Archive for April, 2019

A Near Monopolistic Market

April 29, 2019

The point of the bowling ally is to build to a near monopolistic market leadership position when we transition through the tornado that is between our verticals and our soon to be IT horizontal. Another point of the bowling ally is to get it done before we take VC money, aka to bootstrap. The “near” part of our positioning is about avoiding governmental intervention around antitrust law. Managing a near monopolistic organization means paying attention to the market positions of all the organizations serving the same market. It means slowing down sales to keep from crossing the antitrust red line. It means sending your peak sellers on vacation for a while.

Throughout the life of a continuously innovating in a discontinuous manner because of the phase structure of the technology adoption lifecycle, it means holding on to people, organizational units, and processes that we will need again or later in the lifecycle without laying them off, or not forgetting and erasing these elements when they are not the focus of what we are doing right now. Companies that forget that they will be doing this again soon end up standing around when their current product has reached the end of its category’s life with nothing to do. It was quite a while before Lotus moved on from their spreadsheet product to their next product. We see Apple doing the waiting right now. It’s something they did after the Mac as well.

Keeping the bowling ally full cuts down on that waiting around.

Attending to your market allocation also helps you see your performance relative to the market, rather than some KPI maximizations and guesses.

I spent a few hours today breaking a market down into the allocations to each competitor given that everyone followed the rule for being a near monopoly. That rule says, never exceed 74% of market share. That is probably a market leader rule. I’ve applied it across all the competitors. In markets where the companies never even get close to a monopolistic position, doing the 74% exercise across all market participants tells you who is operating at 100% and who is not.

I know the market leader gets 74%. This, of course, happens only if they are operating at peak performance. Companies don’t usually do that. But graphing the thing again tell you who is and who isn’t.

Near Monopoly 2

The market leader gets 74% of the market assuming the market leader is operating well enough to achieve that 74%. This means that the market leader owns the market, defines it, establishes standards–doing all the other market owner duties. Those duties include seeing to it that the value chain members are thriving, and the employees in the companies comprising that value chain are having viable, long-lasting careers. The market leader tends to the economic wealth of the category. They don’t take it all. They don’t usurp functionality built by members of their third-party vendor network. The market leader has to evolve some sense of the accounting of the category, an accounting reaching beyond their firm. And, to hit that 74% number they have to be operating at peak production. There are two accountings: the inter-entity accounting across the value chain, and the intra-entity accounting of the firm.

The market leader leaves 26% for everyone else. In the figure, I’ve applied that 74% share across all competitors. That’s not realistic. But, instead of using that number, you can use the market leaders real numbers, and the real numbers of all competitors. But, those numbers are lagging indicators. Use the 74% share as an ideal. Then, once the real numbers come in, graph the situation again.

The company in the number two position in the market will take 74% or the remaining 26%. They get 19% of the market. The third company in the market gets 5% of the market. And, the fourth company gets 1%. The rest of the companies get to a piece of the remaining market something slightly more than half a percent. This might seem awful, but to latecomers go the spoils. Still, is the total market in the $B or $T. Then, there will be many more companies that can be included, before market share runs out.

In the discontinuous innovation situation, the market leader defines the category. The first five companies fight it out for market leadership, so they all contribute to how the category does business. The bowling ally can provide you with the seats and dollars you need to be the market leader as soon as you enter the tornado. Getting through the bowling ally, across the carrier-carried content flip that happens when you go from the verticals to the IT horizontal, and across the other changes in operational focus associated with the phase change are all critical to making as the market leader in the IT horizontal.

One last comment–the near-monopoly allocations are an upper limit. In later non-monopolistic markets, the competitors will not exceed the envelope defined by the near monopolistic allocations. If 20% of the market leader is taken by the nearest competitor, you are still talking a 54%/39% split. The market leader still has a significant advantage. In commodity markets, the numbers are much closer, say 46%/47%, the market leader role doesn’t move quickly so market leadership can persist even with second place share. And, the competition is not zero-sum between the first and second place competitors. Market share can be gained and lost across the entire long tail.