In our previous 3 articles in this series on competitiveness, we looked at some of the measures of competitiveness, and at how well Play2Live, a startup in the gaming and eSport field, is positioned to break into these markets.
Part 1 considered traditional measures. Parts 2 and 3 looked at measures that are specific to platform-based businesses.
Play2Live seemed well-placed against many of these measures.
However, despite the high hopes of founders of start-ups, the question must be asked whether there is a chance that a new entrant could actually break into the market.
So, Part 4 will consider some stories from the marketplace. It will show that well-established incumbents can be quite quickly pushed from their perches by newcomers who choose and apply the right competitive strategies.
General comment
There has always been competition in business, and new entrants are a classical part of the environment. What may have altered is the speed at which established businesses are being disrupted and the enormous revenues that are so quickly being generated by newcomers.
This is very evident in technology-based companies, but, as pointed out by Richard Foster, of the Yale Entrepreneurial Institute, even companies on the S&P 500 Index are being affected. The average lifespan for these companies has reduced from 67 years in the 1920’s to 15 years now. Most of the list for 2020 will probably not have been heard of in 2010.
Here are some stories about successes and failures in the market.
Stories from the market
Apple
Apple is probably the best example of a newcomer totally taking over an established market. It disrupted the music player industry in 2001 when it introduced its iPod to replace most other MP3’s on the market. It entered the phone industry in 2007, when Nokia, Samsung, Motorola, Sony Ericsson and LG had 90% of all global profits. It did this largely because Steve Jobs recognized the potential for other phones to include the music technology of the iPod. By 2015, Apple on its own held 92% of global profits in this market. Today it is set to reach a trillion-dollar market valuation, with Warren Buffet as one of its chief supporters.
How did this happen? And how likely is it that Apple itself will be disrupted?
What gets people to use Apple products is quality, design and ease of use. What keeps them is Apple’s ecosystem of hardware, software and content. The iPhone, iPad or MacBook Air are competitive products in their own right, but they go beyond that to be devices to connect consumers to multiple sources of software from multiple developers, via the AppStore, and to multiple sources of content, much of it via iTunes. It is this integration that makes Apple customers less likely to move to a competitor. And the suppliers of software and content are also not likely to move easily as the AppStore and iTunes have created billions of dollars in sales for them.
What are some of the secrets of this success? Provide a platform ecosystem, not a product. Give up on a current successful product before you are forced to.
Netflix vs Blockbuster and cable TV
At its peak, Blockbuster, the DVD company, had 9,000 stores, 60,000 employees and was valued at $8 billion.
The story goes that Reed Hastings was spurred into starting Netflix in 1998 when he was fined $40 by Blockbuster for the late return of the DVD of Apollo 13. Netflix has been blamed for Blockbuster’s decline and final bankruptcy, but a look at the facts seems to point more to bad decision-making by Blockbuster as the real cause. Not least of these was the decision to refuse to buy Netflix in 2000 for $50 million (and this was just a year after Blockbuster had raised $4.8 billion in an IPO, so there was no shortage of cash.) It chose instead to sign a 20-year streaming deal with an Enron subsidiary — and we all know how Enron went bankrupt just a year later, putting an end to Blockbuster’s entry into the streaming world. It tried to compete with Netflix with online DVD rentals, and reached 2 million subscribers in 2006, just as Netflix reached 6.3 million. But it lost 500,000 of them in just one quarter of the next year, and eventually filed for bankruptcy in 2010, with $1.1 billion in losses for the year.
Netflix has gone on to account for nearly a third of internet traffic and to be valued at $100 billion in January 2018.
Along the way, it has done far more than disrupt Blockbuster. It has disrupted the entire cable television industry. It has benefitted from the huge market trend away from traditional cable or satellite and towards video on demand (VOD) and OTT (over the internet) viewing. While hundreds of thousands of viewers are “cutting the cord” from cable subscription, Netflix increased its annual revenue more than tenfold between 2005 and 2016 and more than doubled its subscriber base in the past five years, reaching 125 million subscribers in the first quarter of 2018. It has more subscribers in the US (>50 million) than the total for the top six cable TV companies (approx 48 Million).
It is now going on to disrupt the film industry as it moves into original content production with Netflix Originals.
The secrets of success? Among many strategies, Netflix has moved with and shaped the trends, while exploiting technological change.
Amazon vs Walmart and Kroger (and Alibaba)
Amazon has disrupted the retail industry. It famously started in Jeff Bezos’s garage in 1994, as on online site selling books. It is now the world’s largest online retailer, turning over more than $60 billion per year and employing nearly 100 000 people. It has recently bought Wholefoods, moving into the grocery market. This has forced Walmart and Kroger to invest if they want to stay in the market, and has pushed many regional grocery chains into bankruptcy, as they simply can’t afford that investment.
Kroger has been in the retail business since 1883, has nearly 3,000 outlets, over 400,000 employees and revenue of over $115 billion.
Walmart is a retail giant with 30 years start on Amazon; it has more than 2 million employees and had a turnover above $500 billion last year. Yet it is under pressure and is being forced into a different business model. It is retreating from bricks and mortar stores around the world, as it takes up the fight to win the online retail war against Amazon. Walmart has recently outbid Amazon, to acquire 77% of Flipkart, India’s biggest online retailer, for $16 billion. It’s had to take on Google as a partner to do this.
And, of course, everyone needs to be watching Alibaba. It was established in 1999, and by 2013 was delivering 5 billion packages in China alone. It works with a network of logistics providers across the country to achieve this, all linked to sellers and buyers through Alibaba’s proprietary “Smart Logistics” platform. Its revenue increased by an incredible 61% last year — and it is now making acquisitions to expand into South East Asia, starting with India and Pakistan.
What’s the secret? Exploiting technological change; providing a platform rather than a product; leveraging existing customer bases to move into new fields.
