MochaTalk

Incumbents in a market can be very hard to displace even if you clearly have a superior offering. Market inertia and barriers to change can be too hard a challenge to overcome. Prior to Windows, Microsoft tried very hard for years to displace WordPerfect and Lotus 1-2-3. However, it was only with a platform shift to Windows that Microsoft was able to finally break the monopoly that WordPerfect and Lotus 1-2-3 had established. A platform shift provides a unique opportunity for new entrants to displace incumbents by being the first to take advantage of the unique capabilities offered by a new platform. Often the existing market leaders are too set in their ways and business model and too risk averse to adopt a new platform. In this blog, I will discuss some key examples of how new players were able to establish market leadership positions by taking advantage of these platform shifts.

Lotus 1-2-3 and IBM PC – Here is a great example from the beginning of time. Before Lotus 1-2-3 became a leader in spreadsheets, there were many players in the market including VisiCalc (who had the 1st mover advantage), Microsoft Multiplan and others. However, these spreadsheets all were written for multiple OS platforms like CP/M and DOS since there was no dominant OS at that time. As a result, none of these spreadsheets could really be optimized for any of these platforms. Lotus, however, embarked on a different strategy. With the IBM PC, they saw a great new platform that provided a large amount of memory (at least in those days) and processing power to build a powerful spreadsheet. Instead of taking a multi-platform approach, Lotus built and optimized its spreadsheet program just for the IBM PC platform. Lotus 1-2-3 quickly became the dominant spreadsheet because it provided the best feature set and performance as a result of its singular focus on the IBM PC platform. Visicalc and Multiplan quickly lost market share because they couldn’t re-architect their offerings to provide the performance that Lotus 1-2-3 could deliver

Microsoft Word and Excel – It is interesting that Lotus forgot the very lesson that they had taught the industry. Microsoft had tried for years with MS Word to displace WordPerfect which was loved by its user base. However, Windows 3.0 provided the perfect opportunity for Microsoft to displace the incumbents. First, Lotus and WordPerfect resisted supporting Windows since it wasn’t to their advantage to make Windows successful. Second, they decided to port their DOS application to Windows instead of building from scratch to take advantage of the many advanced capabilities of Windows. Microsoft, not surprisingly, built their apps to take full advantage of the Windows platform. Their goal was not only to build the best Windows applications but also the best word processor and spreadsheet. Soon, thereafter, Microsoft changed the rules again creating the Microsoft Office Platform which initially was just a simple package made up of Word, Excel and Powerpoint. Over time, they delivered real value through a common menuing system and integration between the various applications. The rest is, of course, is history!

BlackBerry and Palm – As we all know, while Palm was not the first PDA on the market, they delivered the first truly usable PDA on the market. PALM enjoyed great success and buzz. They were even the first player add wireless capabilities. However, Palm VII was a dismal failure because the wireless capabilities were simply added on to the existing Palm platform with no real thought given to how to leverage the enormous opportunities that lay ahead in delivering a great wireless experience.

RIM, on the other hand, built BlackBerry completely to take advantage of the emerging wireless platform. They focused first on building a great e-mail experience which was the killer application that compelled the early adopters to become BlackBerry addicts. In fact, while BlackBerry provided PIM applications none of them were as good as Palm’s application. It didn’t matter, however, because BlackBerry delivered the best wireless e-mail experience on the market and that’s what people really cared about. As wireless networks became more advanced and supported greater bandwidth, it became only a matter of time before a disconnected PDA became an historical footnote.

There are many other examples of new players taking advantage of a platform shift to establish a dominant position in the market. The internet – the greatest platform shift in history – itself created many rags to riches stories and vice versa. Monster.com, Expedia, Amazon are all companies that took better advantage of the new internet platform before the incumbents and established a dominant position. Of course, not all markets lend themselves to a platform shift. Pets.com, WebVan and others were all examples of companies where the internet didn’t afford these companies any compelling value proposition to displace the incumbents.

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Welcome to the Mocha Talk café! Over the past few months, we have been meeting at a Tully’s (sorry Starbucks – they have free internet access) on the Sammamish plateau researching and refining our business plan. We are now getting ready to move into our new office by the end of Feb (it is at a great location near the 520 /405 interchange close to Whole Foods). First priority was to order an espresso machine and a ping-pong table, of course. Recruiting is also in full swing. We are getting to meet some great people and have already made our first offer.

Since we are in “stealth” mode, we can’t tell you much about our planned offering. However, we will be sharing some of the lessons we have learned in our previous startups as well as our observations about recent trends in internet services. We hope you will come check us out often and actively contribute your thoughts to what we hope will be an interesting set of discussions.

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