Corporations Startups

A Rising Tide Lifts all Ships

It’s true innovation when a business builds something for themselves and then realizes there’s a potential application beyond internal needs.  

Take, for example, a company like Apple that started predominantly as a hardware company making computers and other peripherals. Years later, when they created the App store it was originally conceptualized as a platform to deliver programs directly developed by Apple. But they realized that there was a much bigger opportunity here to create a marketplace model and the App store of today was born. In 2019, this line of Apple’s business contributed over a half a trillion dollars in billings and further reinforces the stickiness of their hardware business. If Apple had kept this ecosystem truly closed for fear of losing control, then their market penetration would be significantly less.  

When Amazon was scaling from a small online bookstore to the juggernaut it is today, they had to create infrastructure to support this growth. This came in the form of cloud storage to link all these disparate solutions. Years later when Amazon developed their massive business around 3rd party sellers they found that a great number were interested in some of these same cloud based tools Amazon had built for their company. As a result of this, and excess capacity, they leaned into this model in a significant way and AWS (Amazon Web Services was born). Today, thousands of companies (including many sectors of the US government) use AWS as their cloud solution. Furthermore, with strong gross margins, this business line has helped offset the more anemic economics of their retail segment. 

Epic Games, the creator of Fortnite, has primarily been in the business of creating digital games. But they realized that some of the technology they had developed back in late 90’s for their earliest products could also be used by other developers, significantly reducing a lot of the NRE costs.  As a result, numerous other gaming companies use their Unreal Engine technology and pay a royalty back to Epic. This business model is one of the key reasons why the company’s valuation is now >$17b. They could have kept this IP for exclusive use, but recognized that by licensing their tech they could have an influence on more of the market, ultimately leading to the ability to (hopefully) negotiate better commision terms with the app stores.    

People were somewhat surprised a couple years ago when Elon Musk announced he was going to build the Gigafactory in Nevada to supply batteries for Tesla vehicles AND for other manufacturers. What was the rationale? Simple. A rising tide lifts all ships and Musk knows that in order for this model to be successful there needs to be a vast change to infrastructure across the US to support electric vehicles. By selling his batteries to other automotive companies there will be more supply of EV vehicles on the road, and thus the need for more charging facilities. 

I see a lot of founders who remain so focused on beating the competition that they can miss other non cannibalistic revenue opportunities right under their nose. There’s such a desire to compete to win that it’s hard to get others to agree to do something that feels counterintuitive and risky but if you’re encountering roadblocks to growth it’s okay to consider coopetition just as Tesla and Epic have done.  

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