I use the word “leader” and the term leadership all the time, but does leading always mean going first?
That tends to be our common connotation, but what if it really means setting a direction, a strategy, where that may mean going second, or perhaps even “late” to market?
A few case studies and ideas for you on this:
Streaming – first, or late?
As I write this article at the start of 2020, there is currently a huge rush underway into the TV Streaming market.
The first big player here was Netflix. Many will remember that Netflix was in the DVD rental and delivery business for years, until their CEO, Reed Hastings, made the bold step to exit that business entirely while it was still profitable, instead turning to being first to market to streaming. Initially, the stock market reacted by seeing the share price crash, but over time it was shown to be a fantastic strategic choice.
Remember my reference to Benjamin Graham earlier?: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
So, today we have Disney, Apple, HBO and others in various global regions, all fighting to gain market share, yet to me as a consumer, they all look pretty similar. Just as the lessons of Ben Graham from over 70 years ago still stand, history shows that most markets end up with four major players. I don’t know who they will be, but my bet will be that Netflix will be one of them, plus in their move to be so early to market, their shareholders and ecosystem has already massively benefited.
I’d say that in streaming, going first will create more success than going late, but hey, timing the market is often a losing game, so I could readily be wrong!
Consumer electronics and being second
In the late 70s and early 80s, there was a “format war” for market dominance in the new industry of consumer videotapes between two formats VHS (championed by JVC) and Betamax (Sony). It is a fascinating story worth looking up, but to simplify, Betamax was first to market and (many argue) a far better format, but it lost, VHS won and dominated the market.
The two format champions were Japanese companies, with a key moment in the “format war” coming when another huge Japanese consumer electronics company, National Panasonic, backing VHS.
Roughly ten years later, a little known Scottish software company had developed one of the very first uses of visual hyperlinks, using them on, for example, visual engineering manuals for oil rigs in the North Sea, where engineers could click on links to see the next image on a CD-ROM.
Seeing the extendable value of this concept, they were bought by National Panasonic but were then surprised when the Japanese company chose not to use the technology and ideas to launch new products.
You see, the National Panasonic strategy was not to be first to market, but to be second or even late to market, but when they entered, to have first-class products and technology to gain profitable market share once the hard work of new product category launches had been done by others.
Uber is replaceable
In investment parlance, I have been “short” Uber as a concept since very early. Sure, they have raced to market dominance. Uber, like WeWork (yup, hugely ”short” on that idea too) and others, have taken huge amounts of investor capital that they have burned through with multi-billion dollar losses in order to create a market-dominant position in a new market space.
However, Uber is, to my mind, eminently replaceable. In London, for example, Uber drivers have no loyalty, it seems, often sitting in their cars (remember, for all the billions they have burned through, Uber owns no cars) signed in to multiple apps through which they can accept customer requests. Using other investment terms, they don’t have a wide enough “moat”, or “barrier to entry”.
Uber has certainly changed the way customers look to hire a taxi, but they have lost billions. My bet is that being the best call here is being late to market after Uber has done the hard work of establishing a market.
Videoconferencing. Zoom and taking your time
Do you use video conferencing software for meetings and personal video calls?
Having lived in Cayman for many years and worked with clients where commuting to the client so often meant one or more flights, I’ve been using various video options since the days of ISDN fixed data lines.
Skype was a good early option, but then Citrix cannibalised their own inhouse software by buying in a company with better software that cost less, which they called GoToMeeting. Other players were Webex, as well as Google Hangouts. For years, though, my business paid $000s for seat licences for GoToMeeting, until we started to notice, more and more, people asking if we used Zoom.
Zoom, with the ironic name, has slowly and patiently built themselves. As a consumer, their product simply works, better than the competitors. As to “could you slow down?”. the founder took nearly two years to develop the underpinning software before launch, then they have been profitable since day one, plus their pricing is low, so unlikely they will be undercut by others seeking to gain market share.
The ironically named “Zoom” seems to have shown that “could you go slower?” can be a winning strategy.
Don’t be TOO late to market
A last thought as a warning.
Question: Which company invented digital photography?
Answer : Kodak
Yes, Kodak. A Kodak engineer, Steve Sasson, made the first digital camera in 1975. Kodak offered its first consumer cameras 18 years later. 18 years. You see, their business model was all around film cameras.
President Obama awarded Mr. Sasson the National Medal of Technology and Innovation at a 2009 White House ceremony. Three years later, Eastman Kodak filed for bankruptcy.