I recently had a look at this dry and boring lecture by Dr. Israel Kirzner from Feburary 1988 and it got me thinking again about competition and how confusing it can be.
The lecture was in part about how the word “competition” is used by economists with directly opposing meaning from that of the layman and how that leads to confusion about the role of free markets.
I won’t dwell on that, but instead I want to explain how this word can also be contradictory in meaning when applied in everyday usage in business analysis. Nowhere is this more evident than when we argue whether Apple competes with X or Y or Z.
Does Apple compete with Android or Google or Samsung? How could Apple compete with Google and yet cause it to be the default search engine in Safari thus enriching their competitors? How could Apple compete with Samsung and yet select their semiconductors for the heart of its most important and profitable product? And how could the people across the table from Apple agree to terms on these deals while being sued by them?
Some have tried to characterise this situation as “coopetition” or the co-habitation of conflicting strategies for a balanced optimum. I find this characterisation uncomfortable and unsatisfying. The balance sought will be very fragile and change daily and no optimisation is practically possible. It seems contrived.
Defining the basis of competition
Rather, I think about these situations as examples of asymmetric competition. This is competition where companies are rivals but they have different definitions of the basis of competition. In a way, they are like gladiators who have weapons which cannot be brought to bear or wielded effectively to counter the opponent’s.
Consider the following question: does the iPhone compete with the Galaxy SIII? Well, obviously it does. The products have similar attributes. If we define competition as rivalry in a market for similar products then, by default, they compete.
But what about non-consumption? What if there aren’t enough of either product to go around and people cannot actually face a purchase decision where both products are in front of them at the same time, under identical terms and conditions, waiting for a purchase to be made.
It gets worse. What if there are network effects related to each product such as brand loyalty, platform switching costs, media and data tied to either one that make them impossible to switch? What if advertising spending is skewing the buyer’s knowledge of competing products?
If a product is unavailable, invisible or requires burdensome switching, does it really compete? When these exceptions are raised, you’ll hear people say that Apple (or Samsung) don’t compete with X or Y. They compete with themselves or with products outside the category. There may be many ways of rationalising that what appear to be similar products don’t compete because of “differentiation” or “positioning”.
In fact, jobs-to-be-done theory suggests that the only successful competition is against non-consumption, especially if you’re an entrant. Non-consumption is easy to beat (because the alternative is no solution to the job) while an entrenched incumbent is very difficult to beat, and it’s often inefficient to even try even if you have the resources. This is what I describe in talks as the “David vs. Goliath” approach vis-à-vis the “Charge of the Light Brigade” approach.
Failing real world tests
So the theory that competition exists on the de-facto basis of a similar feature set fails a whole series of tests in the real world. Consumers decide based on complex criteria and businesses actually conspire to make the choices as complex as possible reducing the decision to a single option.
But I want to step back and think about the situation from the competitors’ point of view. In other words, how should management think about competition? Is it possible to develop a competitive strategy or should one even bother with competitive response?
Let’s take a basic question: Does Apple think of Samsung as a competitor? When did it begin to think about it as such? What can it do to win?
Let me answer this by asking another hypothetical question. Assume it’s 2008 and Apple is in the process of planning its product roadmap. Whom would they decide to count as competitors? Android devices have not yet shipped and the gorilla in the space is the BlackBerry with Symbian still overhanging the market with a huge volume lead. Should they then build products to compete with RIM and Nokia?
Assume further that their decision will define how developers will build apps and content makers will target your product. They have to account for the time scales that developers think about and they have to match hardware innovation to the rate of OS innovation and API innovation and toolchain innovation, etc.
The design process and competition
So did Apple consider Samsung a competitor in 2008? A time when Samsung did not actually make smartphones? It seems hard to believe they did. Now you may answer that things have changed since 2008 and they have. But the decisions made in 2008 regarding the platform remain in place today.
Furthermore if you happen to look at the dozens of hardware designs that are making the rounds today (as evidence for a trial with Samsung) you’ll see familiar designs first penned in 2004 or 2006. You quickly realise that the product design process is lengthy and largely isolated from the froth of main street (or mall) sales fistfights.
Few people appreciate the disconnect between the design process and competition. This because few people have spent time in an organisation building mass market consumer phones. The time scales are staggering. If your product is a platform product you make decisions six years in advance. If you are a “fast follower” you can make decisions six months in advance. This is maddening, asymmetric competition.
One competitor sees one basis of competition and another sees it completely differently or sees a completely different basis. They are competing with each other but more as a guerrilla fighter competes with a nuclear missile.
Which brings me to another discipline. In military circles asymmetry has been noted as a valid form of warfare for some time. At least since 1975. It was in use long before it was recognised or studied, (e.g. in the American Revolution.) But the situation now exists where it’s taken for granted that modern conflicts are almost always asymmetric. Drones vs. insurgents and citizens vs. armour and, the most sinister of all, unarmed-but-tightly-integrated-through-communication protest against established regimes. The impact of this realisation is affecting governments around the world.
So it’s time to elevate our thinking about business competition along the same lines. Yes, Apple competes with Samsung but it does so asymmetrically (as it does against Google and dozens of others). It’s a multi-dimensional rivalry and one which requires a different form of analysis. It is something which I do instinctively but it’s not something that is easily explained. Disruption theory helps. It turns out that asymmetric competition is the only form of competition that matters in a rapidly disrupting industry.
Horace Dediu is founder and managing director of Asymco, a Helsinki-based app developer/industry analysis advisory firm. You can find his blog