition is a book that analyzes the ideas behind and deduces the reasons for its success by studying the business strategies of many companies over the past few decades. Includes Intel, Nintendo, American Express, NutraSweet, American Airlines, and dozens of other companies that have been using the strategies of co-opetition to change the game of business to their benefit.
Value Net
How should we classify all players in a business game? And how to tag and locate them precisely? The author of Co-Opetition provides a graph of relationships as a thinking framework for us at the beginning of the book.
The players exclude ourselves were divided into four directions, which are closely connected and symmetrical. And us, the company flag, is staying at the center of the complicated value flow and relationship. We may feel tortured because of the situation, but this also empowers us to move the whole body.
Play multiple roles
In some cases, one player may play multiple roles in a game. This inspired the strategist’s infinite imagination of the four directions, it also becomes the fuse and backbone mindset that throughout the whole book.
Change the player’s role, relocate ourselves, or even create a new player, various strategies break into our minds. While we are aware of the threats of substitutors, we also need to strive for cooperation opportunities.
The Co-Opetition is not easy to practice in real life, human always takes the new players as an opponent because we all have instinctive fear and rejection of the unknown.
Card Game
Adam’s Card Game is a famous experiment to let the participant understand the concept of cooperation and added value. Imagine a scenario that Prof. Adam has 26 black cards, and each of his 26 students has 1 red card, the total amount of black cards and red cards are both 26.
Each pair of black and red cards can create $100 revenue but will be divided between two card owners, students are forbidden to cooperate and can only negotiate with Prof. Adam individually.
So, when the professor bids at what price, you will be willing to take out your own red card and construct a pair for the $100 revenue?
Added Value
It seems like $50 is the reasonable result for the above question, because, in order to gain the revenue, you two are both indispensables. He needs you as much as you need him, it’s a simplest added value model, perfected isolated and symmetrical.
Your added value = the value of the game you participate − the value of the game you not participate
But if we think from another perspective how should Prof. Adam do for more profit? Prof. Barry also plays a similar card game, the only difference is he remove three black cards. If you insist on using the same strategy to claim half of the revenue, you may get nothing.
The operation of removing three black cards reduced each student’s added value, or even directly to zero. Because the total revenue is only $2300, from 23 pairs of black cards and red cards. Losing a red card of one student would not affect anything.
The student without added value will lose the bargaining chips to negotiate, Prof. Barry can throw a more aggressive price now.
Let’s split the revenue $90/$10 in my favor.
In spite of the total revenue was decreased by $300 because of removing three black cards, the asymmetric added value may make $2070 for Prof. Barry, greatly more than $1300 in the previous case.
Ecosystem
Build a business ecosystem is an extremely difficult issue, every direction in the above value net must be considered. But a stable and growing ecosystem can provide continuous benefits, which is what makes it fascinating.
Nintendo
Nintendo drives a virtuous cycle of the ecosystem through several critical strategies in various details in the 1980s. The security chip makes only the games authorized by Nintendo could be executed on their device, which avoids the industry tragedy caused by the flood of inferior games.
The deliberately out-of-stock supply chain has also created wonders for market demand, the total requirements of game cassettes from all channels were up to 110 Million in 1988, but Nintendo only supplies 33 Million at the time.
This created a lot of topics ad news that hit Nintendo’s brand, along with cheap device and monthly magazine dominate the player’s market. Unprecedented bold strategies allowed Nintendo to build its own ecosystem and suppressed the added value of other players (e.g. game development company, retailer, and media) in the game.
Loyalty
After spending plenty of effort to build the ecosystem, how to hold it is also a knowledge. How to make the customers buy our products again? How to persuade the complementors to cooperate with us for a long time?
Create loyalty by rewarding loyalty
American Airlines’ AAdvantage program ended the price war in the aviation industry in 1981, they teach all players that rewarding loyal customers are the most important thing.
The AAdvantage program is attractive for business travelers who travel frequently, they can receive considerable rewards through their mileage. American Airlines rewards them by tickets, accommodation upgrades, and meal vouchers, instead of cash.
These rewards are also prohibited from reselling to others, careful planning and leading software system allowed American Airlines provides almost $1000 rewards to their loyal customer with only about $20 cost. Eventually, the AAdvantage program followed by other airlines, replacing vicious price wars by rewarding loyalty.
The Perspective of Another Player
Sometimes we should not only pay attention to our own value net, put another player to the center may give us a different perspective.
Most-Favored-Customer Clause (MFC)
If you are not good at negotiation, you might be very proactive in Most-Favored-Customer Clause, it can provide long-term protection in the price for you. But does MFC really a good idea to deal with the price?
After a supplier agrees with the MFC, side effects will continue to ferment in his other negotiations. Whenever he lowers the price to others by $1, he will also lose another $1 because of your MFC. Eventually, the price that the supplier provides to all buyers may become higher than you think, due to the multiple losses at a lower price.
Representation
In the takeover case of Continental Company, the bid of CNA was greatly higher than its opponent Insurance Partners. But CNA asked for further investigation of Continental Company, the board of directors finally reject the proposal.
The reason is that they could not guarantee the takeover will keep going, the company’s image will be severely damaged if CNA drops out after the investigation.
Although the result of the investigation would not be made public, other potential buyers may also withdraw because of this phenomenon, the evaluation may also be downgraded, and customers will also lose confidence in them.
Mist
The mist sometimes gives you great protection, hiding critical information can avoid being at a disadvantage.
If you are not sure to convince him, then confuse him.
I think some current media do a great practice, leading thousands of readers’ knowledge through covering up part of the facts. Some product experts like to divide their products into several components or bundles, these can make more profits than the monolithic one.
Not everyone knows that pulp, peel, seeds and juice can be combined into a single orange.
Connection and Link
The connection between games often based on the cognition of players, create or destroy the connection also a trick to change the game.
As long as a player thinks the two games are related, there will be a connection between them.
Sega
Three years after the legend of Nintendo, another video game star was born, Sonic from Sega. Sega is almost the only company that rocked Nintendo in the video game industry at the time, the key is the link between the 8-bit and 16-bit video games market.
Nintendo dominates the whole 8-bit video game market at that time, if they developed16-bit video games too early, it will definitely affect the revenue of the 8-bit game. The strong substitution of Nintendo’s two kinds of products gave him a heavy shackle, which forces them to link the two games and think about the strategy of taking care of the overall situation.
But Sega is much easier, they have unscrupulously developed 16-bit video games. Nintendo suffered a lot because of a slow step, they still spend almost three years to obtain enough market share to compete with Sega in the 16-bit market after they release their equipment.
In fact, this is the transformation problem that many companies face. Nintendo is just really pitiful because of the extremely high substitution of his two products, so he was caught by Sega.
Conclusion
All of the above is the reading note of Co-Opetition, the case studying within this book indeed brings my perspective of the business game to a higher level.
If you are very interested in the “player” element of the game theory, I would highly recommend you to collect this book.
