judo strategy

Faculty Seminar Series

Judo Strategy: Turning Your

Competitors’ Strength to Your Advantage

Professor David B. Yoffie Harvard Business School

Copyright © 2001-2002

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©David B. Yoffie, not for reproduction without permission

Judo StrategyTurning Your

Competitors’ Strength to Your Advantage

David B. YoffieHarvard Business School


In the midst of a revolution...

But prediction is dangerous

Wall Street Journalseries on the year 2000,

published 1966-67


By the Year 2000 • Man landing on Mars• Cities under huge, climate-

controlled domes• NYC to Tokyo in under 2 hours• Rocket packs & flying

automobiles• 200,000 computers in the U.S.

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Favorite Prediction

In 1965, The Commission on the Year 2000 foresaw the Internet:

– A “national information computer-utility”would take form, with “tens of thousands of terminals in homes and offices…providing library and information services, retailing, ordering, billing services, and the like.”


Favorite Prediction

But they also predicted:

“Professors and intellectuals will become

more powerful than corporate CEOs.”


Source: Dataquest, Zona Research, ZD Market Intelligence, AdKnowledge, and authors’ estimates.

Rapidly Changing Marketplace LeadersThe Browser Wars, 1994-99

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OTHERS

NETSCAPE

MICROSOFT

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Intuit

Palm Netscape

David vs. Goliath Confrontations

Microsoft


CiscoJuniper Networks



CNETZiff Davis

IDG


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Freeserve AOL



The Internet has madethese types of David-and-

Goliath struggles more common and more intense

than ever before.


Impact of Network Effects

• Definition: as more people use a product, it becomes more valuable.

• Market with network effects “tip.”• Market share races become life-or-

death struggles.• Increasing returns further intensify

the competition, as companies rush to get down the cost curve.

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Judo Strategy


What Is Judo Strategy?A Metaphor

Judo is an “art of hand-to-hand fighting in which the weight and efforts of the opponent are used to bring about his defeat.”

Yerkow, Modern Judo, 1942

Courtesy: U.S. Judo Association



Yerkow, Modern Judo, 1942


Through movement the opponent is led into an unbalanced position. Then he is thrown...by some form of leverage...”

In judo, “before an opponent can be thrown there must be movement.

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“Size, weight, and power mean nothing in judo because you employ the efforts of the opponent to defeat him.”–Yerkow, Modern Judo, 1942


©David B. Yoffie, not for reproduction without permissionSource: Kyodo News International.

Russian President Vladimir Putin, a black belt in judo, isthrown to the floor by a 10-year-old school girl in Tokyo.


Judo Strategy as a Mindset

• Don’t go head-to-head against a stronger competitor.

• Find areas to attack where your competitor cannot and will not respond.

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Reduce the threat of attack by taking your opponent

out of his game.

Principle #1: Movement


Minimize the impact of an attack by avoiding

tit-for-tat and exploiting your competitor’s

momentum.

Principle #2: Balance


Use your competitors’strength and weight to

bring them down.

Principle #3: Leverage

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J. Gelman and S. Salop, “Judo economics: capacity limitation and coupon competition,” Bell J Ec 14:2 (1983): 315-325.

•“To capture the image of a small firm using its rival’s large size to its own advantage, we call this a strategy of

judo economics.”

Judo Economics

The basic model:

• The entrant chooses its price and capacity.

• The incumbent chooses its price.

• If the entrant’s capacity is unlimited, the incumbent maximizes its profits by matching the entrant’s price.

• If the entrant can credibly commit to limit its capacity, it can choose a capacity/price pair such that the incumbent finds it more profitable to accommodate entry (i.e., cede some consumers and serve the rest at a higher price).


Judo Strategy: Pepsi-Style

In 1934, Pepsi introduced a 12-oz bottle at the same price as a 6½-oz bottle of Coke.

Pepsi-Cola Coca-Cola


Judo Strategy: Pepsi-Style

“Pepsi-Cola hits the spot.Twelve full ounces, that’s a lot.Twice as much for a nickel too.Pepsi-Cola is the drink for you!”

Pepsi-Cola Coca-Cola

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Companies We Studied

• Big & small• Domestic & international• Service & manufacturing• High tech & low tech


Companies We Studied• In-depth case studies:

– Palm, RealNetworks, CNET, Microsoft

• “Caselets”:– Pepsi, Intuit, Ariba, Juniper, Inktomi,

Frontier Airlines, eBay, Handspring, eToys, Amazon, Sony, Charles Schwab, Capital One, Freeserve, Southwest Airlines, Intel, Cisco,…



Mindset: To defeat a master,

you have to take him out of his game.

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“In the fight between the bear and the alligator, the outcome is determined by the terrain.”– Jim Barksdale, former President and

CEO, Netscape


The Puppy Dog Ploy

Look weak and inoffensive so your competitor doesn’t feel compelled to attack.


The Puppy Dog PloyPosition yourself

alongside your competitors.

• Palm Computing“We didn’t call it a computer; we didn’t call it a PDA. We said, ‘This is just a little organizer that happens to connect to your PC.’” —Donna Dubinsky

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The Puppy Dog PloyDon’t go for the jugular

—at least not at first.

• Palm Computing “We always said, ‘Look, if Microsoft had a decent platform we would consider it. We are first and foremost a device company.’” —Donna Dubinsky


The Puppy Dog Ploy

“They must have been on my radar screen by early ‘98, but not at the top of my radar screen.”–Steve Ballmer, CEO, Microsoft


Define the SpaceChange the paradigm

• Intuit – Personal financial software battles were

fought over features: More was better.– “Quicken was the absolute opposite of the

then-existing software paradigm…we didn’t do most of what the other products did. But what we did do happened to be the things that people actually did all the time, like write checks…And we did that stuff very fast and very intuitively.” —Scott Cook

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Define the SpaceSegment the Market

• Juniper Networks – Everyone who attacked Cisco in routers

failed by going head-to-head.– Juniper’s Scott Kriens found a different

answer: “We had one chance, which was to enter at the top.” Juniper grabbed 40% of the high-end market, where Cisco’s technological advantages were the weakest.


Follow Through Fast

Build a strong lead before your

competitors learn how to respond.


Follow Through FastMaster speed to market, speed to market share.

• Palm Computing“3COM kept saying, ‘Why are you lowering prices? You own this market.’ And we just kept saying ‘because we should and we want to be aggressive and we’ve got to keep going to market.’”—Ed Colligan

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Follow Through FastFocus, focus, focus.

• Palm Computing“We declined most of our licensing opportunities… It’s very hard to say no, but I think those were decisions that we were very good at making.”—Donna Dubinsky


Principle #2: Balance

Mindset: The Weebles Principle “Weebles wobble, but they

don’t fall down.”


Aesop’s Fable of the Oak & the Reeds

“An oak hanging over a river was uprooted by a violent wind storm and carried downstream. As it floated along it noticed some reeds growing by the bank, and cried out to them, ‘How do such slight, frail things as yourselves manage to stand safely in a storm which can tear me up by the roots?’”

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Aesop’s Fable of the Oak & the Reeds

“It was easy enough,’ answered the reeds. ‘Instead of standing stubbornly and stiffly

against it as you did, we yielded and bowed before every wind that blew, and so it went

over us and left us unharmed.’”“It is better to bend than to break.”


Grip Your Opponent

Get in close to make it harder for your competitor to attack.


Grip Your OpponentUse your opponent’s capabilities

to strengthen your position, while retaining your flexibility.

• eBay– “If they had done an AOL Auctions button, it

could have been very bad for us.”—Meg Whitman

– eBay signed its first big distribution deal with AOL, turning its potential rival into a partner

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Grip Your OpponentPreempt future combat, giving potential competitors a stake in

your success.

• eBay– In 1999, eBay agreed to pay AOL $75

million over four years; AOL agreed not to enter C2C auctions for two years.


Avoid Tit-for-Tat

Avoid getting dragged into competinghead-to-head.


Avoid Tit-for-TatStudy the competition and

match only their best ideas.

• eBay– Yahoo! enters auctions with a free

service and superior tutorial. – eBay matches the tutorial—not the

price. “People wouldn’t put their junk up for auction if they had to pay even twenty-five cents.”—Meg Whitman

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Avoid Tit-for-TatRemain on the offensive even when responding to attack.

• eBay– Yahoo! advertises Yahoo! auctions on

its site. – eBay re-invests in grassroots

marketing (tradeshows), where Yahoo! has no strength.


Push When Pulled

Use your competitors’momentum to your

advantage.


Threat ResponseCompany

Push When Pulled

• Wal*Mart

• Drypers

• Handspring

• Post Kmart circular & guarantee equal or better price

• Accept P&G’s coupons

• “Embrace & extend”Palm through Springboard

• Kmart circular

• Procter & Gamble

• Palm OS installed base

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Mindset: “Give me where to stand,

and I will movethe earth.”

—Archimedes



Turn your opponent’s strength and size to your advantage.

The key to leverageis attacking where your

competitors have problems responding.


Turn Your Competitor’s Assets Into Liabilities• CNET vs. Ziff Davis & IDG

– CNET’s problem: ZD & IDG control the tech publishing market.

– CNET’s solution: Launch initiatives, such as real-time news, that the incumbents find hard to match.

– The problem for Ziff Davis & IDG:classic cannibalization dilemma.

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Turn Your Competitor’s Assets Into Liabilities• Sega vs. Nintendo

– Sega’s problem: Nintendo’s family-oriented brand dominates the market.

– Sega’s solution: Shake up the competition by launching video games aimed at an older audience (Mortal Kombat, e.g.).

– Nintendo’s problem: Destroy its brand equity or lose share.


Turn Your Competitor’s Partners Into Liabilities

• Dell vs. Compaq– Dell’s problem: Compaq’s distribution

network dominates the market.– Dell’s solution: Create a superior

business model based on direct sales.– Compaq’s problem: Match Dell and

alienate its distributors or share and profitability.


Turn Your Competitor’s Competitors Into

Your Friends• Charles Schwab vs. Fidelity

– Schwab’s problem: Fidelity dominates the mutual fund market.

– Schwab’s solution: Partner with Fidelity’s competitors by creating OneSource & “Select List.”

– Fidelity’s problem: Can’t match Schwab without undermining its proprietary funds.

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Responding to Judo Strategy

How do you defeat a judo master?

Superior Techniqueor

Sumo StrategyIn contrast to judo, sumo is a “feat of physical

strength” where “weight is a weapon” that is “essential to winning.” —Hikoyama, SUMO, 1940, and

Schilling, Sumo, 1994


The Sumo MindsetTop Dog Ploy

• Look tough and aggressive to deter entry and imitation.

• If entry occurs, the strategic imperative is to turn every battle into a test of strength and change the match from “judo” to “sumo.”


Sumo TechniquesIn sumo, you use your strength

to force your opponentfrom the ring.

• Unnerve the competition– Signal price, signal capacity, use FUD

• Lock ‘em up– Outspend your opponent, lock up

distribution, segment your offering and target retaliation

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Sumo Strategy at Work:Microsoft

Deal with Netscape Deal with Microsoft

Intranet customersChevron October 1996 March 1997KPMG January 1997 August 1997ISPs and OLSsAmerica Online March 1996 March 1996AT&T WorldNet August 1995 July 1996CompuServe March 1996 June 1996MCI November 1994 March 1996Prodigy November 1995 October 1996Sprint August 1996 December 1996OEMs and ISVsApple August 1995 August 1997Intuit October 1995 July 1997Lotus/IBM November 1996 July 1997


Barnes & Noble’s Failure• 1995-97 Amazon’s weakness:

– Depended on fast-growing revenues to fuel stock

– Weak balance sheet and cash flow• Barnes & Noble (.com):

– B&N could have launched a big price war (early) and perhaps stopped Amazon

• By late 1998, it’s too late: – Amazon has bigger valuation and more cash

than B&N, even though B&N is 5x Amazon’s size


Sumo TechniquesIn sumo, you use your strength

to force your opponentfrom the ring.

• But at the same time, sumo players must always Remember the Rules

• As companies get bigger, different rules apply

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Remember the Rules:Intel

The problem, according to Andy Grove:

“We pay marketing, business development, and sales people to be

aggressive. How do you impose this new guard band behavior on a group of people

for whom antitrust is antithetical?”


• Provide live antitrust training, annually.• Basic dos and don’ts: no price fixing,

no exclusives.• Random audits of employees’ files:

lawyers seize a manager’s papers, disks, and e-mail.

• Stage intensive mock depositions with outside attorney.

Remember the Rules:Intel


Concluding Thoughts

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The Importance of Movement

Don’t MoonThe Giant


The Importance of Movement

A Cautionary Tale: Netscape

• Microsoft = the “Death Star”• Windows = “a mundane

collection of not entirely debugged device drivers”


The Importance of Balance

• Don’t stand “stiffly in the wind.”

• Don’t go head-to-head with a giant.

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The Importance of Balance

Two Cautionary Tales: Novell and Microsoft

• Novell: When Microsoft attacked Novell in networks, Novell went “tit-for-tat”bought WordPerfect, Borland, & UNIX.

• Microsoft vs. Department of Justice—missed opportunities to settle.


If you don’t cannibalize yourself, your competitor will!!

The Importance of Responding to Leverage

A Cautionary Tale:Netscape and the

Free Browser Decision“This whole browser fight is going to be interesting. Their ambition to make money on browsers will hurt them—it’s just a case of getting greedy—they are the one who made the rules that browsers are free.”—Bill Gates e-mail, June 1995


Lessons for Great Judo Strategists

• Maintain a deep focus on your core– “Singularity of focus was most

important… Our strategy is as much the art of exclusion as it is the art of inclusion, or what you’re going to do.”—Meg Whitman

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• Stay on the offensive, but avoid frontal assaults– “Play offense and play to win… [But]

try to avoid a frontal assault into an established competitor. Life is too short.”—Scott Cook



• Look for leverage in the strangest places– “The big asset of younger, smaller

organizations is they can think outside the box.... When you do that, the big competitor often will never respond. They will never get it. They’ll never see it. Or by the time they do it doesn’t matter.”—Scott Cook



• Face the music– “Nothing good comes from waiting. If

you’re going to change your business model, face the music.”—Dave Pottruck

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Final Thoughts: Metaphors & Strategy

“The companies that succeed will be the ones that…employ great metaphors and analogies to define their business and tell their stories.”

– Scott McNealy, “It’s Like…”Forbes ASAP, 2 October 2000


Final Thoughts:Metaphors & Strategy

• Metaphors also have risks.– Metaphors abstract away from the real world

• E.g., in judo, you can focus solely on your opponent– Implications:

• Pick your metaphor wisely• Carefully trace its implications• Observe where it fits and where it fails

– If Judo Strategy fits—it can be a powerful tool


The Key to Beating a GiantA willingness to take risks!

• To laugh is to risk appearing a fool.• To weep is to risk appearing sentimental.• To reach out for another is to risk involvement.• To expose your feelings is to risk rejection.• To place your dreams before the crowd is to risk

ridicule.• To love is to risk not being loved in return.• To go forward in the face of overwhelming odds is

to risk failure.

Source: Anonymous, WWW

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The Key to Beating a GiantA willingness to take risks!• But risk must be taken because the greatest

hazard in life is to risk nothing. The person who risks nothing does nothing, has nothing, is nothing.

• He may avoid suffering and sorrow, but he cannot learn, feel, change, grow, or love. Chained by his certitudes, he is a slave. He has forfeited his freedom.

• Only a person who takes risks is free.

Source: Anonymous, WWW


The Key to Beating a GiantA willingness to take risks!

Only a person who takes risks is

free.Source: Anonymous, WWW


judo strategy

Documents

modern judo

judo associationdavid

advantage professor

madethese types of david

goliath confrontationsdavid

goliath struggles

goliath confrontations4david

competitors strength