How is competition better than cooperation?

cooperation and competition between companies COOPETITION IN THE INTERNET

• Internet's newest business model is called "coopetition," and it is a mixture of cooperation and competition between companies. MY QUESTION IS , Which are the pros and cons of coopetition for Internet companies? Related information: http://news.idg.net/crd_competition_182249.html http://news.com.com/2100-1001-209388.html?legacy=cnet

• Answer:

  A number of coopetition models have developed in recent years involving Internet companies. One of the best-known is the case of Amazon.com, which offers online services and fulfillment to a number of traditional retailers. http://216.239.53.104/search?q=cache:PjhKLpvzJr8J:www.dsnretailingtoday.com/in_this_issue/index.cfm%3FID%3D2951+Amazon.com+fulfillment+target+Circuit+City+Toys+%22R%22+Us&hl=en&ie=UTF-8 "Amazon sees retail service reshaping company future" by Laura Heller, DSN Retailing Today, June 23, 2003 Amazon.com began providing the services four years ago to Toys "R" Us, and has subsequently added Borders, Circuit City, Marshall Field's, Office Depot, and Target as customers. "Target, for example, is integrated into Amazon's own Web site and the company not only provides the systems but fulfillment as well while visitors to Amazon.com may never know that Circuit City is a partner that benefits largely from the company's technology." "Amazon can help with customer acquisition through exposure to the site's 30 million visitors each month, front end Web site technology, provide fulfillment and logistics, and customer service with e-mail and telephone support." Having realized that online sales "...will likely never be more than 10% of total retail sales..." according to Jeff Bezos, founder of Amazon.com, it has become apparent that coopetition is the only way to generate significant additional growth for Amazon.com. By engaging in coopetition, Amazon.com can amortize its software development costs and fixed expenses from fulfillment facilities over a much larger number of items, thereby increasing its profitability. When it provides fulfillment, Amazon even gains a percentage of the sale in addition to a fee per item sold. Amazon also enjoys the benefit of having other well-known brand names under which it can sell merchandise, in fact, by participating in a portion of the sales price. Assuming that Mr. Bezos is correct, there is very little downside in offering these services. While the companies could conceivably learn from Amazon.com and then set up their own distribution network and web site, the huge costs of doing so, which nearly sank Amazon.com, do not make this option very attractive. Meanwhile, traditional retailers have much less to fear from Amazon.com than they once thought if online sales are really unlikely to capture more than 10% of retail sales. A second model of coopetition is one where competitors band together to create a purchasing marketplace to gain economies of scale while continuing to compete on the sales of end products. An example of this is Covisint, which sought to combine the purchasing power of Ford, GM, and DaimlerChrysler. Internet companies supplying technology to the venture gained, but there is substantial skepticism regarding the likely success of this venture. Instead, private marketplaces run by large individual companies like Wal-Mart, Dell, and GE appear more likely to be successful. http://news.com.com/2100-1017-253009.html?tag=nl "Public Net exchanges may be losing their luster" by Erich Luening, CNet News.com, February 22, 2001 The "business model has largely failed to take off, because the technology proved to be more complex than anticipated and suppliers soured on the idea of competing for business online." http://news.com.com/2100-1019-999562.html "Covisint CEO steps down after one year" by Alorie Gilbert, CNET News.com, May 2, 2003 A third model is the sharing of data or services. An example would be the replacement of AOL's search engine with Google (and displaying Google's brand name on AOL to communicate this fact to their users). Google gains the benefit of additional exposure to users and fees from AOL, while AOL loses a bit of its stodgy image by providing a trendy technology that improves their user's experience. If AOL became a very large percentage of its business, they could potentially dictate unfavorable terms to Google. Conversely, AOL may lose some Web traffic directly to Google's web site, where user's may purchase other types of research services, such as Google Answers. Advertisers may also find Google more attractive relative to AOL at some point if more users use Google than use AOL. "Google's Award-Winning Search Engine to Power Search Functions Across America Online's Brands, Providing Consumers Easy Access to the Most Popular Search Engine Available" Google Press Release, Google Inc., May 1, 2002 I hope my discussion of these three examples of coopetition is helpful to you. Please request clarification if needed Sincerely, Wonko