"Coopetition" gaining acceptance

High-tech firms increasingly are cooperating with competitors as they try to grow in cutthroat markets.

Jeff Pelline Staff Writer, CNET News.com
Jeff Pelline is editor of CNET News.com. Jeff promises to buy a Toyota Prius once hybrid cars are allowed in the carpool lane with solo drivers.
Jeff Pelline
3 min read
The idea of "coopetition," which refers to a business cooperating with its competitor, is not new. But high-tech companies--including the likes of Microsoft, Netscape, and Apple--increasingly are embracing the strategy as they attempt to grow in cutthroat markets.

Most experts say such collaboration is occurring because of the rapid convergence of many high-tech industries, brought on by deregulation and the advent of new technologies. As software companies such as Microsoft expand onto the Internet, it has become possible to compete and cooperate with others at the same time.

However, such deals are raising controversy.

In the latest example, Netscape is turning to "coopetition" (a term coined by Novell founder Ray Noorda) as it gears up to become a full-fledged Internet "portal" site later this year, competing with Yahoo, Excite, Infoseek, and America Online, among others. That means the company is cutting deals with some of the same search engines and Net directories that it will be competing against.

Many of these deals, such as the one with Infoseek, expire on April 30, which puts Netscape in the position of negotiating with a would-be competitor. Last week, Netscape executives used "coopetition" to describe the strategy they are pursuing and said they expect to announce new alliances with search engine and e-commerce partners in one to two months.

Other examples of "coopetition" abound. Among them include the following:

 Microsoft continues to build closer ties to Apple, its archrival in the PC operating-system market. Two weeks ago, Microsoft unveiled plans for unifying Java applications on Windows and Macintosh systems, an announcement that came seven months after the software giant agreed to invest $150 million in the computer maker.

 Last fall, America Online and Microsoft agreed to team up on online offerings. The world's largest online service began carrying Slate, Microsoft's online magazine. Although the Microsoft Network and AOL are fierce competitors, the two apparently are willing to work together to boost readership to their sites. Web aggregation sites work on the same principle.

 Smaller Internet service providers, such as Whole Earth Networks, increasingly find themselves turning to "coopetition" with larger backbone providers. The so-called peering agreements allow them to provide connectivity to their customers.

Analysts expect the trend--"working with the enemy," as some describe it--to continue. The term "coopetition" is being thrown around freely in "executive-speak," just as the term "bandwidth" is now commonly used to describe a person's or group's ability to handle increased workload at the office. For example, the AltaVista Web site now lists 467 entries under the word "coopetition."

Two years ago, Adam Bradenburger, professor of business administration at the Harvard Business School, and Barry Nalebuff, a professor at the Yale School of Management wrote a book on the subject. It became a Business Week and New York Times best-seller.

The idea, as the authors explain it on their Web site, is as follows: "Some people see business entirely as competition. They think doing business is waging war and assume they can't win unless somebody else loses. Other people see business entirely as cooperative teams and partnerships. But business is both cooperation and competition. It's coopetition."

Coopetition deals aren't just raising controversy among customers, but among regulators as well.

Microsoft's $150 million investment in Apple is a case in point. The deal currently is being investigated by the Justice Department on antitrust grounds. In addition, some Apple loyalists have mixed emotions about the collaboration, worrying that ultimately it may stifle the Mac maker. On they other hand, others see the cash infusion as a needed financial shot in the arm.

Coopetition also can spark lawsuits. For example, fiber-optic network provider Williams Communications said today that it has sued WorldCom for allegedly failing to honor its promise to sell capacity on WorldCom's network. The telco's acquisition binge to build its backbone also has drawn regulatory scrutiny. WorldCom declined comment.

Last April, Whole Earth Networks and UUNet Technologies got into a dispute about Net connection fees. Whole Earth, along with more than a dozen ISPs, were fighting a UUNet plan to possibly charge them fees or terminate agreements altogether. The companies later agreed to continue their interconnection agreement. Last week, GST Communications agreed to buy Whole Earth Networks for $9 million in cash and assumed debt.