Number 2

December 2005: PepsiCo’s market valuation exceeds that of Coca-Cola for the first time in history.

January 2006: Apple’s market value overtakes that of Dell.

The news that Apple had overtaken Dell in the valuation stakes was sweet indeed for founder-evangelist Steve Jobs. Back in 1997, when the iconic computer-maker was at a nadir in its fortunes, Michael Dell was asked what he would do to fix Apple. “I’d shut it down,” he said, “and give the money back to shareholders.”

Apple has always been number one in the minds of many tech purists, but will the decision to go after pole position in terms of market share – as exemplified by the once-unthinkable move of building Intel chips into its boxes – eventually come back to haunt? It could be argued that, when it comes to long-term health, there is a lot to be said for coming second.

The longstanding rivalry between Coca-Cola and PepsiCo is surely the best illustration of how companies can lose their way if they’re entrenched at the top.

No longer motivated by growth, their goal is to maintain market share; and the qualities that got them up there – motivation, determination, efficiency, responsiveness – are replaced by inertia and complacency.

PepsiCo succeeded where Coca-Cola failed because it was much more responsive to consumer trends. Sales of carbonated drinks have been flat in developed markets for years, but – crucially – PepsiCo saw the writing on the wall and diversified into juices, bottled water and sports drinks. It now generates just 23 per cent of profits from the carbonated sector; Coca-Cola still relies on its famous drink for 85 per cent of earnings.

Perhaps the most startling thing is the speed of such reversals. Five years ago, Coca-Cola’s market cap stood at $128bn – three times that of PepsiCo. Their respective values now stand at around $98.4bn (PepsiCo) and $97.9bn (Coca-Cola).

Spirits might be low at Coke right now, but the new role of underdog could prove just the long-term stimulus it needs. Coke should take its lead from Avis – the highly successful silver medallist to Hertz in the car rental market. Company motto: “We’re number two, so we try harder.”

From BDO Stoy Hayward 33 thoughts.