Monthly Archives: March 2008

Consider the situation where your life support is your biggest enemy. That’s a graphical way to put the dynamics of the technology industry in many cases. There are several companies out there that leverage their biggest competitor to survive. For example look at companies like Wikia and Mahalo– the human-powered search engines gaining popularity on the Internet. How do people reach these sites today? The entrepreneurs behind these efforts confess that 90% of their traffic is directed through Google. How do they make money? They use Google’s ad sense to show advertisements along side their search results. Who is their biggest competitor? Well, of course, Google. So this popular search engine company Google is both their biggest competitor and currently the sole source of survival.

Similar situation arises when a company builds a platform. Success of the platform is measured on the basis of number of applications that are built on top of it. Most of the times, the companies that build the platform also makes applications on that platform, hence competing with other application makers. Hundreds of Internet application making start-up companies survive on the Facebook platform. At the same time, they compete with Facebook for the time people spend on the Internet and hence for the advertisement dollars. Another example that cannot be ignored here is Microsoft. Thousands of companies depend on the Microsoft Windows platform for their survival and hundreds of them compete with Microsoft on the applications front.

This dynamic in the technology industry teaches us one very important lesson. You got to continuously try expanding your customer base without any reservations by utilizing every resource in the best possible way.  The point is to stay focused on the end goal, doesn’t matter if in that quest, sometimes you end up depending on the company that might be your worst nightmare.

Michael Dell gave the commencement address to my graduating class at University of Texas at Austin in which he said – “never measure your success based on the success of others – because you just might set the bar too low.” That’s so true with businesses as well. When businesses try and steer themselves to follow the competition, they in a way shut down the creative brains in their organizations by setting the bar too low. Blind reactivity is the killer of creativity. It’s creativity that will make you the winner in the long run, because you can react and do the catch-up only to a certain extent.

This is true in almost all the fields. For example, take branding. We talk about the Apple brand all the time. Everyone wants to be the Apple of their industry. But how many Apples are out their? Companies try to build advertisements that resemble iPod or Mac, they try to name their product to follow the conventions set by Steve Jobs, they try to shape the brand resembling Apple, but often they are a miss. So where do they go wrong? I believe they lack the originality and the genuineness in their branding. They lack the creativity which is the only thing that attracts customers to Apple.

Another area where reactivity leads to disasters is product development. What better example here than a company that redefined the Internet business? Google is known for it’s creativity in product development. Recently Fast Company rated it the most innovative company in the world. There are numerous companies ranging from biggies to the start-ups trying to catch-up with Google in search and other product development. But more than 60% of people still use Google for their search queries. Reason: it’s hard to catch them. They are always a step ahead. While other companies spend energies trying to do the reactive catch-up business, their creative engines take them a step ahead.

But then there is creative reactivity hitting aces from time to time. Creative reactivity works almost all the time. You can never be the first to come up with a product all the time. You got to use the creativity after seeing the competition doing something right and develop on top of it to take the lead. The difference here as compared to blind reactivity is that you are not trying to catch-up, you are acknowledging that the customers are embracing something new and trying to fulfill their requirement in better and more creative ways. That’s creativity invoked by reactivity.

This is a classic one that every company faces sometime in their life: should we focus towards building a platform or try to go for maximizing profits? There are merits going either ways. Building a platform helps in the long run once you are able to make your platform the de facto standard for a customer base. Maximizing profits helps you to cash on the innovation you brought to the market before competition catches up.

At the same time, there are downsides for both the approaches. In case of the platform race, most of the time it’s winner takes all. For some reason, if your platform does not transform into the standard, you might end up losing all. Talking about maximizing profits, this is a risky if you are planning to go big in the long run. More profits normally lead to smaller customer base. It also makes the field more lucrative for other companies, leading to more competition. So now you end up with a smaller customer base and smaller profits to fight competition.

I believe building a platform is a risk worth taking. By building a platform, a company in turn raises the barrier to entry for competition. Once there is a platform, it is really hard for competition to come up with something new and replace the existing status quo. The best example in this space is Microsoft Windows. Windows is there on 90% of computers in the world. There are more applications on Windows than on any other operating system. Microsoft sold Windows for relatively low price in order to build the platform, at the end making money by converting it into a volume game. To displace Windows from the operating systems world and replace it with something else is an uphill task, to say the least.

Another growing phenomenon in the platform world is Facebook. Facebook has done an amazing job creating a platform. Facebook took a bold decision by providing application developers access to their interface and letting them serve their own ads, all in spirit of building a platform. Today there are more new applications created for Facebook than for any other social networking site. Same is true for number of new users joining any network.

Both these examples make a strong case that once a platform gets successful, it’s really hard to replace it. At the end of the day, integration beats innovation, hands down. In the process you take a hit on your short term profits. But then there are lucky (and smart) few like Apple iPhone who change this discussion to build platform “and” maximize profits.