Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

The rise of the bad competitor . . . Craigslist et al

Posted by Tom Foremski - May 8, 2006

I've been thinking about "bad competitors" after coming across this excellent speech on the future of newspapers by Phil Meyer, Knight Chair in Journalism, University of North Carolina at Chapel Hill at a conference in August 2005. [Craig Newmark is founder of Craigslist, the classified advertising company.]

...they [newspapers] don’t have a monopoly. As sure as Craig Newmark is sitting in this room, they don’t have a monopoly on classified advertising, and there’s lots of other stuff they no longer have a monopoly on. They have a monopoly on being newspapers. But that’s not the point. The point is that the services they provide are being provided cheaper and more somebody else. I first met Craig at this meeting and I shook his hand and I said, “Craig, you are what the Harvard Business School calls a bad competitor.” A bad competitor is somebody who will provide a better service at a lower profit margin. Since Craig isn’t interested in any profit margin at all, he’s about as bad a competitor as you can get. And this is going to continue.

Check out the The Sunday Times (of London) recent feature on Craigslist quoting Craig Newmark and Craigslist CEO Jim Buckmaster:

From Sunday Times May 7 magazine: Falling for super-geek

. . .Newmark drives a Prius, a petrol-saving hybrid car. Buckmaster has never owned a car. They both take the bus to work in the morning. “I don’t really want a Rolls-Royce or a huge, fancy house,” says Buckmaster. “Money is important until you have enough of it to be comfortable with. Beyond that, I think it’s a very mixed bag.”

. . . For Newmark and Buckmaster, the internet has a higher calling than money-making. It’s a view many shared at the start of the dotcom revolution. But one by one, Craigslist’s contemporaries at firms like eBay and Google have joined the rat race and made billions. The Craigslist duo could easily join the dotcom rich list if they chose to sell the company. The idea is anathema to them.

. . .Classified Intelligence Report, an industry newsletter, found that in San Francisco the main newspapers lost over $50m in classified revenues in 2004 because of the Craigslist effect.

[Please note: I am friends with the Craigslist team, and have eaten many a meal at the generous table of Jim Buckmaster and Susan Best, and Craig is often there too...]

There are bad competitors in the enterprise IT arena, especially if you look at the way enterprise software competitors are trying to turn their competitor's core markets into commodities.

Nicholas Carr over at Rough Type says it well (in reference to one of my posts about SAPs strategy.)

From Stack War:

SAP's trying to commoditize the database, by promoting, for instance, the open-source MySQL; Oracle's trying to commoditize middleware, also by promoting open-source options; and IBM's happy to commoditize the applications (while maintaining an escape hatch to "business process automation" up above the stack).

It's an interesting dynamic that, in total, would seem to simply accelerate the commoditization of everything.

-And you can see it in the music industry too. Take a look at Yahoo Music, one of my favorite web services. For just $5 per month I get access to an amazing catalog of music, any time, any place, even from a friend's computer-- you'll never use iTunes again. You'll certainly never buy another $20 CD.

-Take a look at the dozens of me-too companies in each category funded by Silicon Valley venture capitalists. There are more than a 120 news aggregators for example, and more coming. How many "wiki" companies are there? Every new idea in what they call "Web 2.0" is copied and commoditized within weeks.

-The outsourcing business is driven by bad competitors. Overseas IT services companies that do it for far less than local companies. They could get more money for their services but choose not to so that they can win more business.

-Somehow, in the 1980s, the US chip industry managed to persuade the US government to punish its bad competitors. In those days it was the Japanese memory chip makers and Intel (INTC) was leading the push for tariffs against Japanese competitors for "dumping" on the US market. Dumping meant producing chips for less than the cost of their production, to win market share. That became illegal.

-Robert Scoble, Microsoft's top blogger creates millions of dollars in good PR for his employer for the cost of an engineer's salary, about $100k. Microsoft's PR agency Waggoner Edstrom cannot compete with the ROI on Mr Scoble. It's something PR companies everywhere will have to face.

And there are many other examples of competitors either behaving stupidly and ruining the market for everyone. Or, competitors that don't monetize the markets to their fullest opportunity and thus are not creating wealth for themselves, their investors, or their employees.

So where does this trend lead?

Should it be illegal to make a loss in order to gain market share?

Should it be illegal for companies to make bad decisions that ruin the market for everyone?

Does a company have a moral or ethical obligation to increase the monetization of a market so that it can employ more people and provide additional services for its communities?

Are companies that use very profitable business groups to prop up less profitable businesses groups acting as bad competitors? For example, Hewlett-Packard's printer group has subsidized the IT group in the past.

Are the telcos and cable TV companies "good competitors" because they seek to block any Internet threat that would commoditize their services and thus force massive layoffs??

This bad competitor trend will only intensify because it can't be stopped.

What happens next?

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