Competition at the Bottom

Umair Haque on competition at the bottom:

You probably know the leaden, efficiency-seeking score: do it cheaper, faster, bigger. Find a cheaper country to outsource to. Find an even cheaper “input” to substitute for a once high quality ingredient (hi, high fructose corn syrup). Restructure, reorganize, slash and burn. Cut corners, “manage” your earnings, sub-sub-subcontract.

But competitiveness doesn’t end there — and in fact, I’d argue that only the weakest, least enduring, most useless kind of competitiveness even begins there. What you can purchase off the shelf cheaper — whether labor, inputs, or capital — the next guy probably can, too. And in a hyperconnected, increasingly transparent world, yesterday’s easily placated “consumers” are less and less likely to see “value” in your lowest common denominator, and more likely to yawn at yet another widget.

You have to remember, there are different business strategies. One is to be the lowest common denominator, but the problem is maintaing competitiveness at the bottom – it still requires some sort of innovation and refresh. The problem is the death spiral a company can get into if they think they don’t act like a lowest common denominator.

What’s required of a lowest common denominator? I covered it on my Mobile Strategy post:

A company must produce high volumes of standardized products to take advantage of economies of scale. The product must be a no-frills, low cost, and easy to manufacture. It is essential to be made available to a very large customer base. Even if the margins are low, the volume makes up for it.

Umair uses the plethora of Android devices launched at CES as an example. What I think about is how each competitor is trying to put their stamp on the phone: custom UIs, different features, etc. These companies are wasting valuable resources and money, when before long it will be a race to the bottom. They should be retooling to make the product as no-frills (from a development & manufacturing perspective) and easy to manufacture as possible.

January 18, 2011