Can’t everyone just get along?

Source: Pikist. Public Domain.

I grew up with a talented older brother. He was smart, athletic, and socially popular. But like many younger brothers, I didn’t appreciate it at the time. I wanted to make my own way and establish my own identity. He did one thing, I did another. He played football; I played soccer. He liked to fish and hunt; I liked to read and study. Not surprisingly, we had our moments of conflict, but also of appreciation and mutal encouragement.

Children from the same family have been at odds with one another for as long as history has been recorded. Cain and Abel, Romulus and Remus, Tweedledum and Tweedledee – they compete with each other because they occupy the same turf, and they can’t seem to get out of each other’s way. It’s every parent’s prayer that their children will stop bickering and work together.

Much of the time sibling competition can be healthy, especially when it encourages them to work smarter and harder – like the tennis-playing Williams sisters. The two learned to play the game together, and for a while, Venus was more successful. Eventually, however, she was surpassed by her younger sister, Serena, who won three high-profile finals matches against her in a single year. Both are intense competitors, but have a close personal relationship off the court.

Venus and Serena in 1993 and 2001. Source: Flikr. CC BY-SA 2.0

We can also see “sibling rivalry” in the marketplace: Coke and Pepsi, Google and Facebook, AT&T and Verizon, and in an earlier era, Microsoft and Apple. The companies can’t help it: they occupy a similar marketplace, and each wants the other’s customers. When this leads to innovation and lower prices, it’s good for consumers. When it leads to bickering and backbiting, not so much. One way to evaluate a management team is how they respond to close competition from a rival. Do they double-down and focus on their primary agenda, or do they get pulled off their game, wasting money and energy on a distraction?

In 2011 Google launched Google Plus, an attempt to create a social network that built upon its success in search and email that would rival Facebook. The move was surprising. For years Google had been dismissive of the social network. Their near-monopoly in search activity was printing gobs of money. Any time a Google employee was recruited by Facebook, Google would overmatch the upstart’s offer. And they could make snarky comments at tech conferences with impunity.

Source: Pikist. Public Domain.

But Google Plus was different: a direct attack on Facebook’s primary business, an attempt to recruit a wider network than Facebook members could dream of. Google Plus signup buttons were everywhere: on the search site, on Gmail, on YouTube. And Facebook responded with a “lockdown”: a state of corporate war where no one could enter or leave the campus without explicit permission from higher up. Families would be allowed to visit on weekends. Facebook ramped up its user experience, and Google Plus – despite boasting initially impressive signup numbers – began to resemble a ghost town. People would sign up and then nothing would happen. Eventually, Google abandoned the effort.

This was an example of healthy competition: an attempt to innovate in a way that pushed a competitor harder. Were Google’s time and energy spent on Google Plus wasted? Not necessarily. They learned valuable lessons about how users behave and how networks form. And they learned to not try another frontal assault on their rival’s main business.

Not all competition is healthy. Coke famously blinked when it tweaked its century-old formula and created “New Coke” in an effort to woo Pepsi drinkers. The move was widely panned. Now it’s used in business schools as a case study of marketing missteps. Coke alienated its core customers and didn’t pick up any new ones. Late-night comedians make regular jokes mocking the switch; ads for New Coke were booed at sports events; Fidel Castro called New Coke a sign of American decadence. Within three months, the classic formula had been reinstated. Coke’s shares have lagged behind its rival.

Coca-Cola (KO) and Pepsi (PEP) total return. Source: Bloomberg.

Competition encourages innovation and experiments. But it can also drive people to do foolish things. In this age of increasing transparency and accountability, investors have every duty to watch, learn, and decide: who will be the best stewards of their investments?