When Google bought YouTube, they could compete against the cable industry. When Amazon bought Whole Foods, they could compete against Kroger’s and Walmart. When Facebook bought WhatsApp, we could compete against telcos…but not anymore. Now people can watch video, get groceries delivered and send private messages for free, that’s competition! New companies are created all the time, all over the world and history shows that if we don’t keep innovating, someone will replace every company here today.
Excerpts from Mark Zuckerberg, Facebook CEO at a recent congress hearing which in many ways epitomizes the new dynamics of competition in the digital age.
The zero benefits of the zero-sum game
Over the last decade, we have observed the boundaries between industries become blurry and the distinction between competitors and collaborators become fluid. As the dynamics of competition in the digital age evolves, there has been a shift in traditional competitive strategy thinking for enterprises; specifically, around who and what their threats are.
Previously, in industries such as the hotel industry, Marriott would compete with the likes of Hilton. In the automotive industry, Toyota would compete with the likes of Ford (and now with Tesla). Today, the competitive landscape is no longer bound by this dynamic. You’ll find that Netflix and even Amazon are also competitors of Marriott and Toyota.
Your symmetric competitors may be aligned by similar business models; however they constitute just part of your competitive landscape. Competition has extended far beyond competing on the same value propositions in symmetrical fashion to include less obvious value propositions and asymmetric competitors.
The zero-sum game of traditional competition could start to yield zero winners.
The rise (and rise) of asymmetric competitors
Asymmetric competitors often look nothing like your symmetric competitors. Built on an asymmetric business model dynamic, they have a completely different structure, business model and source(s) of value – yet they are solving the same problem for your customer.
If we go back to the hotel industry example and take Hilton Hotels, their symmetric competition would be the likes of Sheraton, Intercontinental Hotel Group, Marriott, Accor, etc. These are other hotel chains that have very similar business models. They own similar properties, they operate similar tiers of brands, pricing, operations, human resource management. In addition to these competitors, Hilton (and the others) have been battling against a different type of competitor, an asymmetric competitor, in Airbnb.
Looking nothing like them, Airbnb has a completely different business model. It’s not in the business of building hotels and hiring staff. Instead, it’s a digital platform-mediated business that brings distinct users together; people who need a place to stay and other people who have a place where someone could stay (with a view to monetize or generate some income from that property).
Many industries now have this asymmetric competition at play; usually digital natives who leverage disruptive innovation to compete and blindside incumbents. Enterprises need to live outside the box when it comes to thinking about their competitive threats as they compete with more businesses that do not operate or look like them.
Your competition is evolving, so should your competitive strategy.
The economics of complements
Asymmetric business models are commonly built on the economics of complements. This is where an enterprise identifies and collaborates with a complementor to commoditize and bundle their products creating a stronger value proposition. The economics of complements says that when you reduce the value of the complement, demand for the product increases.
Leveraging economic complements to create value can create an unfair advantage as it often transfers profits and customers across industries. They can also be quite tricky to replicate, defending value in the process and creating a considerable barrier to entry.
Zenefits, (a SaaS cloud-based HR platform offering for employee onboarding) bundles the use of its software with an employee benefits plan, a plan which is mandatory for employees of US enterprises. Zenefits then commoditizes its HR software, which in turn drives demand for its insurance broker business.
Enterprises can shift their thinking away from direct competition with rival products in zero-sum fashion to exploring opportunities to become digital complementors. Not limited to external rivals, it can also apply to internal products.
Amazon creates value by making Kindle Fire tablets and Echo devices available at cost and bundling them to Amazon’s e-commerce services. Effectively, by commoditizing Kindle Fire and Echo, Amazon drives demand for its core e-commerce business.
Recently, Microsoft bundled MS Teams with its existing Office 365 userbase to extend value, thus, growing its user base from 44 million to 75 million as of April 2020. It has created such an unfair advantage that Slack has filed a competition compliant against Microsoft in the EU.
Enterprises can go from zero-sum to plus-sum to win-win.
The love-hate dynamics of co-opetition (or frenemies)
This dynamic epitomizes the new thinking around competition in the digital era, both are premised on the fact that you can both compete and cooperate; you can be both friends and enemies.
Barry Nalebuff and Adam M. Brandenburger (in their book Co-opetition) surmised that rival enterprises must cooperate to grow the pie while they compete to divide the pie. Michael Porter (needs no introduction) also took a dim view on the traditional view of competition stating that competition to be the best is often a path to mediocre performance and that the simplistic notion of just striving for market share often leads to price wars and low profitability. Just aiming to be the best limits enterprises from uncovering unique ways of creating value for customers as this presumes there is only one way.
Enterprises don’t exist in a vacuum, especially the big tech players. It is common knowledge Google supported Mozilla to build the Firefox web-browser, a rival to their Chrome browser to compete against Microsoft’s Internet Explorer and Apple’s Safari.
These enterprise frenemies sought to take advantage of the existing source of value (i.e. infrastructure) to create additional value and enhance the value proposition. In today’s digital age, the right competitive strategy for enterprises is often a mix of competition and cooperation, a hybrid dynamic of friendship and enmity.
Keep your friends close, keep your enemies closer!
The invisible threat of big tech (and other digital natives)
So, we know the competitive landscape in the digital era has evolved, we know competition is not as direct and symmetric as before and yes, we know enterprises are adapting to this new basis for competition. While enterprises acknowledge the asymmetrical strengths of digital natives such as the big-tech (FAAAN – Facebook, Amazon, Alphabet, Apple & Netflix), they often fail to appreciate the fast-growing and ubiquitous nature of the threat they pose.
I mentioned Netflix (a big tech and digital native) earlier as a competitor of Marriott and Toyota. Netflix doesn’t just compete with them in the hotel industry, they compete with every industry – finance, sports, consumer goods, tourism etc. They compete with you.
Netflix, like most leading digital natives, poses a competitive threat to you because you share customers. This means that these digital natives deliver customer experiences that are absorbed by your shared customers. This undoubtedly creates an impression of what the digital customer experience should look like and what digital customers should expect from enterprises, like yours. Effectively, your customers are constantly (and subconsciously) comparing their Netflix digital experience to yours. How do you stack up?
Customer experiences impact value and so if the experiences you provide don’t measure up (against digital natives) it might impact perception of your value. These experiences are also not limited to your customers or clients; your employees are also consumers of these experiences. Your employees use Netflix as well, which means they also compare experiences.
It’s often said that the road to failed customer-experience programs is paved with good intentions. However, failure to recognize this threat and adapt can decelerate customer experience innovation and reduce value, good intention or not.
In boxing, it’s the punch you don’t see coming that knocks you out.
The (dis)intermediation of your value ch…train.
Enterprises often focus inward on their value chain and ignore the external value train (unlike Porter’s value chain, which analyzes how different entities add value within an enterprise, value trains look beyond the enterprise, analyzing multiple enterprises partnering to create, produce, and distribute value to the ultimate customer) and the hidden threats there. It’s crucial enterprises constantly assess their value train and the threats their partners pose.
We are seeing a shift from competing symmetrically with competitors that have the same role (business model and value proposition) in a similar value train to competing for leverage with partners and collaborators in your own value train. This competition for leverage can often lead to disintermediation or intermediation.
Disintermediation reconfigures business relationships by reducing the impact or displacing the intermediaries from a series of business transactions. With the rise (and rise) of platform business models, we have seen digital platforms mediate new relationships at the expense of traditional gatekeepers. This, in most cases, reduces the value and leverage of these mediators. In some cases, eliminates them entirely.
- In the food industry, Hello Fresh and Freshly reduced the value of grocery and restaurant trips (especially in today’s climate), disintermediating the big grocery chains and the local grocer.
- In the transport industry, Uber disintermediated taxi companies.
- In the entertainment industry, Netflix (and similar) disintermediated premium television enterprises.
- In the same industry, those traditional incumbents in premium television such as ITV, HBO, Cartoon Network etc. disintermediated cable enterprises through a direct to consumer digital subscription model.
- In the finance industry, particularly, payments and transactions, cryptocurrency and blockchain is disintermediating traditional payment and transfer services.
The competition for leverage tilts in their favor as they gain greater control of the customer relationship, gather customer insights, leverage data and operational efficiency to extract more value from the value train.
We are also seeing the opposite happen, although it can still be at the expense of incumbent enterprises. With intermediation, these business relationships are reconfigured to have new gatekeepers inserted. Platforms and business can insert themselves as the intermediary between you and the ultimate customer.
- Still in payments and transaction industry, Samsung Pay and Apple Pay inserted themselves (as credit card enterprises did in the past) between the financial institutions and the ultimate customer. Peer-peer lending platforms are doing similar.
- Facebook, using its social (distribution) network intermediated itself between individual creators, the traditional content producers, distributors (newspapers, publishers, etc.) and the ultimate customer.
- In the food industry, Deliveroo and Uber Eats inserted themselves and intermediated between restaurants and the ultimate customer.
The competition for leverage tilts in their favor because they can scale their service offering and turn data insights into a strategic asset.
Enterprises really need to challenge their strategic assumptions of competition; move from zero-sum to win-win, understand what is being competed for and be thoroughly prepared for blindsides.
Chuks Anochie helps enterprises achieve business agility and stay competitive in the digital age. He has spent over a decade advising and supporting companies on the best strategies for digital transformation and guiding them through implementation.
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