James Surowiecki, who wrote 2004's fascinating book, The Wisdom of the Crowds, has a great piece in this week's New Yorker on Nintendo's strategy with their new Wii game console where they are clearly ceding the #1 and #2 positions (by volume) to Sony and Microsoft but still managing to squeeze out a nice place/profit despite being #3. It's a great read for anyone interested in the dynamics of marketshare but especially good for the lemming investors/entrepreneurs/analysts who cover the web space and talk about the importance of "being the biggest," or "being at scale relative to the competitors."

This whole #1 or #2 thing started when Jack Welch, head alpha business monkey and super chief executive from GE, declared that if his company wasn't #1 or #2 in every market segment they competed in, he was pulling the team and exiting the business (covered in Surowiecki's piece). General managers in all sorts of industries then took to this notion in droves and started applying it broadly. What most people missed however, was that Welch was referring mainly to industrial goods businesses where there are huge up front capital costs that have to be amortized over a limited number of purchases very quickly. When you build a turbine factory for example, there are about 18 buyers in the world for your stuff and if you can't get decent marketshare in the segment, you fixed costs quickly become the death of you.

Not so in just about every other industry, and especially, service or content businesses. A few years ago at the D conference, Walt Mossberg asked Steve Jobs what the difference was between being the CEO of a computer company and being CEO of a movie company. I expected a total puff answer but was surprised to hear Jobs talk pointedly about the difference between zero sum market places and non-zero sum ones, and specifically talk about the different industry dynamics when you're out choosing an Apple over a Dell (either/or) as opposed to seeing Antz and A Bug's Life. According to him, managing a non-zero sum business (including people, projects, strategy, and tactics) was a disaster waiting to happen— which is why this piece in the New Yorker should be required reading for the take-the-market embahs looking for the next eBay opportunity.

Notwithstanding the rallying cries of the attention folks, most of the businesses we are in are far from zero-sum. I would argue that the closer a purchase of a good or service gets to emotion as an underlying driver, the further away it gets from Welch's #1/#2 model of survival because by definition is is far from zero sum.

While Surowiecki does not make this same zero-sum argument for why the Nintendo is in a great place with its Wii strategy (he prefers to focus on the classic serving an unserved segment argument), it is nice to see that implicitly the company's strategy is an affirmation of the Jobs statement on competitive dynamics. I'm no console gamer (I think I was more in the Apple ][ generation) but I do love talking to them and fantasizing about how someday a modern-day console may win me over like Myst/Zelda/Castle Wolfenstein did in years past (the only 3 computer games that have ever sucked me in deep), and what I've been gathering about the Wii is that even the most die-hard Xbox/PS3 folks are eager to get one both because it is cheap and because it provides a whole new axis for game play despite its underpowered hardware and lack of cutting edge features.

Go rising tide that lifts all boats!