When Google, Apple and Tesla Play Nice

By Rajshree Agarwal

SMITH BRAIN TRUST -- Silicon Valley companies work hard to protect their intellectual property. The territorialism makes sense in a knowledge-based economy, but recent moves by Google, Apple and Tesla reflect a different understanding about enterprise and markets.

These companies recognize that capitalism can’t work without trade, which requires a degree of cooperation. Leaders who cling too tightly to corporate secrets can successfully cut off the competition, but in doing so they risk stifling innovation and hurting themselves. Everyone can lose.

Consider that Google and Apple battle for market share in smartphones, smartwatches and, potentially, smarthouses and smartcars. Yet the companies have agreed not to file patent lawsuits — at least within the realm of mobile devices.

Meanwhile, Tesla Motors announced in 2014 that it would allow open access to all of its patents. The goal is to make the electric car a mainstream product — even if it means bringing along Porsche and Audi (who announced new electric car models on Monday at the Frankfurt auto show). In the end Tesla would rather control 20 percent of a big market than 90 percent of a small one.

Knowledge flows through Silicon Valley in other ways, primarily through the people who carry intelligence in their minds. Tony Fadell, one of the iPod creators, provides an example. He left Apple in 2008 to create Nest in 2010, which he then sold to Google in 2014. Google also bought Waze, a popular crowdsourcing navigation system, and almost bought Tesla.

Meanwhile, Tesla poaches employees regularly from Apple. The interplay among rivals results in a messy but vibrant network, where the lines between competition and cooperation are often blurred. Employees become founders, and startups become established firms, which breed new spinoffs and startups. As information circulates, at least five business lessons emerge.

1. Don’t run alone

First, innovation and strategic renewal require companies to leverage entire ecosystems. Competition raises industry standards, lowers prices and gets consumers engaged. Something similar will happen this summer during the Olympic Games in Brazil. The television audience will spike when six-time gold medalist sprinter Usain Bolt competes against other world-class athletes. If he ran alone or against vastly inferior competition, then interest in his events would drop. Bolt would dominate the market but lose opportunities to grow his brand.

2. Give and take

One way companies help each other is through the exchange of talent. A study by Liu Yang, my colleague at the University of Maryland’s Robert H. Smith School of Business, shows that firms looking to diversify their product lines are more successful when industries have significant employee mobility.

3. Set them free

Despite the potential upsides, no organization likes to see its talent walk out the door. Some rivals respond with noncompete clauses and intellectual property enforcements, while others cut backroom deals not to poach each other's talent. This is a form of illegal cooperation that got Google, Apple, Adobe Systems and Intel in trouble this month, when a federal judge ordered the offenders to pay a $415 million antitrust settlement. A better approach in every case is to support employees so they want to stay.

Gary Burrell and Min Kao felt unloved at Allied Signal when the aerospace giant cut its research budget in 1989. So the duo ventured out as Garmin, pioneering a new market for global positioning systems.

4. Span boundaries

By narrowing its focus on existing markets related to space, Allied Signal missed an opportunity to grow here on earth. Tesla showed a willingness to span boundaries when the electric car company announced plans to build new batteries for homes. Google, meanwhile, has expanded so far beyond the realm of Internet search that a new parent company, Alphabet, became necessary to manage the growing group of businesses.

The same principle applies when companies go looking for talent. Rather than narrowing their focus on “cookie cutter” resumes within one field of knowledge, recruiters should think more broadly about luring anyone with a mindset for innovation. Tesla, for example, looks beyond existing car companies toward hot firms such as Apple.

5. Follow the people

The blurring of lines among industries is another reason that noncompete clauses sometimes miss the mark. Rather than recognizing the fluidity of markets, these contracts rely on static definitions of who competitors are today. As Google showed with its foray into driverless cars, innovation can lead companies into new neighborhoods. To learn where potential rivals might go for their next product launch, look at where they already have gone for their hires and acquisitions.

Google, Apple and Tesla might have different visions, but they all understand at least one thing: Enterprising people make for enterprising firms, which make for enterprising markets and economies. Protecting intellectual property has merit, but everyone wins when knowledge moves among rivals.

Rajshree Agarwal is director of the Ed Snider Center for Enterprise and Markets at the University of Maryland’s Robert H. Smith School of Business. She is also a CATO Institute adjunct scholar.

SMITH BRAIN TRUST HOME | ABOUT | ARTICLES | HOT TOPICS | VIDEOS | WEEKLY NEWSLETTER | SUBSCRIBE