When Competition Actually Helps

Opera CEO Jon Stephenson von Tetzchner was recently asked about competition from Google Chrome and how that effected his company's browser. See NPR aricle. Surprising, he stated that Chrome's entrance into the marketplace actually helped Opera. "The net effect of Google Chrome has been 20 percent more downloads of Opera every day since [the Google browser's release]." How can that be so? Greater competition lead to more sales for one of the competitors.

In the case of the Opera browser, I believe the answer lies in the shared mega enemy known as Microsoft. Anything that prompts longtime Microsoft Internet Explorer users to try another browser helps to break the monopoly and encourage users to experiment with other browsers. The theory goes, after having tried Chrome, the same user is more likely to try yet another established brower in the marketplace. Another way to state the effect would be that two smaller competitors are both delivering the same message to the public that strengthens and reinforces the communication--i.e., MS Internet Explorer is not longer a cutting edge browser, better free software is out there so go try it.

One my stock business models relating to this dynamic is phenomenon of restaurants huddled together in a neighborhood. Two neighborhoods in my hometown of St. Louis exemplify this: the Italian quarter known as The Hill and the cluster of ethnic restaurants located on South Grand. There must be 20 Italian restaurants located on The Hill, a relatively small, working class neighborhood. How do they all survive? Would it make more sense for the restauranteurs to spread out? The cluster of Italian restaurants on The Hill draws patrons from all over the city (including tourists). The cluster of restaurants creates a critical mass focusing on a narrow market segment. The Hill dominates this small segment of the restaurant market and, thus, the competitors help each other. However, this only goes so far. At some point, the market will not bear additional restaurants (however, this weeds out the worst of the bunch making the survivors better).

A five block stretch of South Grand Boulevard near Tower Grove Park is packed with ethnic restaurants: Vietnamese (3), Chinese (2), Thai (2), Sushi (2), Persian (1), Afghani (1), Ethiopian (1), Italian (1) plus three coffee / sandwich shops and an American style dinner. This clustering of affordably priced ethnic restaurants upon one small stretch of road brings in customers from all over the metro area. But too much of a good thing can turn into a bad thing. With the recent economic downturn, two Vietnamese restaurants closed. One was the highest priced Vietnamese restaurant in the neighborhood and, consequently, the weakest competitor.

To sum up, the grouping of small competitors into the same space can, under certain circumstances, actually be mutually beneficial to those in the group; however, this strategy has its limits.

Twitter Bomb, How It Works

I've seen a few blog posts on the new phenonomon of twitter bombing (here and here). We're all familiar with the google bomb. The twitter bomb, given that twitter is now something of limited universe search engine, apparently is an adaptation of this older tactic. I don't claim to be an expert at this so feel free to jump in and correct anything you read here in the comments section.

Here it is in a nutshell. This is where you search twitter posts, aka "tweets". If I flood twitter from multiple user accounts with the same tweet, such as "Harvard sucks", anyone searching twitter for the words "Harvard" or "sucks" is likely to come across my message. I could further attach a link to my message, such as "Harvard sucks http://www.joe.com". This might get additional traffic to joe.com. It's a form of online guerrilla marketing. The problem with this is that other tweets are continually pouring into the twittersphere and those containing the words Harvard and sucks will degrade my results. The new tweets from outside sources (lacking my link) will push mine out of the search results. It's like trying to swim upstream against a swift current. You can only pull it off for a short burst, if that.

Here is the twist making the tactic more powerful. What if I and my confederates in the twitter bomb use the the one word preceded by a hash mark--"#sucks"? We are presumably the only people out there with tweets using "#sucks" so we own that result but nobody is searching that term. How does this help us? The answer: Trending Topics. Within each twitter user's home page is a section on the right tool bar by this name (see graphic). See the terms with the hash mark in front? Those are twitter bombs. The people behind those bombs have flooded enough tweets using their term into twitter to cause it to show up on the "Trending Topics" section published on every twitter user's home page. If a curious user clicks on the link, they see the full message that can include the link you are promoting.

Someone marketing the candy Skittles recently did a twitter bomb to help with a free promotion for a laptop giveaway. The whole point of the google bomb was to get readers to this product promotion page. I have no idea whether this is a legit promotion or a scam but, hopefully, you get the point.

Open Letter to Twitter

Talk about taking a niche startup (micro blogging) and blowing up into an industry phenomenon, one can't help but tip the cap at the founders' vision for Twitter. The beauty of their plan was not just the concept of micro blogging but, also, early adoption of cel phone tweets and rich availability of APIs enabling others to spread twitter content around the web. Twitter is now a communications appliance.

But every entrepreneur must tweak his tweets. The plan must evolve based upon changing market conditions and better understanding of user desires. The following is a humble suggestion that I believe is shared by many in the twittersphere. The first commandment of Twitter is "Thou shalt not tweet more than 140 characters". Awesome, should have been on the stone tablets God handed down to Moses. Just maybe the Twitter Gods should chisel an addendum to the first commandment: "Thou shalt not tweet more than 140 characters exclusive of URLs. Here is the problem, let's say I want to tweet about yesterday's Twitter story in BusinessWeek. Here is the URL: http://www.businessweek.com/magazine/content/09_64/s0904046702617.htm?chan=rss_topEmailedStories_ssi_5. For those counting, that's 102 characters leaving me 38 for the content of my tweet. Quite constraining but at least I get six or seven words. What about URLs that are themselves more than 140? There is no way to tweet about that web page unless the creator possessed the divine wisdom with which to append TwitThis code to the page. One of the magic features of the TwitThis code is that no matter how long a URL may be, it condenses it down to 26 character if necessary to get under the 140 limit: i.e., when posting a tweet via a TwitThis link, the user always has 114 characters to work with.

Why isn't this convention followed in all twitter posts? Why does URL length so hamstring the tweet author? I can think of no good reason other than the Twitter Gods are busy (perhaps 'chatting' with Google). Suggestion 1: automatically crunk every URL inputted in a tweet down to 26 characters leaving the user at least 114 characters (as is already done with the TwitThis code). Suggestion 2: create a separate text input field below the input box that the the Tweet goes in to be used solely for URL linking. The tweet content goes in the text box and any URL the tweet refers to goes in a text box immediately below. The users gets 140 characters in the tweet box but any URL inputted in the field immediately below would not count against the limit. The tweet input format under option 2 would be akin to reddit. Suggestion 1 is the easiest to implement although from my personal perspective I like #2 better. But either solves the problem.

Signed @jjray


Update: In the comments here and at reddit, some posters attacked me for not mentioning the tinyurl option. I responded that it was stupid for a service as ubiquitous as twitter to require its users to navigate to another website for something so basic as compacting a URL's length. I argued that twitter should itself compact URLs for its users to help them better fit messages into the 140 character limit. Several tests confirm that twitter now compacts URLs under certain circumstances but not as well as tinyurl. It's a half measure.
5-7-09.

Your Competitive Advantage

The most fundamental element of any business plan is to first identify the competitive advantage of your business versus current and expected future competition. Some argue that a business plan starts with defining the "market need" that your business shall be fulfilling. I disagree except in the case of the truly new product or service (and very little offered for sale by the hand of man is truly new). A business can prosper merely by providing a better and/or cheaper service or product to the target market than the existing competition. Was there a need in the market for a new competitor? Not really. But every market rewards those competitors who deliver functional equivalents that are better or cheaper. Even in the case of the truly new product, the question of competitive advantage must be answered. For example, the originator of the automatic car wash in the 1950s still had to plan against the existing business model, i.e., the hand car wash. What was the competitive advantage of the automatic car wash over the hand wash? Faster and cheaper!

The crux of whether a business succeeds or fails boils down to one fundamental question: why will the target customer choose our product or service over the competition? If your business plan does not answer this question in convincing fashion, all the fancy charts and graphs with sales projections are meaningless. The marketing plan, likewise, becomes meaningless because it is fatally impossible to market a product or service that has no competitive edge motivating the customer to purchase.

I further submit that all competitive advantage strategies fall into two categories: better or cheaper. Cheaper is fairly straight forward on its face; however, it does come with other shades than the Walmart variety (best price period). For instance, one view of the cost of owning a luxury auto may include the resale value and maintenance costs over time. The upfront cost of a domestic luxury auto may be substantially lower; however, a foreign competitor may persuasively demonstrate that the overall three year cost of owning it's brand is lower when also considering resale price and maintenance. Another variation on the price strategy is to compare a combined price and quality metric of your product with the competition. For instance, in the internet service provider wars of phone companies with DSL versus cable companies offering faster cable internet, the phone companies typically offer the lowest high speed internet price. The cable companies counter by advertising a modestly more expensive service but with much better performance speeds. For customers downloading videos and music, speed is prized but the price point must stay within a narrow range above the DSL rate to successfully compete in the market. One quibble on the above point is the case of the old axiom about retail marketing--location, location, location. One never wins arguing against old sayings.

Quality constitutes a broad battle front in any market. Rarely are there performance metrics to directly compare. Many avenues exist for a competitor to approach in the establishing that his product / service is better than the competition. Examples: speed of delivery, warranty, durability, easy of maintenance, ease of integration with customer's business, history of reliability, and degree of product (service) customization to the consumer's needs. But, again, it all boils down to my product is better than yours.

Before embarking on writing your business plan, spend ample time articulating in convincing fashion the competitive advantage of your business.

P.S. My wife works in the fashion industry for which all the rules in this article about price and quality go out the window. In the fashion world, your product automatically becomes "better" when celebrities wear it and outdated when celebrities stop wearing your stuff. I have no idea how the fashion industry works and, therefore, consign it to its own business universe that I refuse to comment upon.

Business Method Patents?

Does your business plan rely on a business method patent? In simple layman's terms, a business method patent is one for a process of doing business as opposed to the more standard mechanical process. A prime example us Priceline's patent for an online reverse auction of services. See article. In case you have not heard, the Court of Appeals for the Federal Circuit just cast a shadow over all business method patents. See In re Bilski. Opinions range on the effect of Bilski from a minor opinion which places some needed limits on business method patents to a definitive invalidation of all business method patents. Blog post on legal debate. From the prospect of the entrepreneur, it almost doesn't matter which group of patent lawyers is correct in interpreting Bilski. It will be fought out in the court for years to come and anyone's guess what existing business method patents shall be invalidated or if the USPTO will issue any new BMPs. Investors shy away from uncertainty. Lack of capital kills early stage ventures.

The gravest business planning mistake I made in life was founding a company whose success hinged heavily on a business method patent application. The patent process itself sucks resources and attention from the business venture. I am not advocating wholesale abandonment of filing for business method patents. The point is that the thrust of the business plan has to be your competitive advantage in the market place, not a magic bullet from the USPTO. In my opinion, the patent process is a crap shoot. Be prepared to succeed in the marketplace or don't enter the field of battle.