Barriers to Market Entry

by Krishna on August 11, 2008

The big news a couple of weeks ago was the launch of the Cuil search engine. After receiving its 15 minutes of fame, it seems to have been forgotten by everyone. Every once in a while, a new search engine pops up, threatens to oust Google from its throne, and then fades into obscurity.

The mistake made by these companies is that they think they can do to Google what Google did to AltaVista and the other search engines, namely, by creating a better search engine with more relevant results. The problem is that nobody today is unhappy with their search results, and so these startups are trying to fulfil a need which no one has. In addition to that, Google has also created a ton of services around their search tool that the upcoming competitor has to displace.

Google was able to topple its market leader because the existing products in the search engine space did not posses enough quality for end users. By bringing out a better product, they were able to grab those users. But once an adequate quality was reached, Google was able to erect other barriers to market entry through AdWords, AdSense, API’s, Integrated search and so on. Not only does a new company have to provide better or equal search results, it also has to replicate Google’s services to advertisers, programmers, webmasters, content creators and so on.

Many competitors focus only on the products of the market leader and ignore its ecosystem and infrastructure. For example, let’s say, you create a better desktop office product than Microsoft Office. That is not enough. You would need to break the established years-long relationships between Microsoft and its sales partners, or between Microsoft and its corporate customers. You would have to find a way to retrain the thousands of software developers and consultants who make a living off Microsoft Office.

Low barriers to market entry are one reason why the first vendor in a market does not always become the market leader. In a new market, the differences between products are very low. It is easy to develop a competing product. So, the winner is one who can bring in the most partners and users and build relationships that are difficult to break. Everything (pricing, publicity, placement, etc.) should work towards that.

This is fundamentally opposed to build a niche product. Niche market sectors operate at the fringes of the primary influence of the market leader, which does not or cannot address the needs of those customers. By definition, the strengths of the market leader have little appeal in a niche sector. This offers an opening to create a product that has a different strength than the leading product (example: Google Docs vs. Microsoft Office). Such a product can thrive and even grow if the market sector expands for some reason, say changing social, economic or technological environment.

But competing head-on-head with a market leader on its primary strength in an established, matured market is simply foolish. And Cuil is another company on that suicide mission.

{ 5 comments }

Kalpesh August 12, 2008 at 10:46 pm

I do not completely agree.

There are leaders in some segment & no company can challenge the leader in all the aspects at the same time. It is not wise to do that.

So, CUIL cannot compete with google in search, email, social networking, video sharing all at once.

All companies (including google) try to bridge the gap left open by a previous candidate.

Desktop apps are a completely different story.
Also, the idea of some company coming up with office suite need not compete with MS. There are lots of companies/small businesses/under developed countries where buying ms-office will be too much of an investment. Openoffice can do better there. That is the reason, you & I use some of the opensource desktop apps as long as it provides bare minimum things.

Creator of Openoffice wouldn't think of stealing MS Office sales & partners. Atleast, it shouldn't start with that idea.

Much of the web talks directly to user (no sales channel as such). Windows has larger mkt share, Apple has its own audience & *Nix has its own fan following.

Myspace/Facebook is another example where Orkut is existing. So, with a modest understanding of what CUIL wants to serve, it is not a suicide mission.

Powerset (another search engine) which came into limelight & was taken over by microsoft.
So, if CUIL fills some gap which google has it open – either of MS/Yahoo/Google will jump to buy it.

Not trying will be a suicide mission, IMO.

Krish August 13, 2008 at 1:05 pm

Kalpesh, I suppose Cuil, like Powerset, will get bought out by some company. My point is that it is competing head-on with Google on Google’s primary product, which is search.

Cuil has not differentiated itself except for a different (but not outstanding) search results interface. I suppose one of their claims was that their search technology was more efficient than Google’s, but the big story was that they often fetched the wrong results, usually in a very embarrassing way.

Bridging the gap is a good goal and that is where niche companies come into play. Cuil was not trying to do that. It was making a play for the big prize.

Kalpesh August 13, 2008 at 9:25 pm

Thanks Krish for your reply.

In today's world, we (especially guys in IT) have a tendency to evaluate things fast.

I remember someone posted a new search engine for .net developers (not talking about searchdotnet.com – which is a good one by Dan Appleman)

Try csharpsearch.com and search for IList<T>.

It fails with asp.net warning. And, I immediately rejected it. We are no different in that sense 🙂

I did write to the creator informing about a problem. This was the only thing I could do.

You are right that CUIL would have had bad results but it is a baby. Too early to reject.

The online audience will decide over the time whether CUIL leaves, dies or gets adopted 🙂

Kalpesh August 13, 2008 at 9:27 pm

Sorry about the typo
Leaves = lives

Laughing on my non synchronization of typing & brain

Krish August 14, 2008 at 1:17 pm

Kalpesh, I think Cuil made some bad moves initially because of its positioning and public relations strategy. When they rolled out the first day, they positioned themselves as a competitor to Google, boasting that they had a huge index (comparable to Google) and they used less hardware and better results. They were definitely going for the big prize. And there was a lot of hype.

It turned out that they were unable to support the initial traffic and after they came back on, even basic results were off. The most embarrassing part were the unrelated images that were attached to the search results, a problem that I see even now.

What could they have done differently? They could have launched in beta mode and had better testing. They could have avoided the hype until they had better testing results. So they did this to themselves.

My bigger point is even if they had not made those fatal errors and their search engine was in fact better, it would still be not an efficient way of competing. Google is not about Google search anymore, but there is an entire set of services, partners and customers around it.

So to topple Google, Cuil would have to build that ecosystem, but without the ecosystem, they don’t have any revenues to build that upon. So there is a huge chicken-and-egg problem.

On the other hand, if their product is competing on a different dimension, like a specific type of search (say books or hotels or programming), they have the chance to succeed, earn revenue and continue building.

Comments on this entry are closed.

{ 2 trackbacks }

Previous post:

Next post: