Inviting Competition

by Krishna on June 17, 2007

There was an interesting article in the news recently about Google taking legal action against Vista search. A few months ago, I predicted that Vista search may pose some problems for desktop search products, but I didn’t think it would come to this. There is more to the matter than just the search feature, because Google alleges that Google Desktop Search seems to slowdown on Vista.

That may very well be true. I have faced several problems with Google products on Windows Vista. Google Toolbar caused Internet Explorer to crash unexpectedly. Google Desktop was preventing Microsoft Outlook from opening and I had to uninstall it (thus preventing me from validating the slowdown problem). Google Gears was also creating issues – it caused the useful Google Reader shortcuts in IE to stop working.

All this is less likely to be a Microsoft conspiracy than inadequate experience or knowledge of getting applications working on Windows Vista. If you are working on applications that run fine on Windows XP, it will really serve you well to test them on Windows Vista – both 32-bit and 64-bit. I expect most software vendors to resolve Vista problems by the end of the year, but until then, there will be problems.

But back to Google’s suit. I am reminded about a well-known boxing joke. A boxer is bragging about what he is going to do to the reigning champion at their upcoming title fight, “I will land a straight right followed by a left hook.” And his friend asks him, “What do you think he is going to do all that time? Stand there silently?

Anytime you make an attack on the home territory of a competitor, you invite significant retaliation without being able to fight back on equal terms. Windows and Office are Microsoft’s crown jewels. To think that Microsoft would let their main revenue sources disappear without a major fight is nothing more than a pipe dream. It is more likely that they would use every weapon in their arsenal and maybe some more.

This is the same kind of mistake that Netscape made long ago. Netscape was really nothing more than an Internet utility suite – a browser, an email client and so on. At that point, even hardware and networks were not capable enough to support the kind of rash statements about the destruction of Microsoft. The only thing it did was provoke and scare Microsoft enough so that Microsoft could target its entire resources at “fixing” the problem.

Google is doing something similar. It could easily co-exist with Microsoft, because each has different strengths. Unfortunately, too many technology experts are so anti-Microsoft that they can only see Microsoft competitors everywhere they look. Google seems to believe the rhetoric which keeps getting wilder with products like Google Docs & Spreadsheets. Microsoft seems to be doing the same through the Live initiative – the only product that I found even remotely useful was the desktop product, Windows Live Writer.

If you look at this closely, you will understand why I say that Microsoft and Google can easily co-exist. Google focusing only on search does not affect any purchases of Windows, Office or Visual Studio products. People using Windows or Office do not stop using Google services. Google is a greater threat to other online companies because it can leverage its valuable brand name to gain a large number of users for every web service it launches. Take a look at this page and you can probably name dozens of companies affected by each product.

The problems when you go into direct competition with an existing market leader are

  • They can re-align themselves to match you for every move you make. Any new feature you release becomes another on their list.
  • They have a greater market share and revenue and can easily outspend you.
  • They have years of experience in the domain and technology and can easily release new features.

Now, you may think that there are many instances of market leaders being overthrown by smaller foes. For example, Yahoo! was overthrown by Google in the search space. Google Reader overthrew Bloglines. So, if it is possible, why not? Well, it depends on a few factors:

  1. What is the switching cost? If I want to use Google instead of Yahoo!, I just have to type a different URL. Easy! If I want to cancel my Yahoo! Mail account, I have to transfer all my emails over several years and that is a difficult thing to do. There is also a mental switching cost. Many people are so used to Windows applications that they find it difficult to switch over to Macs.
  2. What features are important to me? While Google Docs is reasonably competent (and Zoho Writer, even more so), they just don’t match the power of Microsoft Office. Frankly, I just cannot imagine any web product within the next few years matching the complex editing capabilities of Word or Excel. In the case of Google Search, the only feature important to me is how relevant the search is. All other concerns are secondary.
  3. How revolutionary is the product? Google Maps and Google Reader (2nd release) were fundamentally different, resulting in several magnitudes of improvement in productivity. Innovations in technology or user interfaces can drive this. The timing of such innovations can be tricky – sometimes other technologies (like hardware capability) must fall into place before the product appeals to a wide audience.

If you can beat a market leader in these areas, then you have a good shot at dislodging them from their current position. Otherwise, it may be tough. But there is also a related question: Should someone just stop trying to compete with market leaders? It depends.

If the new product has something unique (not necessarily revolutionary, but different), it can bring innovation to the market. For example, both Firefox and Opera have brought many new ideas to the browser, some of which have been co-opted by Internet Explorer. Some of the innovations may also be difficult for the market leader to copy, and in time, may turn out to be very important to users. For example, since Google Docs is very lightweight, it allows for easy web collaboration.

The new product can increase the capability of the company in the domain for future strategies and products that have a higher chance of succeeding. If the company has sufficient capital, there is no harm in burning some in a tough fight against a market leader in the effort to gain valuable technical capabilities. There is also the prospect of becoming No. 2 in the market which has the potential of yielding valuable revenues.

In summation, direct competition is a very expensive prospect for any company. It is much easier to carve out a niche and corner a piece of the market. However, if your product is sufficiently capable, revolutionary and has low switching costs, it can give the market leader a run for their money. Whatever the end result, the market will have seen greater innovation and you would have gained new technical capabilities and possibly greater market share.

{ 2 comments }

Beyond WWW June 18, 2007 at 12:13 am

“Thanks for uploading this, it gave me something to read on my lunch break.”
“Interesting, this is cool, nearly made my day. :)”

Dekoh

Krishna June 18, 2007 at 4:04 am

Thanks for your comments, beyond www

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