Competition: What is it good for?

While competition certainly does make the business world go round, sometimes a perceived competitor isn’t actually that

Shaul Olmert 09:5616.02.22

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Over the last decade, the Israeli high-tech industry has been following with great interest the ongoing competition between two of the giants to come out of Israel, Outbrain and Taboola. Much has been said and written about the two companies, the differences in culture, positioning and style, alongside the great similarity in their products. We all gambled on which of them would defeat the other, when would they finally merge together, whether the competition between them would plummet them both into financial losses, what was the background surrounding the merger plan between them which failed, and more.

At almost every industry conference or social gathering of entrepreneurs someone raises the issue, and those present compete among themselves to see who will be able to provide juicier analysis and gossip about what goes on behind the scenes in the dynamics between two great companies, of brilliant entrepreneurs. It’s become hard for us to think about them without engaging in comparisons between the two. This is probably the one case of direct competition between two companies that has aroused the most interest and emotion, bringing with it a scent of excitement and adrenaline to our Middle Eastern branch of Silicon Valley.

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Competition is an important issue in the planning and management of a business. Even if our idea is right and the execution is exact, we are not the only ones competing for the heart (and pocket) of the customer or potential partner. If we build a successful business, and we are the first to offer our solution in its target market, it will only be a matter of time before imitators emerge, and experience shows that in most cases it will even be difficult to determine who was there first and who copied from whom. Companies build their strategy taking into account existing competitors in the market, change goals and priorities to fight competition and sometimes a large part of business management revolves around our assumptions about the next steps of potential competitors, so that more than just trying to build a business, we are busy protecting it from external threats (real or imaginary).

Netflix CEO Reed Hasting claimed at the time that his main competitor was not one of the other streaming service operators such as Hulu, Disney+ or others, but rather the gaming company Epic Games, because the growing popularity of its game Fortnite, competes for its crucial customer resource - their time. In another interview, he claimed that Netflix's main competitor is actually sleep. People sleep six to ten hours a day, which lessens the time they have left to watch Netflix. This surprising approach turns the spotlight on the fact that competition is not necessarily against someone who is very similar to you, but against someone who competes with you for a common resource - the customer's time, attention or choice.

When I was in eighth grade and was determinedly courting (but not very gracefully as I look back on it now) another of my classmates, my rival (spoiler alert: he was the one who got the girl in the end) was not the same as me, nor even very similar. In fact, other than the fact that we were both the same age with a similar taste in girls, we had almost nothing in common. And yet - we were in direct competition with one another.

Many companies tend to identify only very similar companies as competitors, thus missing out on the fact that their actual competition sometimes takes place against other companies that are less similar to themselves. If a company tries to sell personnel management services to a human resources department in a corporation, for example, it competes not only with similar products, but also with all the other solutions, technological and non-technological, that try to win part of the potential customer's purchasing budget. They also compete with advisory bodies, for example, even though these are organizations that have never written a line of code in their professional lives.

When planning a new venture it is important to consider the question of what else exists in the market and analyze the competitive space. I prefer the term “market landscape” over the more conventional one, “competitive landscape”, because it is important to me to know not only the competitors but also everyone who operates in the relevant market environment. The instinct of most of us is to dismiss ideas if they are too similar to products or companies that already exist in the market, and to get stressed out and defensive when we hear that another company is operating in the same direction or launching a competing product. It is harder to convince investors to believe in our business if it intends to compete head to head with a more established company on the one hand (just try to raise money to develop a search engine or social network, for example). On the other hand, if we describe a vision for a business operating in a non-competitive market, we may create the impression that we are aiming for a vision that is not needed. Investors will look for the perfect balance of an existing market that others are also trying to operate in, but whose level of activity is not yet high enough to constitute a rigid entry barrier for new initiatives.

A good friend of mine, who about two years ago set up an enterprise that is gaining impressive momentum, often tells me about the anxiety he experiences due the existence of a competing company which was also established two years, which seems to be quite similar to his company, but raised a little more money and among its investors is also one of the well-known VC funds in the market. I do not know the CEO of the competing company, but I bet he is equally concerned about this competition, or at least aware that he is not alone in the market, and sees the company my friend is running as direct competition as well. I try to reassure my friend by arguing that both companies are still so young and looking to find their way in a huge market. It is likely that, like most startups, they too will still make many changes in their product, target market and business model, and it is not known whether in the long run the two companies will really remain so similar to each other at all. Beyond that, if customers hear about more than one solution in the market, it helps generate awareness of the need for the type of solution they offer and it helps promote the market. The competition I mentioned in my opening between Outbrain and Taboola, is a competition between two mature, market-leading companies, competing with each other for large customers in a defined market whose choice by each customer directly affects their resilience and ability to grow. This is a real and concrete competition. In contrast, the one between young companies occurs mainly only in the worried minds of entrepreneurs.

The choice of how to deal with a competitor largely reflects the degree of paranoia and the personality style of the entrepreneur. There are those who go on the defensive, fighting fiercely for every customer even at the cost of compromising on business terms, doing whatever it takes to beat the competitor. They try their best to hire employees from the competing company and establish their working relationship with suppliers and business partners in exclusivity agreements. There are also those who will first call the competing entrepreneur, offer to meet, and build up friendships based on mutual respect with the assumption that somewhere along the long and unknown road that still awaits them both, there may also be a possibility for future cooperation. It is quite possible that just as I and that annoying classmate who won the heart of the girl who broke my heart in eighth grade eventually became friends, so too a friend who is identified as a competitor in the beginning may eventually become a partner.

When we founded Piggy about a year ago, we entered the very wide field of content creation apps, an area where huge companies like Google and Microsoft operate, alongside rising companies like Australia’s Canva, social networks like Instagram and Tiktok and countless other young, creative, visionary and talented companies. Our success does not depend on the failure of all these companies, although there is definitely competition between us. We want to get people (specifically, young people aged 12-30 as the main target audience) to use our app to create documents and stories that they will share with friends, co-workers or online friends. Each of these people also has other options, and our challenge is to find the distinction unique to us that will make as many of them as possible choose our app over the alternatives. This does not mean that there is room in the market for just one app. If we are smart (and if we are lucky, which is no less important) we will be able to identify the target audience that the unique differentiation of our app brings intrinsic value for, and we’ll build for ourselves an active user community. This does not mean that they will not have Instagram accounts or that they will not use Microsoft Office products, just that in some cases they may find our solution to be right and more appropriate for their needs. This requires us to be well acquainted with each of the existing solutions in the market, research them in depth and treat a wide range of companies as part of our relevant market landscape, even if their products are not identical or very similar to ours.