How do you look at competitors?

During the dot-com boom days, I had a memorable and wonderful experience of working at SmartMoney.com, a joint-venture between Dow Jones and Hearst Corporation. SmartMoney started out as personal finance printed magazine that Hearst Magazines published. SmartMoney.com was a collaboration between two publishing firms that tried to do more with data. For example, the software that SmartMoney.com developed offered novel data visualization. It started out only with stock market data visualization and later expanded into other types of data visualization including the historical archives of the Smithsonian Museum. 

There was keen competition during this time due to high stock market volatility and every time Motley Fool, CBS MarketWatch, or Yahoo! Finance published something that SmartMoney.com's online publishing didn't, there was a tizzy that went on in the office as to why we didn't get there earlier. At that time, I was in my second job out of college and learned of the interest from management in beating the competitor. 

As things unfurled over time, SmartMoney.com started to license its content and data visualization tools to other financial services firms and even to competitors such as Yahoo! Finance. MarketWatch was later purchased by Dow Jones and SmartMoney.com's content added to MarketWatch. In other words, competitors became collaborators, not always from acquisition but sometimes from partnerships.

What I learned in other industries I've since worked at is that in the long-run, competitors often end up being collaborators. But in the early days, there is a lot of wasted resources trying to out-do each other. Now that I'm more seasoned and hopefully wiser, my thoughts are that if that is the long-term outcome any way, why distract ourselves and waste resources by trying to out-do our competitors? 

In many ways, I feel like competition is not always a bad thing. In every industry I've worked in, I've never seen a situation where there is only one customer type; there is always some kind of customer segmentation that needs to be done to better address customer needs. This can come in the form of how a product is packaged and presented for each customer segment's use case, pricing, or other feature sets. Some competitors focus on one segment and do those really well, while other competitors focus on other elements and solve those problems really well for those types of customers. These are truly all good things for the different customers and their differing needs.

When firms later try to expand their offerings to do all things for all customer segments, it appears to be a good growth strategy, until their product is bloated and unable to actually serve the customer really well in any one of these segments. In the long run, firms often then start to divest to focus on their core competencies to become leaner and a better solution provider to their core customer segments. The pendulum swings back. 

I have noticed across industries that companies often replace software every 8 to 10 years or with new management that have a different philosophy. Most firms start out with a hodge-podge of products for 8 to 10 years, then decide that it's a lot to manage, then they switch to a provider that "does it all". They live with that for 8 to 10 years, then switch back to various products that are "best in class" because the single provider promised a vision that never truly delivers well. Yes, all company departments can use the same software, but no department is truly happy with the solution they have. After some years, the internal revolt happens, and every department is back to choosing the software that helps them do their job best.

In today's software world, there is more of a trend towards collaboration. Microsoft started out investing in OpenAI and now also offers other Large Language Models (LLMs) such as Anthropic Claude in their offering mix through partnerships. I believe that always understanding the customer's varied needs is typically the winning strategy. 

In the age-old example of the cola wars, in the end, Coca-Cola and Pepsi still exist today and there is even room for Soda Stream and other cola brands such as RC Cola and Sam's Choice. The reason is ultimately that of customer segmentation. Customers have different needs that each brand fulfills; Taste is subjective (in the B2B world, how people like to work is varied and different) and some people like the taste of the brand they choose and others choose the brand that fits their budget best. Either way, the customer wins and these firms exist to serve those customer segment needs and everyone co-exists well in the ecosystem. The world is big and varied enough for all of us to solve customer problems we care about.

I'd venture a guess that most companies are born to build products to solve a problem, and not to maliciously eliminate other firms or incumbents. When competitors show up, it's easy to get distracted with activities such as trying to out-market or out-do their competitors in some way. While some of this is helpful in speeding up innovation, there is a price to be paid for which customers may not be willing to pay. These are wasted resources that have to be priced into the product for sale to customers by all providers. Customers lose in this scenario. 

Sometimes intense competition can cause a downward pricing spiral which appears to be good for customers, but can be actually very bad for them in the long-run. If you look at certain neighborhoods where there used to be various local stores then a big box store showed up and offered lower prices, everyone flocked to it, loved it, found jobs there, and their local stores closed. Now, with only 1 main store in town, the big box provider has monopoly in that local market, and hires 80% of the entire town. When big box firm decides to move out of that market for whatever business reason because they can just sell online, that town's income is decimated. The local community had traded in short term benefits for long-term death as people are forced to leave town to find employment, property values plummet in the ghost town, and whoever who can't afford to leave are left with a town that is falling to pieces. That scenario is truly heartbreaking. When there is only one main player in the market, in the long run, that is almost never a good thing for the customer as complacency sets in by the provider, innovation becomes laggardly, and customer service declines, all while prices increases.

There may be a better way to do this by keeping one's eye on the prize: solving the customer problem well and at a price-point that's palatable to them by eliminating any wasted resources, and embracing the mindset of collaboration and partnership over competition. Business is not usually a zero-sum game. We just need to open our eyes, think creatively, and reframe how we look at what it means to be successful in what we originally set out to do: to solve a customer problem well.