We often think about how to compete against competitors effectively. It’s our job. However, while a lot of great work has been done around anticipating competitors moves (or new market entrants) using various radar models, not a lot has been said about how companies effectively “create” their own competitors.
Dick Costolo, Founder of FeedBurner, wrote in his blog last March about how software startups effectively create their own competitors by doing three core things wrong or badly. One of these stuck out for me as being true for not only software, but the IT industry as a whole.
“Partnerships in non-strategic areas that place company X between us and our customer.”
For me, this is THE key area where competitors are created. Not the guys to think about today, but the ones that seemingly come out of nowhere to make a strong play for your customers. There are numerous examples, Google in search now making strong plays in the enterprise with their productivity solutions, Apple’s iPod as a sleeper cell in the music and possibly mobile applications business. The list goes on and on.
So the question is, how to best manage the process of keeping an eye on these non-strategic areas? I see three techniques to help weed out the noise from the truly important:
1. Know your customers.
2. Understand where your partner’s products and services fit in the overall value of your product.
3. Understand where your partner’s products and services fit in the overall value proposition of your competitors.
Knowing you customers:
This is pretty basic stuff, so not going to be earth shatteringly new to most of you. Knowing your customers, and what technologies their using is vital in assessing where competitive threats may lay. More importantly, is understanding where your customers “want” to be in the next 2-3 years. Are they looking to mobilize a workforce? Are they in an industry where heavy outsourcing will make your job selling to them more difficult. The list is pretty much endless here. At Microsoft we attempt to deal with this in a myriad of ways, from market research into install base (software and hardware) through to future buying propensity and talking to the Analyst community about what their customers are telling them. At the large enterprise level, it’s more about building relationships and dialogue between us and customers. Something that is fairly new from a culture perspective, but is definitely something we’re gearing up towards.
Understanding where your partner’s products and services fit in your value proposition:
So what makes your product or service valuable to your customers. Are you a small cog in a larger piece or do you provide the platform for others to build on? If your largest partner were to offer a similar product to you, who has the better relationship with the customer? All of these aspects of the market can be mapped and weighted based on what is most important to your company, but keep in mind that any analysis needs to be done with a non-biased mind-set. Are there specific customer groups that only buy your product because it is dragged along with your partners (Oracle Database behind SAP for instance – any database behind SAP in reality). SAP’s efforts to build more functionality into MaxDB are indications that they would like to try this, however, the maturity of the market and the number of players influences this strategy greatly. The fewer products and the more intrenched a partner/competitor is, the harder it is to get customers to switch.
Understanding where your partner’s products and services fit in your competitors value proposition:
Oracle’s acquisition strategy is often seen as a way of buying share, and it is. However, more than just buying competitors in certain product areas, all of the application acquisitions were partners for Oracle technology (database and middleware). In much the same way, BEA, while a competitor in Middleware, was a huge partner for Applications. Understanding the fit between partners and your competitors can allow you to measure any strong signals of the “what ifs” when they join forces, merge or are acquired. List out your 5 largest competitors and your 5 largest partners and see where the overlaps are.