by Asim Jalis
I had a really good weekend. It all started when I read through
an interview of Bill Gates by David Allison of the Smithsonian
Institute.
http://americanhistory.si.edu/csr/comphist/gates.htm
I had read this a while back, and then stumbled on this again on
Saturday. The interview hints at principles, but does not lay
them out.
Let's start from the beginning. Suppose you want to start a
venture. Let's say you want to become a successful shareware
author, or you want to become a bestselling writer, or a highly
successful blogger. The question arises: What should you write
about or sell?
The difference in degree of success can be dramatic. Compare the
profits of a blog gets 100,000 page views per day versus one that
gets 1,000. This number is profoundly significant. It determines
the scalability of your effort.
Here is the answer (or an answer): Instead of reasoning through
the mind of the market to figure out what will sell, look at what
is selling, try to understand why, and then create a competing
product. We've discussed this idea before but not in this way.
The competing product does not have to be identical. It can be
different in small ways, but it must address the same basic
problem.
Given that we have limited information about the market, all
information is useful. The fact that someone is already
succeeding is a piece of information. Using this gives you more
leverage than if you ignore this feedback.
This is a lower-risk strategy than creating a completely new
market. The innovative strategy can work really well, but it
requires patience and many experiments. This strategy is likely
to succeed with less investment and might be a good one for
someone with limited capital who is trying to start his first
venture.
Let me make this more concrete. Let's look at PVRBlog.com, which
might be an example of a highly successful blog. Why does it
succeed? Here are some possible reasons:
1. It's possible that while the number of PVR users in the world
is very small, the overlap between the people who use PVRs and
who surf the web for information is extremely high.
2. The web is good for reviews of innovative stuff. (a) There is
not enough information about new things. People are always
looking. (b) The people who like new things are also likely to
use the web a lot.
3. PVRs lead to high-paying Google Ads.
So now, what if someone else enters the market and creates a
me-too PVR blog. Even if this blog gets 10% of the revenue of the
main one that might be several fold more than what it could get
if it was about puppies or grits. It might even be possible to
get more than 10% of the market share. For example, the competing
blog could improve on the original. It could have a Q&A column
where people can ask questions. It could have contests where it
gives away PVR accessories. There are tons of things that could
be experimented with to make it better.
The reason these experiments are feasible is because we have
narrowed the search space. Competing narrows the search space
which allows useful experiments to be run. Competing creates a
structure in the market. Otherwise reality is unstructured and it
is hard to figure out what to do and where to move.
Notice the dialog between the Republicans and Democrats. They
frame the conversation for each other. In a one party state there
would be no structure to the conversation. E.g. in most companies
where upper management runs the organization like a one-party
state it's hard to get engaged with issues because things are
unstructured and unframed. Life become interesting when you have
competitors.
Microsoft stays engaged precisely by having competitors.
Competitors turn work in play. Suddenly it is a game, and you
ahve to win. It's much more fun to play with someone else than to
play alone.
Competition narrows and structures the search space.
Let's now turn to shareware. Looking at downloads.com, the
bestselling software is all for cleaning up pop-ups and spyware.
This category seems to do really well. While it makes sense that
it would do well, it is not obvious why it would do so much
better than other useful categories of software. And yet for
whatever reason, it is big.
So if I write a trading game and completely corner the market, I
am going to make much less money than if I write a spyware
cleaner and capture only 1% of the market.
Now it's possible that a trading game market could eventually
also become the same size. However, for a category to succeed
many things have to line up. Many of these things are impossible
to observe or even understand. For example, it's possible that
anti-spyware sells so well because companies buy it to install on
their internal networks. Companies are more likely to invest time
and money in anti-spyware software than in other useful software,
because the danger from spyware or viruses to an IT network are
so serious.
All of this reasoning is completely speculative. The main point
is that for a category to be successful a whole ecology must
exist around it. And it is nearly impossible to create such an
ecology from scratch, or to foresee it before it springs into
existence.
One of the reason both Britain and France became world powers is
because they were right next to each other and spurred each
other's improvement.
This is the same reason that all the dotcoms are in California.
It's much easier to compete with people across the street than
half way across the world. And competition makes everyone
stronger.
