Monday, February 13, 2012

An Ode To Competition

I wanted to share with you some thoughts about several news which happened the past few months. All of them are linked with the competition concept.

 Competition is core to our capitalist society, and is supposed to stimulate low prices and innovation. Competition, as a matter of fact, is not something natural for companies. It is something that any corporation would try to avoid. Indeed, competition means that you can not master your business model. You have external factors, such as direct competitions (companies producing the same kind of products), indirect competition (companies which propose substitution products, or products which gets into the same budget for one client), customers, regulation, foreign companies getting into one market, and so on. To know more about these factors, you should look at the Porter matrix.

 Companies indeed try to escape from competition, it is the whole idea behind the Blue Ocean Strategy: Creating a space where you can not be compared, where your products/services are unique. Nevertheless, competition is something very important in business. Because competition is what drives innovation, and better prices for companies. Here is a video of Eric Schmidt, former CEO of Google, during Le Web 2011. He would like to see more competition in the Web 2.0 world outside of the Silicon Valley. He believes that it would stimulate the whole industry and therefore would benefit to innovation.

 There is also a very important part about competition: it forces companies to pay more attention to customers. This is when markets mature that you see companies developing customer relationship management strategy.

It also forces them to create new services. For example, when Pizza Hut proposes to deliver its pizzas in 30 minutes, then it forces the whole competition to follow the lead, and to propose the same.

 I take as an example what is going on in France, with the arrival of a new mobile network operator Free, which proposes new discounted fares. Prior to its arrival, there were three main competitors sharing the markets, with large margins, and therefore there was no real competition. But then, Free decided to enter the market, and to provide discounted prices, in order to cut the bills by half. After the arrival of this new competitor, other companies launched counter offers in order to align their fares. To sum up, we can say that competition, even though it is tough, is always a good thing, because it makes things going forward. What do you think about it?