Stratagem 17:Seize the Opportunity to Lead the Sheep Away.
“Exploit any minor lapses on the enemy side, and seize every advantage to your side. Any negligence of the enemy must be turned into a benefit for you.”
—From The Thirty-Six Stratagems
After Steve Jobs took back control of Apple, he set his sights on a new adversary: Sony. For two decades, Sony had dominated the world of portable music. With its Walkman line, Sony remained
the leading producer of traditional portable music devices (i.e., cassette, CD, and radio players) and digital MP3 players. But in the early 2000s, Sony’s long-held advantage eroded when
Apple’s iPod became the world’s leader just three years after its introduction.
Ironically, Sony fell victim to the same stratagem to which it owed its initial success. Fifty years prior, Sony had overtaken both RCA and GE in the radio market by seizing an opportunity that
the incumbents had refused to embrace. In 2005, Sony found itself similarly stuck as Apple took over the digital market.
At first, the MP3 player market was relatively small. Even as recently as 2002, only 5 million portable devices had been sold since their introduction in 1998, according to the Consumer Electronics Association.37 Two barriers were restraining growth of the digital music player market: the lack of available of music for download and the unmanageable size of players.
Music was difficult to find at that time because major record labels, fearing piracy, resisted making their music available in digital form. Instead, they invested heavily in a two-pronged attack on the growth of digital music. On one front, they launched legal campaigns against those encouraging its spread. They sued file-sharing sites and lobbied for stricter regulations. Simultaneously, they began preparing for the rising world of digital music by developing software and systems, Digital Rights Management technology, that would protect their music ownership. Until this technology could be put in place, the music labels aimed to keep their music on CDs. They avoided making any of their property available for download.
The second limitation on the business was the size of the early MP3 players. Consumers essentially had two choices. Devices based on flash memory were physically small but came with limited memory; they could hold no more than ten songs. The other option was to buy a hard-drive based player, which could hold considerably more music but was heavy and bulky.
Facing these severe limitations, MP3 players failed to gain momentum.
The bonds began loosening in 2000, however, when illegal music-sharing sites were reaching unprecedented audiences. Napster, for example, claimed to reach 50 million users. The success
of such sites forced record labels to begin rethinking their legal strategy. At industry strategy meetings, the conversation began to shift from stopping digital music distribution to seeking ways to profit from it. The industry realized that the future was in adapting to and serving the millions of consumers looking for a legitimate digital music option.
Additionally, hard-drive technology was improving. Hard drives were getting smaller and less expensive. In early 2000, Toshiba developed a hard drive capable of storing 1,000 songs that weighed less than 6 ounces.
These two developments, the explosion of digital music sharing and the shrinking of hard drives, created an opportunity for someone to finally introduce an MP3 player that would prove competitive with existing portable music devices, one with access to music (from record labels) and the ability to store many songs in a small package. Sony should have seized this emerging opportunity. In addition to owning the leading portable music brand (the Walkman), Sony had spent years developing its digital-rights technology and even owned a record label (Universal Music).
Despite its strength, Sony chose to think instead of act. The company studied the idea of putting a hard drive in an MP3 player but, as Sony Senior Vice President Keiji Kimura explained, “We
have many things to resolve.”38 These issues had little to do with the market or technology. Sony wrestled with internal barriers. The company’s consumer electronics group wanted to free users
to transfer music while its entertainment businesses wanted the opposite.
While Sony was considering how to untangle its conflicting agendas, Apple acted. In October 2001, the computer company launched the first iPod, a 6-ounce 5-GB device that could only be used on a Mac. In July 2002, Apple launched a version compatible with Windows PCs and subsequent versions offered ever-increasing capabilities. Hard drives grew to 30 GB then 60 GB, capable of storing 15,000 songs and displaying color images. Apple followed with the Micro, the Nano, and even the Video iPod.
As Sony watched and struggled to unlock its conflicting agendas, Apple took over. By 2005, Apple was earning nearly $5 billion from its iPods, while its stock had grown from $7 to $80 per
share in three years. The iPod captured 75 percent of the portable digital music market share39 and its iTunes music store captured 82 percent of its market.40
Sony Moves In as Others Pause
Ironically, Sony built its leadership in consumer electronics with precisely the move it fell to fifty years later.
In just seven years, Sony transformed itself from being a manufacturer of rice cookers for the Japanese market to the world leader in the production of consumer radios. It achieved this by seizing on a unique moment when its competitors could not or would not take advantage of a particular opportunity.
When Bell Laboratories invented the transistor in 1947, the two leading electrical and electronics leaders, RCA and GE, agreed with most industry observers that the transistor would one day replace the vacuum tube. But neither RCA nor GE wanted to adopt transistors quickly. Both companies were heavily invested in products designed for vacuum tubes and felt little competitive
pressure. So they hesitated. They made plans to study and further develop transistor technology with the goal of replacing vacuum tubes sometime in the next twenty years.
Akio Morita, the CEO of Sony, recognized RCA’s and GE’s mistake and took advantage of the opening they provided. In the early 1950s, he bought a license to use the transistor from Bell
Labs for just $25,000. He then challenged his engineers to design a transistor radio faster than the industry believed it could be done. In just two years, far fewer than the twenty RCA and GE had
anticipated, Sony introduced a portable transistor radio. For onethird of the cost of a traditional radio, Sony offered consumers a product that was a fraction of a traditional radio’s size and weight. Sony went on to dominate the world’s consumer radio markets.
This tactic is what Peter Drucker calls “entrepreneurial judo.” Small attackers can topple large incumbents because the incumbents are too heavily invested in the old way of doing things to embrace a new way.
Sony is not alone in benefiting from this tactic. Home Depot, for example, stole market share from unsuspecting home contractors by convincing consumers to “do it yourself.” Contractors could not respond in part because they refused to see Home Depot as a competitor. Coca-Cola’s now-famous strategy of attacking water consumers targeted competitors who never had cola on their competitive radar screens. Water companies never saw Coca-Cola as a threat.
Microsoft’s seemingly well-calculated strategies tend to depend heavily on this stratagem, as Microsoft’s chair Bill Gates admits:
“Most of our success comes when we end up with a competitor who doesn’t do things correctly—that’s lucky. You’re not supposed to work on a strategy that depends on other people’s mistakes, but they’ve certainly made a lot.”41
Method Home seems poised to corner its competition. Founded in 2001 by Eric Ryan and Adam Lowry, friends from Stanford University, Method is taking a new perspective on cleaning products.
The company wants consumers to pull their detergent from under their sinks and put it on display. The two friends—one a chemist, the other an advertiser—developed a line of eco-friendly products contained in high-design containers.
When they convinced Target Stores to carry their teardrop hand-soap, their company’s revenues began ramping exponentially. By 2006 they tracked over 3,000 percent revenue growth and secured the seventh spot on the Inc. 500 list of the fastest-growing private companies.42
Why have consumer product incumbents Procter & Gamble or Colgate-Palmolive not responded? In part, with revenue of around $20 million in 2006, Method was perhaps too small to draw notice. But viewing Method’s attack objectively reveals Seize the opportunity to lead the sheep away to be at work.
Traditional consumer product companies are organized by brand. The Mr. Clean brand manager, for example, holds full responsibility for the brand and operates it as an independent company. This brand-centric structure has worked well for over a century.
Method’s approach is different. The company is building a lifestyle brand that stretches across multiple products. The Method brand is independent of function. It stands for design and being eco-friendly. The Mr. Clean brand—indeed, each major cleaning supply brand—stands for what it does.
To copy Method’s approach, Procter & Gamble, owner of the Mr. Clean brand, would have to give someone oversight over Mr. Clean, Dawn (dishwashing liquid), and Fabreez (fresheners). The
cost of such a radical reorganization will outweigh the risk Method poses for many years. Until Method reaches a scale sufficient to challenge Procter & Gamble’s core business, P&G will be better
off letting Method grow. Not unlike RCA let Sony or Sony let Apple’s iPod grow.
Seizing the Opportunity to Take an “Ally”
In 770 BC, the state of Song was under siege by an alliance of opposing states. The state of Chen led this alliance. In defense, Song implemented the stratagem of Besiege Wei to rescue Zhao. It attacked Chen’s capital, forcing Chen’s aggressors to call off their siege and leave to defend their homes. Through cunning application of this stratagem, Song freed itself from the threat.
On its return home, the Song army passed through a small state called Tai. Tai had refused to support Song’s defense, so Song decided to take the Tai capital in revenge. The Song army surrounded Tai’s stronghold and prepared for what promised to be almost certain victory over the weaker Tai state. As it turned out, however, neither state would be victorious.
Tai, facing certain defeat, sent an appeal to Chen for help. When a few days later the Chen army was seen approaching, the Song army called off its siege and hurried home. The Tai army rejoiced. The presence of Chen’s powerful army had saved them. The Tai king opened his city gates to welcome the Chen duke and his army.
The Chen duke faced an unexpected opportunity. He stood with his army in front of the open city gates of a strategically important state (Tai was in proximity to Song). Knowing that an attack on Tai would provoke little or no resistance, he marched his soldiers into the welcoming walls of the Tai capital, kidnapped the Tai king, and took over the city.
Just as the traveler in the Chinese folktale took advantage of an inattentive shepherd, Sony took advantage of an inactive RCA,and Apple took advantage of a conflicted Sony, Chen took advantage of an adversary that it knew could not defend itself. This is the essence of the stratagem. When your adversary is unlikely to react, seize the moment.