In our previous 3 articles in this series on competitiveness, we looked at some of the measures of competitiveness, and at how well Play2Live, a startup in the gaming and eSport field, is positioned to break into these markets.
Part 1 considered traditional measures. Parts 2 and 3 looked at measures that are specific to platform-based businesses.
Play2Live seemed well-placed against many of these measures.
However, despite the high hopes of founders of start-ups, the question must be asked whether there is a chance that a new entrant could actually break into the market.
So, Part 4 will consider some stories from the marketplace. It will show that well-established incumbents can be quite quickly pushed from their perches by newcomers who choose and apply the right competitive strategies.
General comment
There has always been competition in business, and new entrants are a classical part of the environment. What may have altered is the speed at which established businesses are being disrupted and the enormous revenues that are so quickly being generated by newcomers.
This is very evident in technology-based companies, but, as pointed out by Richard Foster, of the Yale Entrepreneurial Institute, even companies on the S&P 500 Index are being affected. The average lifespan for these companies has reduced from 67 years in the 1920’s to 15 years now. Most of the list for 2020 will probably not have been heard of in 2010.
Here are some stories about successes and failures in the market.
Stories from the market
Apple
Apple is probably the best example of a newcomer totally taking over an established market. It disrupted the music player industry in 2001 when it introduced its iPod to replace most other MP3’s on the market. It entered the phone industry in 2007, when Nokia, Samsung, Motorola, Sony Ericsson and LG had 90% of all global profits. It did this largely because Steve Jobs recognized the potential for other phones to include the music technology of the iPod. By 2015, Apple on its own held 92% of global profits in this market. Today it is set to reach a trillion-dollar market valuation, with Warren Buffet as one of its chief supporters.
How did this happen? And how likely is it that Apple itself will be disrupted?
What gets people to use Apple products is quality, design and ease of use. What keeps them is Apple’s ecosystem of hardware, software and content. The iPhone, iPad or MacBook Air are competitive products in their own right, but they go beyond that to be devices to connect consumers to multiple sources of software from multiple developers, via the AppStore, and to multiple sources of content, much of it via iTunes. It is this integration that makes Apple customers less likely to move to a competitor. And the suppliers of software and content are also not likely to move easily as the AppStore and iTunes have created billions of dollars in sales for them.
What are some of the secrets of this success? Provide a platform ecosystem, not a product. Give up on a current successful product before you are forced to.
Netflix vs Blockbuster and cable TV
At its peak, Blockbuster, the DVD company, had 9,000 stores, 60,000 employees and was valued at $8 billion.
The story goes that Reed Hastings was spurred into starting Netflix in 1998 when he was fined $40 by Blockbuster for the late return of the DVD of Apollo 13. Netflix has been blamed for Blockbuster’s decline and final bankruptcy, but a look at the facts seems to point more to bad decision-making by Blockbuster as the real cause. Not least of these was the decision to refuse to buy Netflix in 2000 for $50 million (and this was just a year after Blockbuster had raised $4.8 billion in an IPO, so there was no shortage of cash.) It chose instead to sign a 20-year streaming deal with an Enron subsidiary — and we all know how Enron went bankrupt just a year later, putting an end to Blockbuster’s entry into the streaming world. It tried to compete with Netflix with online DVD rentals, and reached 2 million subscribers in 2006, just as Netflix reached 6.3 million. But it lost 500,000 of them in just one quarter of the next year, and eventually filed for bankruptcy in 2010, with $1.1 billion in losses for the year.
Netflix has gone on to account for nearly a third of internet traffic and to be valued at $100 billion in January 2018.
Along the way, it has done far more than disrupt Blockbuster. It has disrupted the entire cable television industry. It has benefitted from the huge market trend away from traditional cable or satellite and towards video on demand (VOD) and OTT (over the internet) viewing. While hundreds of thousands of viewers are “cutting the cord” from cable subscription, Netflix increased its annual revenue more than tenfold between 2005 and 2016 and more than doubled its subscriber base in the past five years, reaching 125 million subscribers in the first quarter of 2018. It has more subscribers in the US (>50 million) than the total for the top six cable TV companies (approx 48 Million).
It is now going on to disrupt the film industry as it moves into original content production with Netflix Originals.
The secrets of success? Among many strategies, Netflix has moved with and shaped the trends, while exploiting technological change.
Amazon vs Walmart and Kroger (and Alibaba)
Amazon has disrupted the retail industry. It famously started in Jeff Bezos’s garage in 1994, as on online site selling books. It is now the world’s largest online retailer, turning over more than $60 billion per year and employing nearly 100 000 people. It has recently bought Wholefoods, moving into the grocery market. This has forced Walmart and Kroger to invest if they want to stay in the market, and has pushed many regional grocery chains into bankruptcy, as they simply can’t afford that investment.
Kroger has been in the retail business since 1883, has nearly 3,000 outlets, over 400,000 employees and revenue of over $115 billion.
Walmart is a retail giant with 30 years start on Amazon; it has more than 2 million employees and had a turnover above $500 billion last year. Yet it is under pressure and is being forced into a different business model. It is retreating from bricks and mortar stores around the world, as it takes up the fight to win the online retail war against Amazon. Walmart has recently outbid Amazon, to acquire 77% of Flipkart, India’s biggest online retailer, for $16 billion. It’s had to take on Google as a partner to do this.
And, of course, everyone needs to be watching Alibaba. It was established in 1999, and by 2013 was delivering 5 billion packages in China alone. It works with a network of logistics providers across the country to achieve this, all linked to sellers and buyers through Alibaba’s proprietary “Smart Logistics” platform. Its revenue increased by an incredible 61% last year — and it is now making acquisitions to expand into South East Asia, starting with India and Pakistan.
What’s the secret? Exploiting technological change; providing a platform rather than a product; leveraging existing customer bases to move into new fields.
Kodak and Fujifilm
Kodak’s decline into bankruptcy is well known. It was a classic example of a refusal to give up on your product when it was being overtaken by a new technology. Fujifilm has managed to re-invent itself and survive where Kodak didn’t — and is currently in negotiations to take over a significant part of Xerox. Its overall revenue for 2016 was 2.3 trillion yen.
But it is interesting to note that when digital photography started to erode its analog market, Fujifilm actively looked for ways to redirect its technological assets. In 2007, it used its knowledge of photosensitivity, UVA, color pigments, anti-oxidation, collagen and nanotechnology to move into the cosmetics world and to create a very advanced brand called Astalift. It promises “Photogenic Beauty”:
“The ASTALIFT series, with cutting-edge research fostered in the photographic film field, create a bright future for your skin.”
This brand is just a small part of Fujifilm’s now very diversified business portfolio, but, according to Mr. Komori, Fujifilm’s Chairman for over 50 years, it is one that represents the biggest growth area. Fujifilm Healthcare, worth nearly 423 billion yen in 2016, covers a surprising mix:
· medical systems such as X-ray machines
· pharmaceuticals
· regenerative medicine (including tissue regeneration) and
· life sciences (cosmetics, nutritional supplements and hair care products)
Fujifilm is a good example of a company recognizing and using its underlying assets differently, allowing it to break into completely new “adjacent” markets.
Uber vs taxis and the car rental market
The Uber story has all the elements of a fairy tale. Two friends on a business trip to Paris, and not a taxi in sight! From there came the idea of a service that would be available anywhere you wanted it, as long as you had access to a smartphone. A small start in 2009, with a few black vehicles in New York City and San Francisco, led to an incredible series of funding — $11 million, then $32 million and finally $1.2 billion — to launch a company that is now one of the leading transportation services in the world, currently valued at $17 billion. The old system of routes and fares, stretching back to horse cabs and gondolas, has been seriously disrupted. There have been strikes and even violence in many countries as incumbents struggle to compete.
Lyft is a growing rival. But between them, according to an article in Forbes Magazine, they have captured nearly 71% of the US business traveler market, leaving just 23% for the rental car market and 6% for the taxi industry.
And Uber is now set to disrupt the delivery business — starting with food deliveries.
The secret to this success? Exploiting technological change and offering something better than the competitors.
Virgin Drinks and Red Bull
The soft drinks market has been an extremely difficult one to break into. It has been dominated by Coca-Cola, PepsiCo and Cadbury Schweppes. In the 1990’s Virgin Drinks and Red Bull were new entrants. Virgin went on a full-frontal attack — Richard Branson even drove a tank to mow down a pile of cans to show his resolve to get the product into the major retail outlets. Despite this, Virgin never achieved more than 1% of the US Cola market.
Red Bull, on the other hand, used the classic military maneuver of indirect attack — nothing head-on, begin where the competitor can’t respond or ignores you as you are not seen as a threat. It started with a niche product served in bars, with a distinctive long thin can, and slowly introduced it into corner stores and now eventually into major retailers. Red Bull has sold 50 billion cans of energy drink and has about 40% of that market. And Coca-Cola has finally recognized the threat — it has acquired Monster and is competing head-to-head with Red Bull.
But Red Bull has not stood still. It has now disrupting publishing with its full-blown Media House, focusing on sports, culture and lifestyle. Its TV programmes are free to anyone with an internet connection or a smartphone, anywhere in the world.
The secrets of success? Indirect attack. And using your customer base to move into a new field.
Skype
Skype was not seen as a serious competitor to the major telecoms companies when it first launched its inexpensive but poor quality calls over the internet in 2003. But Skype dramatically changed the value chain through its use of the internet, microphones and computers, rather than the fiber optic cables and telephone handsets of the traditional telecoms companies. Because it was not seen as a threat, it had time to improve its quality, increase its services to include video, instant messaging and group chats, and increase its customer numbers. Skype was bought by eBay in 2005, only two years after its start, for $2.6 billion, and by the end of 2006 had more than 100 million customers. Microsoft bought Skype in 2011, with a view to turning it into a chat app. It now has 300 million monthly active users, spending 3 billion minutes per day on calls. It is estimated that 2 trillion minutes have been used on video calls.
The secret to success? Reconfigure the value chain and create a niche.
The video game industry
A very interesting infographic of the evolution of the video games market can be found here.
It has grown from being an academic training tool in the 1950s to the launch of Spacewar, Pong, Tetris, Doom, Snake (pre-installed in 400 million Nokia phones in 1997), and others, to League of Nations in 2009. This is the most-played game in the world and, although it is free to play, it made $1.6 billion in microtransactions in 2015 alone.
Alongside the development of games has been the development of consoles. Who can forget the Commodore 64 and the start of the Nintendo Entertainment System during the 1980’s? Sega launched the first internet-enabled console in 1998, but couldn’t compete with Sony’s PlayStation, which has gone on to produce the best-selling consoles in the world. Microsoft entered the market with Xbox. Nintendo started life in 1889 as a playing card company. In 2004 it launched the Nintendo DS console, with two screens working in tandem, a built-in microphone and the capability for multiple consoles to interact with each other over a WiFi service. It has had several updates and has sold hundreds of millions of units worldwide. Its 2017 release of the Switch sold 2.7 million units in its first month. This console can be used as a mobile device through its LCD touchscreen.
The iPhone became the game changer in 2007 as its AppStore opened the market for developers — and mobile gaming is now a multi-billion-dollar industry.
There are said to be over 2 billion gamers worldwide, half of them from the Asia Pacific region. eSports is growing exponentially and is set to overtake the revenues of the traditional sports industry.
The entertainment industry has been severely disrupted by this growth. It is estimated that the split now is 53% to video games, 23% to DVDs, 14% to music and 10% to movies.
Microsoft, Nintendo and Sony are still competing for the top spot for consoles, but they now also have to contend with a major shift to digital formats, available on PCs and mobiles. This brings in players like Twitch (owned by Amazon), YouTube (owned by Google), Facebook and Mixer (owned by Microsoft). And the looming shift now is to virtual reality and augmented reality, expected to be worth more than $160 billion by 2020.
Play2Live adds yet another dimension — blockchain — and with it comes to a whole range of interaction and monetization not possible before.
The secrets of success? Constant innovation and improvement, being introduced to existing user bases; exploiting technological change; moving with the trends; and, in the case of Play2Live, providing a platform that will link multiple stakeholders in a way that benefits all of them.
Lessons from history for Play2Live?
There has always been competition in business, with both winners and losers.
Play2Live is taking on some heavyweights in the gaming and eSports industry. Whether it becomes a winner really depends on how well it markets itself to its potential user base during this period, while the alpha version is being tested and the beta version nears completion.
All of the indicators point in the right direction as we have seen in the first 3 parts of this series. Provided there is a large enough seed base of users, there seems little reason for it not to be one of the success stories for the future.
Stay tuned!
