Here’s to third place!

I found a really interesting article in The New Yorker magazine via Matt’s blog. The article is a must-read but here’s the article in a nutshell: Focus on profitability and not market share as market share doesn’t always lead to profitability. The article looks at Sony, Microsoft and Nintendo and how Sony rules the video game marketplace with the Play Station and Microsoft is closing in with the XBox. Nintendo is languishing in third place but its stock is up 65% this year and because Nintendo is not trying to rule the entire industry, it’s been able to focus on its core competence and actually make money. Microsoft’s game division is losing money while Sony is barely making any money. Here is an edited quote from the article:

Companies that adopt what they call "competitor-oriented objectives" actually end up hurting their own profitability. In other words, the more a company focuses on beating its competitors, rather than on the bottom line, the worse it is likely to do. And a study of the performance of twenty major American companies over four decades found that the ones putting more emphasis on market share than on profit ended up with lower returns on investment; of the six companies that defined their goal exclusively as market share, four eventually went out of business.

There are lot of companies out there that should play to their strengths while recognizing their limitations instead of trying to be everything for everybody.