Steve Tobak of BNET wrote yesterday about Steve Jobs's remarks about Google last week at Apple's post-iPad "town hall", and used them as an example of the value of having an enemy in order to motivate the troops. As someone working at Netscape when Microsoft declared us Enemy #1, I saw just how motivating having an enemy can be. At the same time, it's extremely important to differentiate between motivation and fixation. Microsoft focused so hard on killing Netscape that it repeatedly crossed the line from honest competition into using its monopoly position illegally. That decision brought both the U.S. Justice Department and European Union down on the company. The result is that Microsoft finds its hands tied whenever it tries to exercise its power.
It's also important not to fixate on a single competitor and ignore other risks. While Microsoft was pounding Netscape into the ground, Google was just getting started. Microsoft ignored Google, but Google's plan from the beginning was to eventually take on Microsoft, which it's successfully doing. Now, Google is too big for Microsoft to kill, and Microsoft's playbook, which was written in the Netscape days, is out of date and ineffective.
My last point is that it's better to fixate on customers than competitors. If you consistently satisfy customer needs, anticipate their future needs and are responsive when they have problems, you're going to be successful. I think that's the real secret of Apple's success with the iPod and iPhone. While competitors were focusing on adding more codecs to their MP3 players, Apple was focused on the user experience. Instead of trying to improve on the BlackBerry model as other smartphone companies were doing, Apple again focused on the user experience.
In short, it's important to understand your competitors but not fixate on them. Fixating on customers will almost always result in a better outcome.