No successful web company (not eBay, Flickr, Amazon, Facebook…) succeeds because of a significant technological barrier to entry. It’s not insanely difficult to copy what they’ve done. Yet they win and the copycats don’t.
Few organizations succeed in the long run because of proprietary technology. Not Starbucks or CAA or Nike, certainly. Not Caterpillar or Reuters either.
Technologists often tell me, “this product is very hard to build, that will insulate us from competition and protect our pricing.” It might. For a while. But once you’re successful, the competition will figure out a way. They always do.
So, what to do?
- You can own something that’s hard to copy (like real estate).
- You can race down the pricing and scale curve, so it’s cheaper for you to do what you do because you have a head start.
- You can create switching costs, so that the hassle and cost of moving to a cheaper competitor is so great, it’s just not worth it.
- You can build a network (which can take many forms–natural monopolies are organizations where the market is better off when there’s only one of you).
- You can build a brand (shorthand for relationships, beliefs, trust, permission and word of mouth).
- You can create a constantly innovating organization where extraordinary employees thrive.
The reason the internet is such a home to wow business models is that it’s easier to create a network here than any other time in history.