The Rules of Co-opetition
48 Harvard Business ReviewJanuary–Fe
uary 2021
Rivals are
working together
more than ever
before. Here’s
how to think
through the risks
and rewards.
The Rules of Co-opetition
AUTHORS
STRATEGY
PHOTOGRAPHER TIERNEY GEARON
Adam Brandenburger
Professor, NYU Stern
School of Business
Ba
y Nalebuff
Professor, Yale School
of Management
Harvard Business Review
January–Fe
uary 2021 49
moon landing just over 50 years ago is remembered as the
culmination of a fierce competition between the United
States and the USSR. But in fact, space exploration almost
started with cooperation. President Kennedy proposed a
joint mission to the moon when he met with Khrushchev
in 1961 and again when he addressed the United Nations in
1963. It never came to pass, but in 1975 the Cold War rivals
egan working together on Apollo-Soyuz, and by 1998 the
jointly managed International Space Station had ushered
in an era of collaboration. Today a number of countries are
trying to achieve a presence on the moon, and again there
are calls for them to team up. Even the hypercompetitive
Jeff Bezos and Elon Musk once met to discuss combining
their Blue Origin and SpaceX ventures.
There is a name for the mix of competition and coopera-
tion: co-opetition. In 1996, when we wrote a book about this
phenomenon in business, instances of it were relatively rare.
Now the practice is common in a wide range of industries,
having been adopted by rivals such as Apple and Samsung,
DHL and UPS, Ford and GM, and Google and Yahoo.
There are many reasons for competitors to cooperate.
At the simplest level, it can be a way to save costs and avoid
duplication of effort. If a project is too big or too risky for one
company to manage, collaboration may be the only option.
In other cases one party is better at doing A while the other is
etter at B, and they can trade skills. And even if one party
is better at A and the other has no better B to offer, it may still
make sense to share A at the right price.
Co-opetition raises strategic questions, however. How
will the competitive dynamics in your industry change if
you cooperate—or if you don’t? Will you be able to safeguard
your most valuable assets? Careful analysis is required. In
this article we’ll provide a practical framework for thinking
through the decision to cooperate with rivals.
What Is Likely to Happen If You Don’t Cooperate?
If a cooperative opportunity is on the table, start by imagin-
ing what each party will do if it’s not taken. What alternative
agreements might the other side make, and what alternatives
might you pursue? If you don’t agree to the deal, will some-
one else take your place in it? In particular, will the status quo
still be an option?
Let’s start with a simple example. Honest Tea (which one
of us cofounded) was approached by Safeway supermarkets to
make a private-label line of organic teas. The new line would
undoubtedly eat into Honest Tea’s existing Safeway sales. So
even though the supermarket was offering a fair price, the deal
would ultimately be unprofitable for Honest Tea.
IDEA IN BRIEF
THE CONTEXT
The idea that competitors
should sometimes cooperate
with one another has continued
to gain traction since it was
initially explored in the 1990s.
THE ISSUE
Even so, executives
who aren’t comfortable
with “co-opetition”
ypass promising
opportunities.
A FRAMEWORK FOR ACTION
Start by analyzing what each party will do if it doesn’t cooperate
and how that decision will affect industry dynamics. Sometimes
cooperation is a clear win. Even if it isn’t, it may still be
preferable to not cooperating. But it’s critical to try to figure out
how to cooperate without losing your cu
ent advantages.
STRATEGY
the
50 Harvard Business ReviewJanuary–Fe
uary 2021
However, if Honest Tea didn’t cooperate, Safeway would
surely find another supplier, such as rival tea maker Tazo.
Honest figured that if it took the deal, it could design the new
Safeway “O Organics” line to resemble the flavors and sweet-
ness of Tazo’s products and compete less against its own.
If Honest had said no, Tazo would probably have said yes
and targeted Honest’s flavors, leading to the worst possible
outcome. So Honest agreed to the deal.
Yet the company turned down a similar request from
Whole Foods because the grocery chain insisted that the
private line include a clone of Moroccan Mint, Honest’s
est-selling tea at the time. Honest didn’t want to compete so
directly against itself and believed that its rivals would have
trouble copying the tea—which indeed turned out to be true.
UPS had to think through a similar opportunity when
DHL, which had acquired Ai
orne Express some years
earlier and was suffering large losses, asked UPS to fly DHL’s
packages within the United States. UPS had the scale to
make the service efficient (potentially saving DHL $1 billion
a year) and was already providing a similar service to the U.S.
Postal Service, so the opportunity appeared to be a profitable
one that would allow UPS to rent out space on planes it was
already flying.
That said, not cooperating might have been even more
profitable in the long run. If DHL’s continuing losses led to its
exit, UPS stood to gain much of DHL’s U.S. market share.
But if UPS turned the deal down, DHL might have offered
it to FedEx. And if FedEx accepted it, DHL would still be in
the market and UPS would have lost out on potential profits.
So UPS agreed to DHL’s proposal, announcing a deal in May
2008. (It turned out to be not enough to save DHL, which
decided during the recession later that year to leave the
market.)
In the tech industry, thinking through alternatives to
a deal is complicated because companies have multiple
elationships with one another. Samsung’s decision about
whether to sell Apple its new Super Retina edge-to-edge
OLED screen for the iPhone X is a good example.
Samsung could have temporarily hurt Apple in the
high-end smartphone market—where the Samsung Galaxy
and iPhone compete—by not supplying its industry- leading
screen. But Apple isn’t the only rival Samsung has to wo
y
about. In addition to being one of the world’s largest phone
manufacturers, Samsung is also one of the largest suppliers
to phone manufacturers (including Apple, across several
generations). If it hadn’t provided its Super Retina display to
Apple, Apple could have turned to LG (which supplies OLED
screens for Google’s Pixel 3 phones) or BOE (which supplies
AMOLED screens for Huawei’s Mate 20 Pro phones), strength-
ening one of Samsung’s screen- technology competitors.
Plus, Apple is well-known for helping its suppliers improve
their quality. Cooperating with Apple meant that Samsung
would get this benefit and that its screen- technology rivals
would not. The fact that the deal would increase Samsung’s
scale and came with a big check attached—an estimated $110
for each iPhone X sold—ultimately tilted the balance toward
cooperating.
It takes two to cooperate. Now let’s look at the deal from
Apple’s perspective. Would it make Samsung a more formida-
le rival? It probably would: In the year prior to the iPhone X
launch, revenue from Apple accounted for almost 30% of the
Samsung display business, a division that generated $5 bil-
lion in profits. (Apple was also buying DRAM and NAND flash
memory chips, batteries, ceramics, and radio-frequency-
printed circuit boards from Samsung.) But for Apple, getting
the best screen was worth bankrolling an already well -
esourced rival—at least for a while.
The underlying economic reason that working together
was advantageous to both sides was that Samsung had the
est screen and Apple had a loyal customer base. Without
cooperating, neither company could get the extra value from
putting the superior screen on the new iPhone.
Will Cooperation Give Away Your
Competitive Advantage?
Suppose you’ve analyzed the alternatives to cooperation
and tentatively decided to move ahead. Doing so may mean
sharing your special sauce. Then it might not be so special,
and that could be a real problem. To get a read on the poten-
tial risk, figure out which of these four categories the deal
falls into:
Neither party has a special sauce at risk, but the
parties’ combined ingredients create value. In this sce-
nario neither side is giving anything away. A recent example
is Apple and Google’s decision to cooperate in creating
There are many reasons for competitors to cooperate. At the simplest
level, it can be a way to save costs and avoid duplication of effort.
Harvard Business Review
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uary 2021 51
contact-tracing technology for Covid-19. By sharing user
location data across platforms, the two companies enabled
governments and others to create effective notification apps.
The circumstances here are exceptional, but it’s not unusual
for rivals to team up to set standards and create interopera-
ility protocols and thereby create a bigger pie they can later
fight over.
Both parties have a special sauce, and sharing puts
them both ahead of their common rivals. In 2013, Ford and
GM agreed to share transmission technologies. This made
sense because they had complementary capabilities: Ford led
in 10-speed transmissions, GM in nine-speed. The a
ange-
ment saved both money, had no significant strategic impact,
and freed their engineers to work on next-generation electric
vehicles, giving each company a leg up on other automakers.
There’s a caveat here: Cooperation is more challenging if
the playing field isn’t level at the start. GM turned down an
opportunity to collaborate with Ford on a next-generation
diesel engine for super-duty pickup trucks. Though the
potential cost savings were compelling, Ford already had
a competitive advantage in the F-150’s lightweight all-
aluminum body, and GM feared that without differentiation
etween engines, Ford would have an unbeatable edge.
Sometimes, getting ahead of (or not falling behind)
other rivals outweighs considerations of relative advantage.
Autonomous driving technology, for instance, will be a key
capability in the near future. Most automakers recognize
that they won’t be able to develop self-driving vehicles
quickly or cost-effectively alone. That’s