Back
Amit Ashkenazi is VP Business Strategy at Fiverr, and also formerly a Partner at Viola Growth. This post was written during his tenure at Viola.
One of the questions we often ask when we meet new companies as part of our deal flow analysis is “who are your competitors?” and sometimes the reply we hear is a triumphant “There are no competitors!”. Indeed, there are entrepreneurs out there who believe that minimal (or no) competition is a good thing, especially when they are pioneers in a new category, because being the first “mover” in a new playing field can be a significant advantage that allows for fast land-grabbing. But the truth is that although competition is often seen as an obstacle, it can also be an important propellant.
When a new product or service category is in its infancy, competition can be a good way to co-educate the market, since competitors are all spending marketing budgets to attract potential customers. A good example for that is GlassesUSA, a Viola Growth portfolio company that sells prescription eye-wear online. Their management is always noting that there are not enough competitors to help educate the market about the ability to purchase prescription eye-wear online. While the online market for prescription eye-wear is growing very rapidly, it still represents only around 5% of total $29 billion market in the US.
There are several other important benefits to the presence of competition. A lack of competition can imply that the market is not interesting or big enough for new entrants. Or If you look at it another way, the presence of competition validates the market need and helps to increase the pie that the competitors are fighting over. Also, competitors often force a company to up its game, sharpen its focus and become more ambitious about becoming better (if not “the best”) at what it does. It also encourages the company to maintain a clearly defined identity and point of difference
Of course, competition also has its disadvantages. It can lead to an unnecessary price war that ultimately hurts all competitors, increase customer acquisition costs and bump up the wages of talented employees to the extreme.
Being the first mover in a market doesn’t necessarily promise success and market domination. One of the most well-known examples of this is Apple, which wasn’t responsible for inventing the portable music players, smartphone, tablets and smart watch but are nevertheless dominating those markets with the iPod, iPhone, iPad and Apple Watch. Understanding the market needs and letting someone else develop a solution before you enter as a second mover can sometimes be a good strategy. Google, to name another example, entered the smartphone market relatively late (way after the iPhone was out) but it still today dominates the mobile operating systems today with Android.
Another interesting form of competition is Coopetition, where two companies fight it out for market share on the one hand, but also cooperate with each other as well. One of the most well-known examples of this is the relationship between Apple and Samsung. The two companies dominate the smartphone market globally with an aggregated market share of 36%. While the two companies battle each other with a no-holds-barred attitude, taking each other to court on patents infringements at every opportunity, Samsung is also the one who makes the chips for the iPhone.
Israel also has its own history of categories that are dominated by more than one home-grown company vying to be its innovative leader, each demonstrating a formidable resolve to dominate its competitors.
For example:
Optrotech and Orbot – two companies that led the automated optical inspection (AOI) market in the late 80s before deciding to merge in 1992 and create the market leader named Orbotech
Amdocs and Comverse – two Israeli companies that led the telecom billing software. After a long battle and fierce competition, Comverse entered into financial difficulties that led Amdocs to acquire its billing division in 2015 for approximately $270m
Nice and Verint – the leaders of the analytical telecommunication product that have long been rumored to be set for a merge or to acquire one another
Checkpoint and Palo Alto Networks – both leaders in the firewall domain. As a matter of fact, Palo Alto was even founded by a Checkpoint ex-employee
There are many more examples, and the conclusion seems to be that in the long term, it doesn’t make sense for two Israeli companies to fight over market share. It makes more sense for them to join forces. As you can see, the typical outcome of these situation is usually either a merger, an acquisition or a slow death with one of the competing companies prevailing.
More recent Israeli competitors who have been at the forefront of new category innovation include:
Outbrain and Taboola, who created and now lead the content recommendation/discovery industry
BlueVine and Fundbox – two leading Fintech companies that developed a technology for automated invoice financing
Forter and Riskified – who developed e-commerce risk management platforms that enable increased revenues and fraud prevention for online merchants
It will be interesting to see what the future holds in store for these formidable competitors.
I would like to end this with a nice quote of Ray Kroc – the legendary CEO of McDonald’s who definitely disliked his competitors:
“If any of my competitors were drowning, I’d stick a hose in their mouth and turn on the water.”
More posts by Amit Ashkenazi:
From Don Draper to Sheldon Cooper: The Transformation of CMOs
Why spending big to grow a company that’s based on shaky unit economics is a lousy idea
Everything as a Service (EaaS): Why eventually we might not need to “own” anything
Change Agents and how they impact new technologies
Raising money for your startup? Why you need to beware of inflated valuations
What your approach to recruiting top talent says about you and your company (and why it really matters)
Seeking a strategic investor for your company? Here’s what you need to know
