We recently learned that Google and Facebook struck a secret deal that would allow them both to continue dominating more than 50% of internet ad sales. They are both facing antitrust cases, which is how we know this. Now that it has been made public, I think there’s an important lesson here for entrepreneurs.
Traditional business philosophy teaches us that competition is what allows free markets to work. It also instructs us to invest in intellectual property and use it to compete effectively. As a Marketing professor, I have observed how a focus on innovation has led to underdogs becoming top dogs. What we do not teach in business school is coopetiton —how to collaborate with competitors.
Companies compete on their abilities to offer a better product or service, at a lower price, so long as they also make it easier for you to find and buy. There’s an entire ecosystem and value chain that makes all of that possible, especially in certain sectors like retail. And although some direct-to-consumer (D2C) platforms are trying to circumvent traditional retail formats with new platforms and subscriptions to reach their customers, we’re learning those D2C competitors may not be around for long. Why? They are not differentiated well enough. It also seems they suffer from being too small and cost inefficient. Basically, they can’t scale the business on their own.
As companies grow, they increasingly rely on vendors, suppliers, contractors, consultants and other third-parties to help deliver their product or service. Even if the company invests in vertical integration, they are still likely to outsource some activities — like their marketing, public relations or customer service operations. This reinforces the point. Each of these stakeholders is a critical part of a thriving business, and collaborating with them — more openly sharing your business challenges — unlocks hidden value. It’s becoming more commonplace in the technology sector. Some academics are also calling for leading social media platforms to embrace coopetition and self regulate, in the absence of government policy.
Despite being intense rivals, Google convinced Facebook that it would require millions of dollars of investment, and possibly years of research and development, to develop an offering to compete with Google’s new online bidding product. Why would Google give Facebook an opportunity to partner? There’s a simple answer: they need each other.
Facebook is a dominant buyer of online ads, and without this deal, Google would miss out on selling a lot of business to its rival who has high market demand for ads — I mean, don’t forget Facebook has 2.5 billion people on its platform, and since most of us are there connecting with family and friends, we’re getting used to those ads, aren’t we? Whether you are or not, Facebook generates over 90% of its revenue from ads. Zuck is certainly not operating a charity.
Economic theory would suggest that these competitors are helping to keep supply and demand in balance. Otherwise, bidding wars would likely drive up online ad rates. That would be bad for us, since small businesses now account for over 75% of Facebook advertising business. (Whoa!) That sounds crazy, right? But this is why Zuck did not flinch when over 1,200 major brands and companies boycotted the platform, joining the Stop Hate for Profit campaign. Many small businesses could not afford to boycott the platform then, or even right now, amidst the ongoing pandemic and economic uncertainty.
We probably should be thanking Google and Facebook for keeping the free market in check. But back to what I promised earlier, my People. Here is the lesson I want to impress upon you: we wield a lot of power in the marketplace, and yet our power is diffuse.
Imagine if we worked together how much more we could do. Rather than compete, collaborate. Let’s find ways to do this where and how it makes sense. Encourage people who work for you to consider this too. Silicon Valley learned this a long time ago. When tech innovations are achieved, they find ways to share it in mutually beneficial ways.
Imagine what’s possible if we operated more like collaborators than competitors.
What if coopetition were the next big disruption?
Onward, my People.