Sun is a good example of a company that got too excited about competing with Microsoft. It forgot what its own value proposition was and, now that the two companies aren't fighting, is having a hard time finding revenue and profit.
Linux largely came up by being more of an alternative to Microsoft than it was to UNIX in terms of how folks thought about the product though, in actual deployments, it displaced many more UNIX footprints than it ever did Windows footprints. Yes, it did hurt Microsoft's growth but it almost put Sun out of business as collateral damage while Sun was largely looking someplace else.
This showcases a serious problem with competition. And I think it reflects on Microsoft's own focus on companies like AOL, Netscape, Google and RIM in that a group or a firm can become too focused on a competitor (or several of them), lose itself, and forget the real goal, which is to make money and manufacture loyal customers (the loyal thing is really important).
Since I appear to be getting calls today from folks concerned that Linux is stalling in the market, which isn't intuitive given that Linux is often seen as the lower-cost option and these are hard economic times, let's talk about the problem of competition.
Microsoft vs. Linux
Take two racers. If the first focuses too much on the guy behind him, he or she will likely misstep, fall and be passed. If the second focuses too much on the first, they will follow linearly and only pass if the person in the lead makes a significant mistake. And when an overly focused number two becomes the leader, they probably won't know what to do because their goal was to beat the leader.
Microsoft made a significant mistake in the '90s in server operating systems by not using the embrace and extend philosophy that had worked so well with Microsoft Office. As a result, it created a significant opportunity for displacement that those that backed Linux clearly saw. But Linux didn't embrace Windows either. Instead, it lived largely by positioning itself as an alternative to disliked Microsoft practices but never became a true alternative to Windows. (Ubuntu's Shuttleworth seems to be realizing that Apple is actually a better example of what the customers want than Microsoft at the moment.)
Microsoft then focused on Linux as a threat and attacked the rhetoric, though it just added fuel to the fire with the "Get the Facts" program. It still did not address the product gap, and Linux gained strength. In short, both cancelled each other out. Linux grew because it naturally was the better alternative to UNIX. Microsoft more recently stopped attacking the concepts surrounding Linux and started embracing them; growth numbers in both revenue and profit have grown considerably as a result, making the server and tools business the current star of the company.
The lesson here is that in a race, any race, you must focus on the goal, not the competition. Yes, you must be able to counter what a competitor does but the person in the lead must still get to the goal first and the company following must find a shortcut. The goal, lest we forget, is the maximum number of paying and profitable loyal customers. I mention loyal because dominant companies tend to forget that for loyalty to work, it must work both ways.
AMD vs. Intel
The problem of being too focused on competition was even more evident in the battle between AMD and Intel. AMD historically tried to match everything Intel did but with vastly less resources. Intel would get so concerned about AMD it would seem to cross the line with practices that have gotten it into significant anti-trust difficulties. The combined impact is a significant reduction in margins for both companies and, at least for a time, a lack of focus on initiatives that would grow the market.
More recently, AMD bought ATI to go around Intel and address the graphics performance shortcoming that has traditionally been connected with Intel integrated products (which represent the bulk of the market). Intel has moved with Atom to significantly increase its reach. Both moves should eventually benefit both companies more than the excessive focus on each other has. Intel is even looking at moving into the solar market, one that may lend itself to Intel's unique skills and become vastly larger than any market that Intel has ever occupied.
Wrapping Up: Excessive Competitive Focus Is Bad for You
I suggest you avoid vendors who appear overly focused on competition and under focused, as a result, on your needs. While watching heated battles are fun for a lot of us, the keyword is "watch." Putting yourself into one of these battles as customer cannon fodder isn't so much fun and it is far too easy for a vendor overly focused on a competitor to put you at risk.