The Internet is changing the nature of competition in virtually every industry. And according to HBS professor David Yoffie, competing in the Internet age is more than just a matter of having to do everything faster. In their book, Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft (The Free Press), Yoffie and Michael A. Cusumano of MIT's Sloan School of Management use this high-tech confrontation to outline a comprehensive approach to strategy in the ultracompetitive environment created by the Internet.
Warp-speed cycle time is certainly an important feature of the dynamic introduced by companies like Netscape that have helped build the information infrastructure of the Internet age. Yoffie and Cusumano point out, for example, that one of Netscape's pioneering achievements was reducing the typical development time for new software from a period of two to three years to one of three to six months.
But beyond that, they say, "Internet time" is characterized by several other salient traits. "For companies competing in the new information economy," Yoffie and Cusumano write, "the Internet is forcing managers and employees to experiment, invent, plan, and change their ideas constantly while they are trying to build complex new products and technologies." In addition, by making it possible to "organize businesses in new ways, offer new products and services, and distribute those products and services to tens of millions of people almost instantaneously," the Internet has created a world in which competitive advantage can appear and disappear overnight.
Yoffie and Cusumano use the term "judo strategy" to encompass the combination of capabilities that competing on Internet time demands—speed, flexibility, and a capacity to find and exploit sources of advantage. The three principles of judo strategy, they say, are based on those of the martial art itself, which teaches smaller competitors to turn the weight and strength of larger and stronger opponents to their own advantage. Although the rise of Netscape illustrates how an upstart company can use judo strategy to threaten an entrenched giant such as Microsoft, Microsoft's eventual success in the Internet "browser wars" shows that large, established companies can use these precepts effectively as well.
According to the first principle of judo strategy, Yoffie and Cusumano explain, firms should "move rapidly to uncontested ground to avoid head-to-head combat. They need to look for opportunities where they can pioneer and then make it hard for other players to get in." Netscape acted on this principle in the opening round of the browser wars when, lacking the experience to make Navigator 1.0 part of a whole package of Internet tools, it sidestepped the competition by offering its product as a stand-alone browser. By also distributing Navigator over the Web and using a new pricing model that essentially made it free, the startup was able to capture more than 60 percent of the market within two months of the product's release.
Next, Yoffie and Cusumano advise, firms need to be flexible and give way when attacked directly by a superior force. "No matter how quickly companies move," says Yoffie, "they can't escape their competitors forever. When confrontation finally occurs, they have to avoid digging in their heels in a battle that's bound to become bloody." Ironically, it was the well-established Microsoft, rather than the newcomer Netscape, that showed greater mastery of this principle. For example, having released its Internet Explorer browser after Netscape had become the dominant player on the Web, Microsoft announced that it would follow Netscape's lead in supporting all popular Internet protocols (i.e., the rules computers use to communicate with one another on the Internet), even when they conflicted with Windows-based technologies.
The final principle—and perhaps the most important—involves leveraging the size and strategy of opponents against them. "You need to find areas where your competitor will have incentives to avoid responding to whatever move you make," says Yoffie. When Microsoft released Internet Explorer in 1995, for instance, Netscape saw opportunity in the fact that the new browser ran only on the just released Windows 95 and that Microsoft servers ran only on Windows NT. With Microsoft heavily invested in persuading Windows users to upgrade to the newest versions of Windows, Netscape concluded that Bill Gates would have difficulty responding to its plan to position itself as the only company whose technology supported the entire installed base of operating systems, including those for the Macintosh and old versions of Windows and Unix.
The momentous changes wrought by the Internet notwithstanding, Yoffie and Cusumano advise entrepreneurs not to ignore some of the old rules of doing business. "Companies still have to build competitive advantage and concentrate on efficient processes and quality products," they note. But by also mastering the new techniques of judo strategy, firms have a chance to survive and prosper in the demanding new dimension of Internet time.