This post is an extract of my forthcoming book on business model innovation. The innovation book looks at why business model innovation is needed and how it works. You can read more about it here. These posts are early drafts of planned content and I’m putting them out to get feedback. Please do comment below, or subscribe to these pages to get each new section as it is published. In today’s post, we will be looking at finding opportunities in this new world.
One of the characteristics of high-performing business models is how they tend to make the space around them desolate. In many ways, a great business model is like an oak tree.
Oak trees have two mechanisms that keep the area around them clear of other plants that may be competitors. First, they have an early fall of leaves in the spring. Many of these leaves land on other seedlings blocking the light that they need to grow. The more important mechanism is that Oak trees have lots of tannin in the leaves and acorns. Tannin is highly acidic, and so the falling leaves and acorns slowly turn the growing around an oak acidic, too acidic for most other plants.
Under most oak trees, you find a clear area to sit or picnic and admire the thick bole and beautiful green leaves. Not just for our benefit though!
How Email Websites Attract Their Users?
Yesterday I was looking at the SuperHuman website. It is a way of super powering your emails to make you more efficient. I haven’t used it yet, but as I went through the list of things it does, I thought, “Gmail does all that”. Currently, I use Spark. Before that, I used something from Dropbox. For the amount of time that we spend on emails, there are very few options that have got any real traction. More than 100 million users? Gmail, Outlook, and perhaps Thunderbird.
Google and Microsoft both use their email offerings to acidify the area around their core products – Microsoft so that people integrate into its suite of cloud offerings. Google so that Gmail provides a data source for their core business of understanding your behaviour so that they can target you with better ads.
There are, of course, network effects in the mix as well. As we discussed before, the logic of network effects tends towards a few small players in an industry. It seems to rarely be a winner takes all outcome.
The success accruing to the network leader often means that there is far less of an audience for second and third players, and without a niche strategy, they are forced to accept lower quality (or perceived lower quality) users that aren’t attracted to the big players for whatever reason.
What are the Biggest Players in the Industry Doing?
As the biggest players suck in users, the ground around them starts to look far less fertile. If it is a billion-dollar market, but company x already has $700 million of it, I have to accept that either a) I’m not going to grow very big, b)I have to find a way to take down this behemoth. As a strategic choice, that scares off a lot of players and they head to easier, more fruitful markets.
The new player in the market also has to think about how the incumbent can respond. For many players dropping a billion dollars to protect an important market isn’t a hard decision – look at Facebook’s purchase of Whatsapp and Instagram to protect its core business or the amount of money that it has spent to stymie Snapchat and TikTok.
Why is Monopoly Bad?
There is a moral challenge here. We don’t want the competition. If we don’t have it, businesses tend to become autocratic and dictatorial. Think about how nationalised companies in the telecoms and utility sectors abused their customers for years. If we do have it, then a huge amount of revenue and profits are sunk into pointless price wars, that can only marginally improve the value provided to consumers. For example, the impossible to compare packages offered by many mobile network operators in the 4G era.
Microsoft sought to make competition with its Internet Explorer impossible during the browser wars by bundling IE with Windows. Rockefeller, at Standard Oil, made it incredibly difficult for you to get oil at almost any price if you didn’t buy it from him or one of his associates.
As you can see, the possibilities here rapidly head into the unsavoury and illegal. Many of the big technology companies spend regularly on small startups. The VCs and the startups like the exits. They’ve made money and burnished their reputation. Really what is happening in the Oaktree is reaching down with one of its branches and gently plucking saplings out of the ground. In many cases, it has no interest in the technology, but one less potential competitor is always a good thing. Except for the sapling drying and dying on the ground.
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