2. Co-opetition

If business is a game, who are the players and what are their roles? There are customers and suppliers, of course; you wouldn't be in business without them. And, naturally, there are competitors. Is that it? No, not quite. There's one more, often overlooked but equally important group of players--those who provide complementary rather than competing products and services. That's where we'll begin this chapter. We'll see how complements can make all the difference between business success and failure.

1. Thinking Complements

The classic example of complements is computer hardware and software. Faster hardware prompts people to upgrade to more powerful software, and more powerful software motivates people to buy faster hardware. For example, Windows 95 is far more valuable on a Pentium-powered machine than on a 486 machine. Likewise, a Pentium chip is far more valuable to someone who has Windows 95 than to someone who doesn't.

Though the idea of complements may be most apparent in the context of hardware and software, the principle is universal. A complement to one product or service is any other product or service that makes the first one more attractive. Hot dogs and mustard, cars and auto loans, televisions and videocassette recorders, television shows and TV Guide, fax machines and phone lines, phone lines and wide area networking software, catalogs and overnight delivery services, red wine and dry cleaners, Siskel and Ebert. These are just some of the many, many examples of complementary products and services.

Let's take a closer look at the complements to cars. An obvious one is paved roads. Having built a better mousetrap, the fledgling auto industry didn't leave it to others to make a beaten path to its door. While it couldn't pave all the roads itself, it got many started. In 1913 General Motors, Hudson, Packard, and Willys-Overland, together with Goodyear Tires and Prest-O-Lite headlights, set up the Lincoln Highway Association to catalyze development of America's first coast-to-coast highway. The association built "seedling miles" along the proposed transcontinental route. People saw the feasibility and value of paved roads and lobbied the government to fill in the gaps. In 1916 the federal government committed its first dollars to building roads; by 1922 the first five transcontinental highways, including the Lincoln, had been completed.

Today there are plenty of roads, but money can still be scarce. Cars, especially new ones, are expensive, so if customers find it hard to borrow, they may find it hard to buy a new car. Thus, banks and credit unions complement Ford and General Motors. But auto financing hasn't always been accessible. That's why General Motors created General Motors Acceptance Corporation back in 1919 and Ford Motors formed Ford Motor Credit in 1959. It doesn't really matter who provides the financing--banks, credit unions, or the automobile credit companies themselves. More money in this market leads to lower interest rates. Better and cheaper access to credit enables people to buy more cars--and that helps Ford and GM. The flip side is also true: selling cars helps Ford and GM sell loans. Over the last decade, Ford has actually earned more money making loans than making cars.

Auto insurance is a complement to cars because, without insurance, people might not be willing to risk investing $20,000 or more in a new car. Just as carmakers have made auto loans more affordable, perhaps they could help make auto insurance more affordable. This would be particularly valuable to first-time buyers, who often face prohibitively high insurance rates.

Complements are always reciprocal. Just as auto insurance complements new cars, new cars complement auto insurance. The more new cars people buy, the more insurance they buy, especially collision and theft insurance. Thus, auto insurance companies might want to use their expertise and clout to help their customers get a better price on new cars. We'll come back to the subject of cars and auto insurance later in the book.

CLICK ON AN OPTION BELOW