Defensibility — For Hardware and Software
When you’re a hot new company with a lot of traction, you are bound to get chased by competitors. The founders had to struggle through performing enough customer development to unearth the unmet need, therefore first mover advantage is your prize. This would include coming across problems and hopefully solving them in a timely manner, before the competition catches up.
Competition and how to handle it, differs between hardware and software companies.
Hardware
When you have a successful product, you will begin to be chased by clones. For hardware there is only one solution, and it’s not to make the product for as cheap as possible and fight a price war.
For hardware to be defensible, it must build software. GoPro, which makes high-definition personal cameras used in extreme action video photography, was seeing a lot of low cost knockoff enter the market. So rather than making their cameras cheaper they added software to make the cameras more awesome. They released an app that allows people to use their mobile device to view and share photos and videos stored on their GoPro HERO3 and HERO2 cameras via email, text, Instagram, Twitter, Facebook and more. In essence, GoPro is enabling people to push their videos onto social media, and create free marketing for GoPro because the videos are a byproduct of the camera.
They have more than 2 million subscribers to its YouTube channel and 521 million views on the website — and its increasingly growing popularity enabled it to become YouTube’s top brand channel between January and March of 2014.
“By involving its fans in content curation, GoPro has built a loyal and engaged audience,” YouTube states in its report. “The authenticity of the channel’s content helps viewers feel connected to the brand.”
Software
For software the way to be defensible is through business development. The key is in having a valuable service which can partner with other valuable services. Here are 3 companies that are doing a great job with partnerships:
Uber
Uber’s competitors are popping up rapidly. So rather than competing on price, Uber is building partnerships with brands and gaining new users through cross promotions.
Uber did a deal with the music streaming service Spotify. The terms of the deal are if you are a Spotify Premium member, you can create and play your playlist in the Uber that picks you up. How does it benefit Spotify? It encourages users to sign up for the premium (paid) version of Spotify to unlock this feature.
Capital One bank also did a partnership deal with Uber. When a person signs up for a Capital One Quicksilver card, they will get 20% off their Uber rides for a year. This encourages more Uber rides as well as more people signing up for the Capital One credit card.
Starwoods Hotels is one of the world’s largest hotel companies, it owns, operates, franchises and manages hotels, resorts, spas, residences, and vacation ownership properties under its nine owned brands. As of late 2014, Starwood Hotels and Resorts owned, managed, or franchised over 1,200 properties. They have a loyalty program, SPG, where users can accrue points by staying on their properties. They did a deal with Uber where members can earn SPG points by using Uber. One point for every dollar spent with Uber.
In addition, Uber is partnering with Microsoft, Samsung, and AT&T to provide a deep integration within each of their platforms.
Postmastes
Postmates’ revolutionary urban logistics & on-demand delivery platform connects customers with local couriers, who purchase and deliver goods from any restaurant or store in a city.
To hinder competitors from advancing, they are in a land grab for vendors. They have signed deals with large corporations, Starbucks and Chipotle, to handle their delivery. Recently, the Apple Store partnered with them to provide delivery of goods from their stores.
Stripe
Stripe gives developers a set of tools to accept and manage payments online. They have teamed up with Facebook to power their “Buy” button.
In addition, they have teamed up with Twitter to power their “Buy” button, as well. In a partnership with Apple Pay, companies which use Stripe can integrate their app, with a few lines of code, and allow their users to transact on their Phones.
For a platform to be defensible, it would rely on network effects. As Fred Wilson wrote in a July 2014 blog post about defensibility, “We saw the cloud coming but did not want to invest in commodity software delivered in the cloud. So we asked ourselves, “what will provide defensibility” and the answer we came to was networks of users, transactions, or data inside the software. We felt that if an entrepreneur could include something other than features and functions in their software, something that was not a commodity, then their software would be more defensible. That led us to social media, to Delicious, Tumblr, and Twitter. And marketplaces like Etsy, Lending Club, and Kickstarter.”
At the end, it’s not the product that provides the defensibility, but what the product let’s users do on it’s platform.
If you liked this post, you might also like:
If you liked the overall message of this post, feel free to get in touch with us. We do speaking engagements — http://www.citadinesgroup.com/#contact
