Co-Opetition

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CO-OPETITION

Co-opetition, a term combining the words "co-operation" and "competition," refers to the arrangement between competing firms to cooperate on specific projects or in certain areas of business for mutual benefit, even while remaining competitors in general. The players enter into the agreement with the expectation that the isolated cooperation will lead to greater overall returns for each firm. The term was first coined in the early 1990s by Raymond J. Noorda, the founder of Novell Corp., and gradually achieved prominence, particularly in the dot-com economy.

A number of factors contributed to the rise of coopetition in the late 1990s and early 2000s, including the accelerating breakthroughs in information and communication technologies and the development of internal and external networks by most major companies. The layers of interconnectedness, channel conflict, and novelty involved in e-commerce pushed the term co-opetition to the forefront of business strategy. For example, bitter rivals Microsoft Corp. and IBM entered into an arrangement whereby Microsoft agreed to supply its Windows NT operating systems to IBM for use in the latter's personal computers and workstations. Each firm recognized that greater overall margins would result from the temporary alliance. Although such arrangements have existed for ages, they have acquired new meaning and exceptional prominence in the virtual e-marketplace.

When the rush of information technology met e-commerce, co-opetition grew dramatically. This often occurred in complex webs of interconnecting relationships between several firms that operated in similar areas, and competed and cooperated with each other simultaneously. On the Internet, companies entering the new e-commerce arena from different angles and with different strategies often saw that creating strategic alliances to forge new online markets, and sharing sales channels and information in certain e-market areas, was a mutually beneficial strategy. Conversely, in the bricks-and-mortar world, they would necessarily remain rivals. As e-commerce upstarts emerged to challenge and, in some cases, out-compete established brick-and-mortar firms in their fields, as Amazon.com did to established book retailers, the entire nature of marketing and logistics began to rapidly change. New competitive strategies were needed to transform companies into viable e-merchants. Co-opetition was seen as one such strategy.

Co-opetition creates something of a paradox because it brings together both common and conflicting interests under one arrangement. The separation of these two kinds of interests is crucial if the goals of the co-opetitive strategy are to be reached. A chief concern of partners in a co-opetitive arrangement, for instance, is secrecy. Usually, such relationships call for a degree of information exchange and mutual access to potentially sensitive data. In these cases, the participating companies must walk a fine line to negotiate between their competing objectives. On one hand, a degree of openness and mutual trust is necessary if the arrangement is to bear the desired fruit. On the other hand, neither company wishes to give more to the other firm than the arrangement calls for, and neither wants to end the deal in a relatively weakened competitive position. Thus, the management of information flow between firms engaging in co-opetition is among the most difficult tasks companies face, and requires shrewd but diplomatic execution. The negotiation of these possible sources of conflicts has given rise to game-theoretical models of resolution.

Despite these difficulties, co-opetition was on the rise in the early 2000s. The reduction of transaction costs and other savings, not to mention the increasing expectation among customers of an online storefront, created an atmosphere where the creation of an online marketplace outweighed the potential losses of doing business with one's competitors. Though co-opetition clearly is a complex undertaking, the advantages it offers frequently are too enticing to ignore.