Rejoice when people say you operate in a crowded space
“You operate in a crowded space.” says the CEO of a potential distributor. We were discussing how we could collaborate to have his company distribute our products to his customers. He was in the education services business and was looking for an innovative education solution to add to his repertoire.?And I couldn't help thinking: what's so bad about competing in a crowded market?
In their analysis of market dynamics, Blue Ocean Strategy (2005) authors W. Chan Kim and Renée Mauborgne described any given market as between a blue ocean or a red ocean. A "blue ocean" is a market or industry that is untapped or unexplored or possibly not in existence, with high potential for growth. On the other hand, a company in a red ocean is one that is competing in a crowded and well-established market, making it difficult to differentiate itself and capture market share.
Many business executives think that being in a ‘crowded’ market that is filled with competitors offering more or less the same thing and pushing down prices is a major red flag.
But I think once we look beyond the optics of a crowded market and understand just what business we are in, we will see that there are inherent advantages operating in a crowded market. Here are just a few of them:
Advantage #1: It means many people already recognise this problem and are willing to pay to solve it.
When Apple launched the iPhone, mobile phones were the ubiquitous equipment that most people would carry with them. In fact, back then, Nokia had dominated the market of mobile phones. Then there were the Microsoft OS-driven smartphones that feature the use of the stylus to compose SMSes and notes. I remember having several of those and having to compose long messages then, before Whatsapp and other social-communication applications came into being.
So the iPhone wasn’t new to the market. The mobile phone industry was a red ocean, a crowded space and customers didn't like to pay a lot for the device. But it also meant that people already recognised and accepted the need for a mobile device with them, so there wasn't the need for long-drawn and investment-heavy efforts to educate the market and get buy-in for a product that serves a similar purpose. When the iPhone was launched, its price-point was probably the highest among other mobile devices at that time. But it quickly gain traction and the revenue from the iPhone now accounts for more than 50% of Apple's total revenue [1].
When I first started out as an entrepreneur and heard about companies welcoming competitors into a new market, I often thought that this was absurd and counterintuitive as I thought the whole point was to get rid of the competition and own the market. Everything I understood about competitive strategy at that time suggested we should always differentiate from the competition and stand out. So why invite competition instead?
I realise now that while we need to have an unparalleled advantage over our competitors, we first need a market to exist.?
Yes we can create a market from nowhere and wow customers to come on board. This could be one narrative of a blue ocean. But to do that, we need to be very resourceful, super imaginative and be backed by lots of luck, not to mention a big war chest with lots of money to spend.
Not every business is that fortunate to have the stars aligned like this.
So the fall back could be to fight in a market where the customers are already familiar with the point of our solution and the problem we are promising to solve with it. This can only happen when we are not alone in the market. It means we should expect competitors and we shouldn’t be afraid of them but be challenged by them.
But there’s an even bigger advantage when the market is crowded and everyone seems to be fighting till the death for a small slice of market share, especially if we are a new or a recent entrant into the space, as I will explain below.
Advantage #2: It means we get to study what works and what doesn’t from the numerous solutions in this space.
Having lots of players already operating in the same market trying to solve the same problem presents an excellent opportunity to study what works and what doesn’t. Our competitors have ‘paid their tuition fees’ to finally figure out how to make money from this market and if we are the new entrant, we could look at what they are doing right and what they are still struggling with to get right.
Then we can tweak our product and service to offer something that delivers disproportionately better results and experiences for our customers.
And the savings from what we would have needed to spend to educate the market and learning from mistakes others have made can be deployed to wow our customers.
Advantage #3: It means you can focus on wowing them with what’s so cool about your product or service.
I mentioned earlier that having lots of people already familiar with the point of our product means we don’t have to invest lots of money and resources to educate the target customers market to the problem you’re trying to solve for them. This is crucial as we can now direct resources to innovation-centric endeavours and increase the efficiency of our delivery to a level that is disproportionately higher than our competitors.
In a mature industry, standards are more or less set, often by a few big players that might have consolidated the smaller ones over the years. Consequently, customers may already be accustomed to these standards and have accepted them as the way things are, until someone who’s crazy innovative comes along and wow everyone with a narrative that changes the essence of the industry as we know it.
The airline industry in Asia Pacific prior to 2000 was dominated by full-serviced airlines and mainly national carriers. Air fares weren’t cheap and people contended that air travel was a luxury.
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All that changed when AirAsia was launched in 2002 as a low cost airline with the tagline: Now Everyone Can Fly [2]. This changed the entire air travel industry. Air travel is no longer a luxury but an affordable means of travel by just about anyone. I remember a time when some low cost airfares could cost less than a cab ride! In September 2022, Airasia was named the best low cost airline at the Skytrax World Airline Awards 2022 for the 13th consecutive year [3].
AirAsia operates in the mature industry of air travel, dominated by full-service airlines and national carriers. But it is worth noting that AirAsia was first founded in 1993 as a full service airline, competing with the rest of the flock. It was only after a maverick former executive from Time Warner and his partner who took over the airline and revamped, rebranded and launched it as a low cost airline in 2002 that turned the fortunates of this company around and disrupted the air travel industry. Had AirAsia continued on its course as a full service airline, investing heavily in marketing or price cuts to gain market share, it would not have become what it is today.??
Advantage #4: It means people may be fed up with how inefficient business is being done in this space.?
In mature industries, entrenched players dominate the market and set the standards. But customers may not be pleased with those standards. The airline industry was like this. The automaker industry is no different.
For years the automobile industry has been dominated by a few main players as a result of consolidation from some 200 car makers in the 1920s [4]. For decades, gasoline-powered vehicles were practically the only engine choices available to the customer and automakers fought hard in branding and marketing to get their vehicles out of the showrooms. Buying a car would involve numerous trips to different showrooms, test driving different vehicles, accompanied by long-drawn sessions with the sales person.
Then came Tesla, whose battery-powered cars have revolutionised the car industry and created a whole new segment of electric vehicles or EVs.
Tesla didn’t create a whole new industry as much as it created a new iteration of the same industry. It noticed the frustration of the market and noted the problems that internal combustion engines posed to the environment. Its product narrative rode the trend of going green and remediating climate change. In doing so, it changed the rules of the game and shifted the competition.
While Tesla have pioneered the new way of driving with its EV, another car company in Asia, BYD, looks set to challenge and possibly overtake Tesla in the EV space, especially in underdeveloped car markets. Its secret: die-hard efficiency, plus the fact that its primary expertise was in a domain that would become the principal driver for an EV product: the battery. Unlike Tesla, BYD’s quiet approach has enabled it to register stellar growth in sales volume with impressive profits. Its efficiency-driven culture also means it could offer its cars at significantly lower prices and still remain comfortably profitable [5].?
In a mature, inefficient market that may be filled with players that have grown so big as to become the victims of inertia and complacency, the innovative insurgent could up the efficiency game, bring a great deal to customers, and systemically change the competitive landscape.
The more inefficient the space, the better the innovation potential.
Advantage #5: It means anyone who exceeds the expectations of customers will disrupt the market and lead the pack.
Any market where customers are contended with the status quo and see little hope of changes, possibly because of how tightly it is regulated or how large players have set the rules on how the game is to be played, is ripe for disruption. And anyone innovative enough to face up to the problem and daring enough to take on the big boys could stand a chance to change how business is done in that space.?
I have briefly mentioned how Apple, AirAsia, BYD and Tesla have done that in their respective domains. There are several more, including AirBnB that offers a whole new experience for the traveller almost in parallel to the hotel and hostel chains. And then there is Uber that provides an alternative to the taxi, which is one of the most regulated and toughest markets to crack.
Sure, cracking the regulation hurdle and facing up to the lobbying by associations supporting our competitors will be really challenging. But once the offer is tested by the market and the demand is established, we could argue that these enterprises would have sufficiently validated their offering hypothesis to get support from investors and the market and with persistence and a bit of clever manoeuvring, they could emerge as some of the most formidable players in the same space which was a red ocean not too long ago.
From this analysis, we can see that many of today’s coolest innovations had stemmed from a realisation of the customers’ frustrations on the prevailing solutions at that time, often in a crowded market, a red ocean. The innovative entrepreneur with a prepared mind to see problems solved differently could spot opportunities where others haven’t and find a blue ocean, an untapped market within a crowded one.
At the end of the day, you don’t want to be the only one who’s solving a problem that no one cares about. When you have no competitors, it also suggests your market is not ready, not mature enough and possibly not real.
You don't want to be ahead of the market. You want to be ahead of the pack.
So perhaps we should try to sell your product in a crowded market, a red ocean, where people are already primed to buy products that solve similar problems and ours may just stand out amongst the me-too products.
Solve a me-too problem in a me-only manner that thrills our customers.