EBay acted like a judo master in another way, says Yoffie: It responded indirectly rather than directly when much larger rivals Yahoo! and Amazon.com decided to start their own online auctions. Both companies advertised extensively on their own sites and charged significantly less than eBay to post items (Yahoo! offered free posting; Amazon's price was 60% lower than eBay's). But eBay ignored the challenge. That was a good move, Yoffie says. "EBay did things its competitors didn't do. The site realized that price wasn't the critical factor, since prices were already low. Free was not necessarily good in this business." At Yahoo!, the free factor meant that people never removed their unsalable items from the site; junk postings piled up. EBay's customers weren't impressed. Today, neither company has gained any significant traction against eBay.
"The most important idea of balance is clearly to push when pulled, using competitors' momentum and pulling them off balance," Yoffie says. In judo, if someone pushes you and you're weaker than he is, you will probably fall -- unless you are able to pull him until the he loses his balance. Again, it's counterintuitive -- most people would try to match strength for strength -- but it works.
One of the most engaging examples in the book concerns disposable diaper maker Drypers and its use of that tactic against Procter & Gamble. Drypers came to the attention of P&G in Texas, where it was gaining share. P&G simply decided to bury the company with aggressive couponing. The strategy probably would have been the death knell for Drypers if the company's CEO hadn't recently read a book on judo. Knowing that Drypers couldn't afford to match P&G's advertising and distribution, he simply decided to accept the P&G coupons for Drypers's own diapers. "The more couponing P&G did, the more demand it generated for Drypers. It turned out to be a windfall," says Yoffie. P&G eventually gave up, and Drypers is still around today.
"Leverage is, in many ways, the most powerful technique in judo," says Yoffie. Unlike the push-when-pulled concept, which is used to respond to a direct attack, leverage is all about figuring out which of a competitor's strengths can be used against it -- especially if the company doesn't know what's coming. In this case, the size and reach of a competitor suddenly becomes a millstone rather than an edge.
Yoffie's favorite example of leverage isn't recent. It happened in the 1930s when Pepsi, which had already gone bankrupt twice in its fight with giant Coca-Cola, finally decided to offer a 12-ounce bottle of soda for the same price as Coke's 6-ounce bottle. Coke had made a huge investment in its bottling network and in branding its patented shape. For Pepsi, the variable cost of adding more soda was close to nothing. But for Coke, the tactic posed a real dilemma. Since Coke was committed to the bottle itself, the company either had to charge an additional 2.5 cents -- which would mean real losses to the bottlers -- or do a two-for-one offer, which would really hit the company's bottom line. Suddenly, Coke's power had become a weakness. And that allowed Pepsi to finally establish itself in the marketplace. Amazingly, Coke did not respond until 17 years later. "The only answer for Coke was to cannibalize its existing investment," says Yoffie. "In the long run, that probably would have been the right strategy. But it was so costly and so painful that the company didn't do it."
So what if you find yourself on the other side of this management martial art? Yoffie ends the book by turning the tables yet again -- and bringing in yet another sports metaphor, that of the sumo wrestler. Sumo is about using your weight and strength to your advantage -- but it is also about technique and finesse. If you're being blindsided by a judo master -- and you're bigger and stronger -- your strategy should be to turn the battle into head-to-head competition once again. That's what Microsoft did by taking on Netscape directly. While Netscape used a lot of smart judo techniques, says Yoffie, it still woke up the sleeping giant -- and paid the consequences.
Today, with large companies reasserting themselves, it seems that judo would lose to sumo. Not so, says Yoffie. "In judo, you can fall down and get back up," he says. In sumo, if you fall, it's over. "The companies that really figured out how to use these techniques have survived the havoc."
Jennifer Reingold is a Fast Company senior writer. Contact David B. Yoffie by email (dyoffie@hbs.edu).
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