The Gorilla Game: Act 2

In 1999, Paul Johnson, Tom Kippola, and I published a book for investors in high tech called The Gorilla Game. The thesis was that disruptive innovations, when they reach the tornado, scale at hypergrowth rates, such that a market leadership position at the beginning results in a massive market share advantage at the end. In a world that is being eaten by software, that advantage is a function not just of operational gains from scale but, even more importantly, from reach and delivery advantages coming from an ecosystem of partners self-organizing to help capitalize on the opportunities the gorilla’s installed base entails. The investment thesis was to buy the basket of companies that had meaningful participation in the tornado, then sell off the ones that were lagging a bit behind, putting that money into the ones still in the race, until at the end, all the money is in one company, one you plan to hold for the long term.

Let’s call all that Act 1. There was no “sell by” date implied (hey, it was 1999 people, the Time of the Great Happiness—a pre-bubble-popping interlude of bliss that defied history, gravity, and yes, common sense). Anyway, twenty years later we have learned a lot more about the extended life of a gorilla from the company trajectories of Oracle, SAP, Cisco, Intel, and Microsoft, and we can now apply some of these lessons to the expected futures for Apple, Amazon, Facebook, Netflix, and Google. They have all completed Act 1 with spectacular success. What can they expect in Act 2?

The plot in Act 2 is driven by a single overarching principle: Once a gorilla emerges in any category, the rest of the marketplace will self-organize to curtail its future expansion. This is not a conspiracy theory. It is more like climate change—the inexorable consequence of a convergence of forces. Here’s how it plays out.

First of all, the market cedes to the gorilla all the territory it rules today. In parallel, it seeks to block its entry into the next generation of markets. We saw this, for example, when the cell phone industry “uninvited” Microsoft and Intel from participating in the emerging smart phone market. Having seen how their PC brethren were left with a hollowed-out business model once the OS and microprocessor profits were extracted from the whole product, they instinctively knew they should not enable the same fate for themselves. 

One of the tools the marketplace uses is regulatory restrictions, whether organized around anti-trust, taxation, protectionism, employee protection, freedom of speech, liability, privacy, or the like. There are always reasonable arguments on both sides of these interactions, but that misses the point—they will happen regardless. This is a self-organizing phenomenon, not one driven by intelligent design.

So, at present we have Amazon and New York in court of employee protection, Facebook and Australia at odds over protectionism, Google and EU over anti-trust, Twitter and the right wing over freedom of speech and with the left wing over liability, and Apple and Facebook at odds over privacy (an attack on Facebook’s ad model) and over restriction of trace (an attack on Apple’s retail model). The point in every case is one that Michael Corleone makes to his brother Sonny in the first Godfather movie: “It’s not personal, it’s just business”. When you’re the gorilla, you don’t get a lot of love.

The market also helps curtail gorilla expansion by throwing its new business to a next-generation of challengers. Look at the rise of Zoom relative to Webex, of Nvidia with respect to Intel, with Shopify in relation to Amazon, or with Android in respect to Windows. The key point here is that gorilla curtailment creates openings for the next generation of entrepreneurs. As Regis McKenna famously entitled his second book, Who’s Afraid of Big Blue? At the time, truth to tell, we all were, but to Regis’s credit, we have now all learned we shouldn’t have been.

Finally, given these forces, what is an aging gorilla to do? Well, it has a big book of favors and IOUs it can draw on. Look at how the Regional Bell Operating Companies (RBOCs) defended their turf against the Competitive Local Exchange Carriers (CLECs)—Verizon and AT&T were the last ones standing, with Sprint and T-Mobile out in the cold. Look at what Microsoft has done in cloud computing. It took on the gorilla Amazon Web Services, positioning itself as a plucky challenger, and, leveraging its book of enterprise relationships, garnering an incredibly strong position as the CIO-friendly cloud provider. In other words, the gorilla has cards to play too—they are just different from the ones that won hands “back in the day.”

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win | Geoffrey Moore Twitter | Geoffrey Moore YouTube