Who Are You Really Competing Against?

Competitors are oftentimes clearly defined. Think sports, debate, and political elections. When entering those arenas, you know exactly who you are going up against. But life isn’t always that way.

Sometimes competition comes from where you least expect it.

Competition From Alternatives

In the late 1800s, horses dominated as the means of travel. Cars existed, but they were expensive to buy and cumbersome to maintain so only a tiny fraction of the population had one. The car didn’t look like competition to the people who bred and sold horses. Barriers to conversion were too high. But as the world exited the 19th century and entered the 20th, Henry Ford was changing all that. And in 1908, Ford’s company sold the first Model T, a vehicle designed to be affordable for the average person. And this changed everything.

Affordable cars sparked a flywheel where people would see their neighbors with cars and choose to get one themselves. The more cars that were purchased and used created a need for better roads and more gas stations. As infrastructure improved, car ownership grew easier, pulling in more people on the fringes to get cars, and so on. By many estimates, cars had displaced horses as the primary means of personal transportation by 1930.

What was a space of direct competition (horse breeders competing against each other to sell the best horse) transformed into a space of indirect competition. Direct competition can be labeled “substitutes” whereas indirect competition is called “alternatives”.

"What was a space of direct competition (horse breeders competing against each other to sell the best horse) transformed into a space of indirect competition. Direct competition can be labeled “substitutes” whereas indirect competition is called “alternatives”."

- Blue Ocean Strategy, by W. Chan Kim and Renee Mauborgne

Reed Hastings, CEO of Netflix, understands the competitive threat of alternatives. Yes, when pressed he comments on substitute competition from the likes of Amazon and Disney. But he’s identified gaming, social media, and sleep as Netflix’s biggest competitors. And they’re all alternatives to streaming.

"We compete so broadly for relaxation time . . ."

- Reed Hastings

Conclusion

So much competition is clearly—and narrowly—defined. The rules of the game and the players are known. While that form of competition is obvious, the risk lies in the indirect forms of competition called alternatives.

What makes alternatives so tricky to ascertain is a dichotomy that exists between the way businesses and consumers think. Consumers generally entertain many options to find the best one. Oftentimes, this comparison is an inherent trait of the consumer; it takes little effort for them to seek a variety of options.

"In making every purchase decision, buyers implicitly weigh alternatives, often unconsciously."

- Blue Ocean Strategy, by W. Chan Kim and Renee Mauborgne

Businesses, on the other hand, default more of a myopic version of identifying competition. Despite rhetoric and exercises of “putting themselves in the shoes of the consumer”, it’s difficult to pull off in practice. The practice of putting themselves in the customers’ shoes is a form of projection. The business has inherent biases about reality and convenience, and it’s inordinately difficult to rid themselves of these biases when imagining what the consumer is really choosing between.

One way to get around this is by actually asking the customers themselves what they are choosing between. Not necessarily novel, but it’s effective if customers are giving honest feedback.

Another method is zooming out. Reed Hastings did this with Netflix. Instead of looking at head-to-head competition like Amazon and Disney, Hastings considered the category of entertainment as a whole. That’s the category Netflix competes in, so it makes sense that the activities people engage in for entertainment that aren’t Netflix are Netflix’s true competitors.

Who are your competitors? You likely know direct ones. But what about the alternates? That’s where the risk lies. It’s uncomfortable to consider, but it’s better than leaving yourself exposed. Remember what became of the horse industry?