Creating Barriers to Entry Online
January 22nd, 2007 | Categories: launch, networks, social media, strategyIt’s pretty hard to create strong barriers to entry online, especially for start-ups. Without a ton of cash or an army of programmers, Google or Yahoo can quickly and easily swipe your idea and churn out a prototype in mere weeks. Protecting against this potential threat is key.
The best way to prevent users from defecting and joining a competitor service is via strong brand loyalty and a stellar product offering. This cannot be over-emphasized. Just as content is everything to a blog, the product is of utmost importance to a start-up. I hate using cliches as I just did, but it’s true.
Another way to protect against rivals is by harnessing the power of the Network Effect. Though not all companies can use this phenomenon, if you plan accordingly it may very well be a saving grace. Examples of companies who exploit this include:
Partnerships, strong relationships, and/or exclusive deals with select companies may also provide a barrier against other companies. Solidfying relations and maintaing excellent communication is vital.
Finally, some companies turn to a more traditional approach - the Law. It seldom occurs on the net, but sometimes companies file patents to guard their business systems and practices. Examples include:
I don’t think a company should ever bank on a patent or legal barrier. Patents are only as good as your ability to fight them in court. In addition, rivals may find a way to dodge around them or give them a slight twist, thereby bypassing your defence.
Protecting against competitors is key to a successful long-term strategy. However, critical planning and execution is necessary. Failing to do so may erode your user base and ultimately lead to your demise. Don’t let it happen.
January 24th, 2007 at 12:08 am
an article of interest:
http://www.pbs.org/cringely/pulpit/2007/pulpit_20070119_001510.html
January 24th, 2007 at 9:29 am
Thanks for the article Arlo.
January 25th, 2007 at 4:50 pm
Aidan,
While I appreciate Sharpcast being mentioned in your article, I must say I take issue with the context in which we’re included. The notion that a giant company can, in a matter of weeks as you suggest, churn out a solution that other smart developers and entrepreneurs have spent years developing, is - well, absurd.
Yes, the industry monoliths you name have reserves of talent, cash and brand power. But if you look around you’ll see more innovation happening, and at a faster pace, among smaller companies these days than from the ranks of the larger enterprises.
I’m not sure where you got the idea we’re relying on patents for successs. Of course we file patents - it’s foolish not to. But our stake is in delivering a brand new integrated software & web experience that will ultimately delight our customers and help catalyze a new market of ‘webified’ desktop applications. Our bet is backed by innovation and a lot of satisfied customers, not the law.
Thanks for listening. I encourage you to try out our product some time and see for yourself how it compares against those of our larger competitors.
January 26th, 2007 at 12:18 pm
Allen,
Many ‘web 2.0′ companies are small and lack financing. In addition, many times work is only done part-time. Any large company could easily allocate the necessary resources to thwart such an endeavour.
Start-up A: 2 programmers… Google: 100
Start-up A: $20,000… Google: $1 million
Start-up A: 40 hours a week combined… Google: 4,000 hours a week
Advantage Google.
In other words, Google (or Yahoo, MSN, AOL) could easily ‘churn out a solution that other smart developers and entrepreneurs have spent years developing’.
Innovation can be copied faster than it can take to create. You need barriers to entry to defend against this threat.
Who’s to stop the big guys from doing the exact same thing with the same interface, lay-outs, and processes, but branded differently?
I do agree with your concept of NOT relying on patents. In addition, your understanding that your strength lies in your ‘brand new integrated software & web experience’ is important. Your satisfied customers play into this. By keeping them happy, they will not defect or turn to a competitor.
I have tried out your products and definitely see value in them. I simply mentioned Sharpcast, as you’re one of the few ‘new web’ companies I have come across that has filed patents. There was no intention of isolating you from the crowds.
Thanks for your thoughts.
Cheers,
Aidan