Does competition always have to be zero sum?

If markets could grow infinitely, business would not be a zero-sum game. Since they don't, it is

Dear Bob ...

Following up from yesterday ("Does a business win when its competitor loses? Absolutely," Advice Line, 7/9/2009):

[ See the previous column: "Does a business win when its competitor loses? Absolutely" | Get sage advice on IT careers and management from Bob Lewis in InfoWorld's Advice Line newsletter. ]

I do not know that every market is finite. There are plenty of cases where competitors work together to try to increase the size of the market -- at the same time that they compete for sales within it.

Suppose you sell smoke detectors and have 30 percent of the market share. You probably would join with your competitors in supporting legislation to require them in all homes, even if you believed that the effect would be to double the size of the market but reduce your share of it to 20 percent.

I may have been parsing your original sentence more finely than intended, but it seemed as if you were saying that -- holding volume constant -- taking market share away from competitors is a benefit. Selling a million units and having your competitors' market share at 70 percent is better than selling a million units and having your competitors' market share at 75 percent.

I suppose the lower your competitors' market share, the less power they have to compete and that is an advantage to you. On the other hand, at any given current number of sales, the less market share you have, the more sales there still are to win. If you are selling a million units at 1 percent of market share, you have a lot of potential to increase sales. If you are selling a million units at 99 percent of market share, you have almost no potential (in a finite, zero-sum market).

- Still Kinder & Gentler

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Dear K&G ...

It is a benefit. A weakened competitor will have less to invest in R&D and marketing, meaning it will have to cede future advantages. In the smoke detector example you cite, the market was (and is) entirely finite. That there's growth left in it doesn't change that. At some point, market expansion has to stop.

The competitors might well collaborate on the legislation. Any business that decided to accept reduced market share as a consequence isn't thinking competitively, though. If I have 30 percent now and decide to expand the marketplace, I'd better be thinking about how I'll preserve my 30 percent and expand it. Otherwise, I'll have the company that has less to invest in R&D and marketing, which will put me in an unrecoverable downward spiral.

Your point about growth opportunity is, of course, correct: In the market for desktop computer operating systems, for example, Microsoft can only increase sales by either finding new people to buy PCs or issuing a new release and persuading people the upgrade is desirable to own, rather than painful to endure. Apple, in contrast, has a lot of opportunity to grow.

Which is another way of saying Apple is making a lot less money at it than Microsoft is. For Microsoft to achieve Apple's "advantage," it would have to first figure out a way to get most of its customers to abandon it. Once it did, it could then figure out a way to get them back.

All in all, I think Steve Ballmer is better advised to find ways to preserve his marketshare than to find ways to donate it to Apple.

- Bob