Unseating an Entrenched Competitor: A Case Study

Kodak. If you’re in the ballpark of my age bracket, you know that Kodak owned the market for film and developing. They were the entrenched #1 player. They dominated the film market and had a pretty nice business selling cameras and even projectors.

Their PR was excellent, people thought highly of them, they could seemingly do no wrong.

Today, they’re a struggling giant on the verge of extinction.

What happened?

Digital happened. Who needs film when you’re taking digital pictures? When digital camera companies are innovating at the speed of light, with several major players coming out with digital cameras of all types, in stiff competition with each other, providing more and more features and improving the picture-taking quality, what chance does a company have with film technology?

In an ironic twist of fate, Kodak created the first digital cameras and sat on the technology because they didn’t want to usurp their revenue stream for film.

In hindsight not a smart idea. The secondary lesson is that if you’re the entrenched player in the marketplace, you can’t sit on your laurels because sooner or later someone else is going to come along with a quantum technological leap and render your product(s) obsolete. Especially in today’s world.

Which highlights the main point of this post: to unseat an entrenched competitor you need a quantum leap forward in technology.

The key to this isn’t coming out with the “next generation” evolution, which is a euphemistic way of saying the next gradient step of development, but a leap forward that wipes out the need for the previous product.

Wireless replacing landline telephones. Smartphones replacing BlackBerry. Uber replacing the taxi.

If some Really Smart Guys ever got together and figured out a common-sense high-speed rail transportation system, the airline industry will be in serious trouble.

Case in point: I go back and forth between suburban Detroit and suburban Chicago. If I drive, it’s 5-6 hours depending on traffic. If I fly, it’s forty minute drive to the airport plus the parking shuttle, an hour flight plus get to the airport 90 minutes before the flight to get through security in time, get off the plane, trek through the airport, get my rental car, drive to my destination. Travel time? 5-6 hours, unless the plane is late.

Amtrak is about four and a half to five hours, plus an hour drive on the Chicago side with a cab or Uber, plus my drive time to the train station and a few minutes wait. And no security!

If there was a high-speed rail between Chicago and Detroit, say with a stop in Battle Creek or thereabouts, two hours travel time, smooth, price comparable to the airlines without the headaches of TSA and so on, what a game-changer that would be.

That investment is astronomical, new track, new right-of-way, station modernization at each end, fast ingress and egress from the stations which probably means new stations. Which is why some Really Smart Guys are needed to figure out a better way to travel.

That is an example of a quantum leap forward that obsoletes existing technology.

We’ve heard of “out of the box thinking.” It’s defining what the problem is and a better way to solve it–or sidestep it altogether.

Going back to the Kodak example, what is the benefit of digital? The answer is, anyone can do it, it’s a one-time expense for the equipment (not counting batteries!) and you don’t have to pay an arm and a leg for ongoing pictures. Digital opens up picture taking to anyone and everyone. Plus the camera quality is so incredible that anybody who can point the camera in the right direction can take a decent picture.

Built-in market need: taking and sharing pictures is something everyone wanted to do. Film developing restricted that to those who were willing to pay for it. Digital opened up the taking and sharing of pictures to the previously untapped market of the entire civilized world.

Digital obsoleted film and the company that dominated the film market.

The moral of this story: Identify the market need, figure out a better way to solve the problem, market it well, solve all the innumerable little details, and you’re going viral.

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Dislodging Entrenched Competitors

In a number of case studies where companies that were THE dominating player in their market were effectively annihilated, it was due to a quantum leap forward in technology.

Ironically, several companies also had the opportunity to acquire or bring the quantum leap technology to market and declined, in effect having a hand in their own downfall. There’s another lesson to be learned here, which comes into play after going viral and I’ll cover that in future blogs. This post and related posts are designed to focus on going viral and what it takes to accomplish that.

There’s an old adage in real estate investing: Find out where people are going, get there ahead of them and wait for them.

The same principle applies when you’re developing a quantum leap forward in technology. What will people gravitate towards as a natural tendency or inclination?

For example, the train over the stagecoach. Cars over horses. Calculators over slide rules. People had a natural inclination to transition from one to the next. And what about something more current?

Tablets over laptops. Thin, lightweight laptops (the MacBook Air) over normal laptops. Smartphones over flip phones. In each case it’s a quantum leap forward.

Great innovation trumps entrenched competitors—when that innovation aligns with what people will gravitate towards.

Did you know that Western Union had the opportunity to buy the telephone? It’s true—in 1879 Western Union turned down the opportunity because they didn’t think it was financially viable. At the time, Western Union had the telegraph industry covered.

Instead, Bell Telephone grew and prospered into one of the world’s largest corporations (AT&T) and became not only the dominant player in the market, but a monopoly.

Interestingly enough, today the land-line telephone is going the way of Western Union as the smart phone and VoIP (Voice over IP—i.e. the internet) is resulting in fewer and fewer people owning a traditional telephone. Until the quantum leap forward in wireless technology came along, the only way this market dominator was displaced was by the US government in an antitrust suit.

A comparable example today is with Microsoft and the famous Windows operating system. Apple and Linux are the only other operating systems available for desktops, laptops and servers, they’re nowhere near displacing Microsoft and nobody else is even attempting to break that stranglehold.

If desktops and laptops go the way of the telegraph, then and only then will Microsoft’s dominance of the operating system market dissolve.

How do you displace an entrenched competitor like Microsoft? A quantum leap forward in technology. Something that obsoletes the need for servers and centrally-controlled desktop pcs and laptops in the business world. Home computers and laptops that don’t require the compatibility with the user’s work computer.

The mobile device market is a whole new kettle of fish, opened wide by the iPhone and iPad and copied by Android. Android and Apple have taken a huge chunk of the tablet OS market and dominate in smartphones as well. They’ve become the major dominant players in this market segment. Google knew they couldn’t take on Microsoft with a pc-based OS, so why try? Instead they went after the mobile device OS market.

That’s why Microsoft is working so hard on Windows 8 (and the soon to be released Windows 10), cloud computing and beyond, battling for smartphones and tablets. Who will own the future?

And who can break the hold any of those three companies have on the OS market for all types of devices?

Just like the telephone over the telegraph, the smartphone over the telephone, the smartphone over the Blackberry, it takes a quantum leap forward in technology to displace an entrenched competitor. While the examples given are with mega-corporations having a huge impact on a world-wide basis, the lessons apply to markets of all sizes.

Small markets with one or a few dominant players act just like the major markets.

The only way to go viral over entrenched competitors is to develop and bring to market a technology that is a quantum leap forward that obsoletes the existing offerings.

In effect, you’re creating (or recognizing and serving) a whole new market. It’s not for the faint of heart!

The Need for the Quantum Leap

There are a few business scenarios where one tries to go viral (and of course variations of these):

1. New product for a brand-new market, ala the iPod
2. Emerging market with several players vying for market share
3. Seasoned market with major players (ala the current car industry)
4. Seasoned market with one to three entrenched players who dominate the market

Each of the above requires a completely different Go To Market strategy to obtain dominance.

Geoffrey Moore’s two books, Crossing the Chasm and Inside the Tornado, do a great job of defining the approach to tackle 1 and 2 above.

Chasm

With mature markets that have not only long-since crossed the chasm, they’ve gone on to the Late Majority and Laggards stages, competitors are competing on price instead of outdistancing the competition with value and benefits. A great example of this is in the US auto industry. Major players are seeing market share nibbled away by Hyundai and Kia. These two companies are providing comparable features at a cheaper price and have carved out market share approaching 10% of the US market. Products in this category are a commodity and are part of the mainstay of everyday life or the normal world.

Cars are in this category, computers and laptops are in this category, food, clothing and household items are in this category.

While tackling this market segment can be accomplished using a sound strategy to build a company with solid, steady growth, it’s not a strategy to go viral. Unless you’re Walmart and you’re underpricing the competition significantly, or doing what Office Max and Office Depot did to office supplies a couple of decades ago. (This is a case where major advancements in organization and volume discounting drove costs down, in effect taking over a late majority market by price domination.)

Scenario #4 is even tougher. The dominators in the market are so entrenched that customers don’t even begin to consider alternatives, even at a cheaper price. The only thing available is fringe business, table scraps here and there.

Is it suicide to try to enter a market that is dominated by a couple of entrenched players? Normally, yes.

There is one strategy that can not only take on an entrenched player, but blow them right out of the water.

The strategy: a Quantum Leap forward in technology. This applies not only to software and computers, examples are prevalent throughout history.

In the early days of the automotive industry, Henry Ford dominated with the Model T—until Chevrolet came along with an inline six cylinder engine, which blew the doors off of anything Ford was making. A quantum leap forward in technology.

Henry’s response? The V8. No, he wasn’t the first to build a car with a V8. But he was the first to build a car with an economical V8 in mass quantities. The result? The V8 blew the doors off the Chevrolet and Ford re-established itself as the market leader. Incidentally, the hot rod craze was an indirect result.

In the computer world, the best example is BlackBerry. BlackBerry at its launch was a quantum leap forward, providing email service anywhere executives went, which then filtered down to pretty much everyone in the company with a need for remote communications.

BlackBerry became THE entrenched player in the market place. No one, even with comparable or even incrementally better technology, could touch them.

Then the smart phone came along, first with the iPhone and then Android. Business people began carrying two phones—their Blackberry and their personal phone because the smart phone could do it all—surf the web, email, text, maps, take and send pictures, videos and even video conferencing. And you didn’t need any fancy hardware to support it! The BlackBerry became the second device, and when corporate email could be directed to smartphones, there was no need to carry two devices.

BlackBerry has yet to recover.

It was a quantum leap forward in technology that displaced an entrenched competitor.

The moral of the story: Actually, there’s two.

One, if you’re really seeking viral growth, don’t take on entrenched competitors with a “Me Too” product.

Two, and the big one, If you’re going to take on an entrenched competitor, bring to market a quantum leap advancement in technology that results in customers flocking to your solution.

A quantum leap forward in technology in effect creates a whole new market where YOU are striving to become the entrenched competitor.

Enjoy the ride.