Wednesday, August 30, 2006

Should Startups fear Google / Yahoo / Microsoft/* ?

In brief, I believe the answer is a resounding NO. Otherwise, there will be no big companies like Microsoft/Google/Yahoo/*, because once they were small startups just like others and must have faced similar if not same situations.

Recently, there was lot of buzz about the demise of few small companies because some big company entered the same niche market. And there was equal buzz and frantic and quite fanatic response by the blogosphere about Google's entry in to web based office software. Many, so called entrepreneurs are panicking that they can not simply survive. And many are suggesting that startups should look for way out, when a big guy enters the same market.

"there’s no need to panic (yet), but it may help to think now about ways to get yourself out of the headlights" - OnStartups

"the reason companies ought to be scared of the big fat guy is that since they have more resources (money, personell, exposure, media visibility), they can quickly replicate or outdo the concept of the upcoming small start-up. - Jean Biri (comment on the post at OnStartups)

It does not make any sense to me, though it looks like a reasonable and acceptable advice in the blogosphere.

In my opinion, the key reasons an entrepreneur comes up with an idea and start a business are:

  • he/she got a wonderful product/service idea  or an exemplary execution strategy
  • he/she spots a big earning opportunity and want to make big buck
  • he/she is so passionate about a product/service/strategy

You had a niche area of expertise, product or service offering and you spot a big opportunity to make money. Now some big guy is entering. Some are suggesting that get ready to 'get yourself out of the headlights' and find another niche spot. Few questions came to my mind when I read first read the blog.

  • Is there any entrepreneur who builds a business thinking that Yahoo/Microsoft/Google/* won't enter the market? Or assume there would be no competitors?
  • If you think you spotted a great opportunity to build a product, why one think that no one else could spot the same opportunity and compete with you?
  • Do we forget for some strange reason that every big fat guy starts so small just like any other?
  • If you loose your nerve by looking at G/M/Y/* entering your own market/product line, and start thinking about ANOTHER NICHE area/product/strategy, why do you think the big fat guy does not enter your NICHE market? They already did once, right?
  • If there is some market that is not reachable or not approachable to a big guy, is there real money there? Because, if there is good money, then why would big guy miss it? Even after you showed them how to do it?

Some how it does not make sense to me. The big fat company is once a small company just like everybody else.  Ofcourse, the big guys must have garnered a greater marketing muscle, image and reach. But why is it a surprise now? Didn't you know to consider such a threat at the beginning itself? Why would one assume that there will be no competition?

I don't know how today's entrepreneurs are facing this issue. And I don't intend to suggest a solution either. But I don't think it does any good to divert from what you are doing and start looking for another niche market. Simply because, it did not work so far. Did it? If it had, you wouldn't be thinking about another NICHE area/segment now.

Few things that can be thought over.

  • The so called Big fat guys are once small startups like any other. How did they do it when challenged with similar threats? I believe, We can learn some thing from them.
  • You got a wonderful product/service idea  or an exemplary execution strategy, and you are the first to bring it to the world. Use that as your leverage to promote further.
  • Since the big fat guy is now competing with you, you would obviously get lots of publicity at no cost in the media. Use it to your advantage.
  • There are many advantages of being small, bring them on.
  • Do whatever it takes to let your user community speak for your product. The user community you got have more experience with the product than a new comer.

The user community has always demonstrated so much passion and love about the quality of a product and value it can bring to users, it would not fail any good startup, just because the same product is being offered by a big guy. If that is true, you will not see so many Web2.0 companies in particular and startups in general. If What many of the bloggers are suggesting to stay out of main stream market is true, then you would not see even those big fat guys today. (They were small once, and faced similar challenges from big guys then)

Update: Listen to a discussion by Niall Kennedy and Om Malik on this topic.

4 comments:

  1. I love great debates like these; they allow us to consider different perspectives and learn from each other.

    Onto my comment…

    You have very valid questions. May I propose some answers?

    1) Is there any entrepreneur who builds a business thinking that Yahoo/Microsoft/Google/* won’t enter the market? Or assume there would be no competitors?

    Well it seems that some do because when Y/M/G show up there’s total panic. If you built your business with a plan in mind for when small and big competitors get into the game, then you should be covered. That’s in theory of course, because a competitor’s superior strategy can blow you out of the water

    2) If you think you spotted a great opportunity to build a product, why one think that no one else could spot the same opportunity and compete with you?

    That’s why you usually want to be first on the market and become the leader as quickly as possible then count on the power of your brand and marketshare to protect your position. You Tube comes to mind right now…

    Spotting is one thing. Action is another and usually the decisive actor.

    3) Do we forget for some strange reason that every big fat guy starts so small just like any other?

    They do but most times they don’t face the same competitive pressure. You can start small but in better conditions.

    Google was in competition with no more than 10 search engines at the time. Try counting the social networks, online video services, tech blogs or digital music sites start-ups on the block today and you’ll probably agree that those are some tough battles.

    I don’t know much about Microsoft except from research (I wasn’t born yet) but did it even have any competition when Bill started out?

    Yahoo certainly did not have any competition so its rise to fame and riches was a pretty smooth ride…

    4) If you lose your nerve by looking at G/M/Y/* entering your own market/product line, and start thinking about ANOTHER NICHE area/product/strategy, why do you think the big fat guy does not enter your NICHE market? They already did once, right?

    Losing your nerve is not the solution. Acting as if the competition was negligible is one thing and devising an anti-mammoth competitive strategy is another.

    This may sound simplistic but having time and speed on your side can be good defensive weapons. Lately, all the big companies are waking up to the online video reality. You Tube had one year and a half to become the dominant player.

    That relatively short time to build a powerful brand worked to their advantage. According to Alexa it’s the 13th most visited website today. If I am not mistaken, Google Video launched first and took its sweet time to get where it is today (not in leadership position). Here of course, I conveniently overlook the fact that You Tube growth was largely fueled by the non-reluctance to allow users to upload copyrighted clips.

    5) If there is some market that is not reachable or not approachable to a big guy, is there real money there? Because, if there is good money, then why would big guy miss it? Even after you showed them how to do it?

    Sometimes the big guy does not get involved in a market because he does not have a vision of its potential. So the money, time and energy required pursuing such a little endeavor does not make any sense.

    Google focused on search while other search engines were diversifying because according to them, search seemed to have its limitations, as it was not that profitable. They were all after the portal category, a race that Yahoo won. Then lo and behold, search grew and today, we all know who took all the marbles.

    Better stop here… it’s 3:30 AM and need some sleep! Apologies for the TLDR rambling… I guess I got carried away. Looking fwd to your comments.

    ReplyDelete
  2. Thank you very much, Jean Biri, for very interesting insights. More is better on this topic, so thanks a lot for TLDR rambling. I do not totally disagree with you on any of them. Some more thoughts, definitely.

    I totally agree with your view that big guys can possibly blow the startup out, particularly if the startup is not prepared or still ramping up. But, it took me by total surprise that startups are surprised and panicking when they hear about it.

    In today's world, big and small companies alike and 100s of venture capitalists, and probably 1000s of entrepreneurs are relentlessly crawling the web, to see if there is any opportunity. So even if you are a first mover, the moment you bring up your application to the world, expect that some one started building a similar or for that matter a better copy of your application. If that guy has a better or bigger marketing or distribution strategy, it would be a tough battle to fight it out. Even if some one starts later in the stage, that would still be a great threat. Take wordpress.com blogs for example. They started very late in the game, but are picking up cherrys with ease. And Google is not the first search engine.

    So first mover advantage alone will not be able to rescue, we need some thing more. A more competent and focused approach of improvements to grow bigger along the way. Google is not the first search engine.

    Regarding competition faced by today's big guys, obviously the challenges were different. May be quite low in number too relatively. But I can not agree that they did not have fierce and threatening competition and challenges. At one point of time, Linux was expected to kill some big guy, MS. People thought entire world is against Microsoft for a while. And the Rest is history. Except browser, it doesn't seem it did anything. Along the way, other companies killed themselves. (Solaris,HPUnix...) Even when Google was about to gain momentum, Yahoo and Microsoft the then big guys started off in a big time. But Google steered out of it and emerged as winner. Their market share seemed to learned only one direction. Upwards.

    Also, 10 years back, how many were active on internet. What was the size of the market? Without any hesitation, Today's Social n/w, video, music market is much larger and so the number of competitors. Some markets are clearly absent 5/10 years back.

    I believe, Big guys may not involve in an certain market, initially. Lack of vision or some other reason. But once a startup showed them how it can make money, big guys and small guys alike will sure jump on. MS and Yahoo did not put so much on search, may be initially. But after Google showed them the way, they really jumped big into it. Whether they succeed or not is a big question. But these days, it is quite true that even if there is a promise, every other company is jumping the band wagon, small and big alike and giving it a try. So it is totally a different environment these days.

    ReplyDelete
  3. Thanks for your reply.

    Being first is not a guarantee for success, that's for sure. But it gives you an opportunity to make your mark and cease a large marketshare before other companies establish themselves

    Success in business depends on so many factors. Being first is one of thousands.

    You mention that the big guys have fierce competition. But most of them have it now when they are big and have equal resources to mount an effective competing strategy.

    Starting very late in the game will work for a company if it focuses on a different strategy. Wordpress, the example you gave is an excellent case of focusing on an another type of element.

    While Blogger, Movable Type/Typepad were proprietary, WP was developed by the open-source community. Thus it was different and got noticed.

    I won't go on and on as I did in the first comment but there's no straight rule to succeed in business. Everything depends on the circumstances, the players involved, the time and other factors.

    Big guys should be respected but not necessarily feared to the point of surrender. However, when they take a direct aim at you, it's wise to have a powerful defensive strategy if they attack before you've had a chance to consolidate your place in the marketplace.

    ReplyDelete
  4. Great discussion. I see points in both the sides arguments. However, I strongly believe that multiple companies (big, medium, small, and startups) can survive playing same game. Each must bring additional value to the table though (location, size, feature, industry, ...). So, if Google jumps in your space, you adjust your direction (I didnt mean change stuff, it may mean more marketing, focus on niche market, etc.). But at the same time it may be even blessing in disguise as big fish jumpnng in the pool may mean pool has lot more water. For example, G/M/Y/A/... are in cloud space and they are creating opportunities for startups.
    I believe that most startup cannot survive if they are not aware of what is going on in the market place and make educated decisions. Most startups continue to steer their direction. However, this should be not just because a bigger fish is in the pond.

    ReplyDelete

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