When I first started working for Johnson Control, Inc I was responsible for engineering and procurement of parts for HVAC controls projects. My first exposure to competitive game theory was then. We had won a job through the bid process, which include our specification with the exception of our air dampers. The damper specification was that of another company with a local distributorship. I made a phone call to procure the dampers for our project. The damper order about $3,000, but I was shocked the person on the other end of the phone refused my order telling me we were "Competitors in the damper market" and he would not provide the dampers. Well Ok maybe that makes sense in some game, but not this one. My solution was pretty simple I called the consulting engineer and spent an hour on the phone selling him on our dampers and was able to get our dampers allowed on the project. Not only did the "competitor" lose my $3000 but also he gave my company addition market share and his dampers were likely not to get specified again. So what did he do wrong? He played the wrong game. Had he cooperated with me could of made addition margin on the order, as I did not expect "special" pricing, and increased his market share and continued partnership would have helped him in future jobs.

So what is the moral of the story. Know what game your playing, killing the competition is not always a win. In other words, every thing in competition is not win-lose.

The power of this principal as described in the book Co-opetition, by Dam Brandenbuger and Barry Nalebuff is that cooperating with a your competitors strategically you can keep more of the pie for you and prevent new entrants in the market place. By picking the right game you can maximize your profitability.

A number of suppliers in the HVAC industry, as well as building owners and consulting firms belong to an industry organization known as ASHRAE. This organization has issued many engineering standards for the HVAC industry. Recently released its BACNet protocol specification. This specification was intended to even the playing field in the HVAC controls market, by establishing a standard protocol that all suppliers of equipment could utilize. This would allow building owner not to be tied down to one manufacturer do to a proprietary protocol.

The events that surrounded the BACNet evolution are co-opetition at its best. The Industry leaders in both the manufacture of building controls and equipment were involved in the development of this specification. This is clearly cooperative. Each of the parties brought to the table their "best practice" protocols and over a number of years they worked to find the best solutions by combining a number of different existing protocols.

Since this effort took a long time, somewhere around 12 years, a number of other things happened in the computer and networking industry and other protocols and technologies were coming about. As a result BACNet as originally released was somewhat behind the technology as things were moving so fast. Many other standards were being released in the computer industry that effected the perceived value of BACNet. So when finally released the industry leaders choose BACNet as there top layer network solution and protocol called LONMark as their secondary protocol. According to companies like Johnson Controls, Inc. This makes sense because of the technology of both protocols.

Other smaller controls companies developed a strategy for competing with the big controls companies by saying they were native BACNet or BACNet on all levels. In many cases they have had specification control and have caused the big companies trouble in biding these jobs. So the big controls companies opened up there pocket books and shelled out large quantities of cash to run an add campaign together touting the benefits of the mixed solution as a truly open system. The advertisement included logos from all the different companies who generally brutally compete with one another. This was an instance where the game had changed and the best position for all was to go in together and fight the smaller competitor together before they convinced the market place otherwise.

By the big companies banning together they were able to protect their investment in both technologies. By leveraging their positions on the BACNet development team they were able to win the game. The diagram below in figure 1 shows the BACNet game. L. G.s will stand for "little guys" and B.G’s for "big guys." Basically what this means is if the little guys go with the combined solution they will maintain the market share they currently have. For this argument say it’s 10%. If the Big Guys decide to fight then they the little guys run the risk of not being in line with the industry standard and may loose market share. If the Big guys do not fight they stand to gain market share.

Figure 1: BACNet / LON Mark Game

So why would a rational company try and fight the "big guys." If the game was "hand to hand combat" with an individual entity they stand a good chance of winning. What changes this game is that the "big guys" have banded together, cooperating to defeat a common foe. Maybe the "little guys" did not realize that this would occur, maybe they thought everyone was competing not co-opeting.

So in this game what happens if a new genius comes along and finds a better faster cheaper protocol to operate building controls. Can it enter the market place? The BACNet argument from ASHRAE was to give building owners a choice when it came to equipment and controls. Everything in there building would be able to "talk" a standard protocol and integrate with each other. This was intended to increase competition and limit the power that an incumbent building controls company had in any given building.

This seems like a good thing, integrated solutions, better prices, more options. But the problem is that it is limiting. If a company has a better solution that is cheaper and faster how can they enter the market place. Basically they can not compete without being able to hang on the BACNet system. The industry experts, the members of ASHREA and building owners have put way too much time in this effort. They have decided this is the way they want the game played.

Figure 2 represents the game if an new entrant attempts to enter the market. The competitor makes a choice to get on board with BACNet or create its own solution. If it chooses BACNet then potentially the competitor could gain as much as 10% market share based on its ability to differentiate its applications. If it tries to introduce a new solution it runs the risk of the incumbents fighting. If they don’t fight the new entrant could gain more market share however if they do fight the new entrant will fail. The only way the new entrant could succeed is to influence the BACNet Specification itself. Then its current knowledge of the changes would allow it a leg up on the incumbent competitions. Is it likely that a new entrant could influence the established BACNet spec? probably not , but if they had a very innovative Idea its possible.

Figure 2: The new entrant’s game.

The big problem here is this is bad for innovation, the latest thinking may not be incorporated into the building automation world because they are so concerned about its tie to BACNet. This argument has many parallels in the computer industry. If you had a better operating system solution can you win in a game dominated by Microsoft? No probably not which is evident by the history of Mac OS, OS2 Warp, and Linyx. Arguable they may have been better solutions but thy failed because the market had already chosen Microsoft Windows.

So is this bad for the consuming public. Arguably not. The innovation now comes in the applications that ride on these standard protocols and operating systems. So simplistically the game is whoever can best utilize the standards will win the most market share. Will the consuming public pay hire prices because of this? If the Microsoft example holds true probably not, certainly very few people complain about the cost of computers and software. The price seems to be coming down by the minute. Where the consuming public looses is that the standard may not be the best technology but they are so wedded to it they have no choice.

Johnson Controls Inc.(JCI) A member of the ASHRAE BACNet committee realized the need to cooperate early on. With BACNet not released yet JCI released the need to offer customers integrated solutions. In order to do this they released their previously proprietary specification for their N2 Network to anyone who wanted it. Including the competition. By cooperating with their competitors they were able to develop a great deal of applications that translated the competitors protocol to N2 and visa-versa. By doing this they extended their product line and value added to the customer early on.

There are now thousands of devices that communicate via JCI’s N2 protocol with 80% of them not produced by JCI factories. This means that N2 protocol is more widespread then BACNet LONMark or any other protocol. And JCI’s competitive advantage is no mater what platform you pick we can talk to it.

There is a critical game here that is subtle. Let’s say a customer wants a integrated solution with Johnson Controls and company XYZ. Company XYZ makes the best generators in the world and also dabbles in building controls. JCI plays a card. They say they can do it as they have an open protocol all they need is the XYZ companies protocol and some technical support. Since XYZ competes with JCI in some markets they refuse to release the protocol and the customers is unhappy. JCI then shows the customer four other generator manufacturer that already integrate seamlessly with our product line. XYZ looses the order and spec control for that customer. This means that JCI gets more of the pie and so does the partner. By being the benevolent one you can have more control over the market place.

So what does co-opetition in general mean for a market place? If you have big players in the Market Place that are willing to cooperate then if you want to enter you must cooperate. Otherwise the only customers you will get will be the ones who subscribe to the conspiracy theory of big companies. And there are not many of them around. So in order to succeed in this co-opetive environment you have to forget about your old foes and figure out a way though cooperation you can maximize your ability to differentiate your self.