The development of modern marketing and all forms of corporate management has led to a set of metrics that enable managers to assess how well they, their brands and their company are doing. Most are borrowed from nature, from the basic measurement tools we used in the agrarian society to ensure we had enough to eat or trade in the subsequent season. They make sense now and they’ll make sense a thousand years from now. Simple models of assessment such as yield and growth rates spring to mind. But one that is an industrial-era measure is that of market share. How much of a market does a brand or company hold in percentage terms? Is it increasing or decreasing and what does that tell us about the relative performance?

Market-share folly

The problem with using market share as a measure is that it can provide companies with a false sense of what’s actually occurring in the market. For market share to be measured, a set of assumptions used to build the measurement framework is needed. Companies first require the following elements:

• They have to clearly define the market.
• The market must be defined in terms of a product or service.
• The market is then often split into smaller product or service segments of the wider market.
• There must be clear distribution channels, from where their sales come, from which market share can be measured.
• There must be a defined set of competitors who also serve that market. They need to know who they are, and they need to sell in and around the same measureable channels.
• There needs to be a measuring tool. Historically large research companies such as AC Nielsen have a system in place to do the measuring.

All of the requirements needed to find market share tell us the story of how this can be a misleading and problematic measure in times of revolution. When all the factors of production and all the distribution methods are being disrupted, it’s important to be careful when deciding what to measure. Often the things we measure — the channels, the product type, the systems — are those that evaporate when the pace of change is rapid.

The key assumption = we know the market

Market-share folly can mislead a company into believing it’s doing better than it is. It focuses attention in the market as the way it is, or was, rather than how it will be — a defined market that’s knowable, predictable and has a pre-defined set of players who usually play by the industrial rules developed over the past 200 years and who probably all use the same go-to-market methods. This means all the players most likely share the same production methods, the same selling channels, the same advertising and promotion methods, the same supply chain, the same employee backgrounds and the same customer base. The assumption is that the market is known and defined. It’s a linear factory mindset and it’s no longer applicable. In times of revolution, as markets evolve rapidly, companies need to widen their perspective and focus on customer-need states.

Software is eating the world

Inventor of the first graphical web browser ‘Mosaic’ and now venture capitalist Marc Andresseen famously said that ‘software is eating the world’. His inference is that any industry that can be disrupted by the use of software, will be and that all industries are being attacked by a new breed of entrepreneur — the four-dollar tech startups, as I like to call them. Anyone with a laptop computer and the $4 needed to buy a café latte and get free wi-fi can be an immediate entrepreneur. They don’t even need to be software engineers; they can outsource that to any of the millions waiting on global low-cost labour market websites. These entrepreneurs want to hack existing industries. They seek to find the inefficiencies existing industries operate under, and reconfigure them with a technology edge. Their goal is to remove the inefficiencies and build a new market for themselves. They aim to make old markets more liquid and transparent, providing deeper access to the end user. And the way they do this is by ignoring most everything about how it was done, what was built and how customer connections have been made. In fact, they have to; there is no other way to disrupt. They have to approach the market from where they can’t be seen and attacked by the incumbents. They want to do what new industrialists wanted to do eight generations before them. Any industry that was built to any size in a pre-connected world either has been, or will be, disrupted to the point where it no longer represents its former self.

Did they see them coming?

Smart corporations need to be watching the flanks to see where their industry is heading, not the other corporations they’ve been competing with since before the technology revolution. The list of examples of brands and industries that got whipped out by side-winding newbies is long, and it’s only going to get longer.

Do you think the market-leader incumbents saw these competitors coming?

• Wikipedia. It’s clear that Encyclopedia Britannica and World Book would not have seen this coming. No-one did. Not even the founder, Jimmy Wales, whose first email message to friends upon launching Wikipedia asking them to make a wiki entry said, ‘Humour me and please write an entry about something you have some expertise in’. Not only did they do it, it turns out the crowd knows more than the experts. Wikipedia is not only more up to date, but more accurate than encyclopedias. The problem with this example of disruption is that there’s no longer a business model at all for encyclopedias.
• Google. The Yellow Pages, the brand now famous for delivering giant yellow doorstops and recycling-bin fillers, would not have been measuring its performance against search engines. Nope. Neither would the newspaper classifieds. The truth is they serve the same need: a directory of life solutions. And by the time the Yellow Pages reconfigured its output it was far too late.
• Airbnb. The hotel industry would never have taken into account the calculations of peer-to-peer accommodation as part of its market. It doesn’t even own any real estate! It’s unimaginable to believe that executives at the Hilton chain or the Starwood group of hotels would have considered Airbnb a threat, and certainly not a threat in the section of the market they define as high-end, luxury or business appropriate. Yet Airbnb has both unexpected luxury and growing numbers of business travellers as its audience. So much so that it’s now valued at more than US$10 billion (and it was only born in 2008).
• Uber. The first disruption to the car-rental and taxi-cab industries was the share car. This caught them napping and major players had to make acquisitions to buy out the threat. So the question now is, are Hertz, Avis and others measuring Uber in their relative market performance, a competitor that doesn’t have to buy cars and doesn’t have the costs of the hire-car industry, or even the car-share market? It only has a few of the costs of the legacy players, but with many of the customer benefits. It’s even disrupting the most recent disruptor (the car-share market) in a very short time frame.
• Tesla. Surely a new car company can’t compete with the more than 100 years of expertise of Ford, General Motors (GM) and others? Surely a startup from Silicon Valley that’s never built real hardware — American steel — and only ever messed around with 1s and 0s can’t build a car that could be a serious option as a family sedan? In this case the competitor is measurable in market share, but while Ford and GM are taking an experimental approach to electric vehicles, the new kid in town is taking it a bit more seriously. In 10 short years it has already achieved half the market capitalisation of Ford and GM ($30 billion vs $60 billion). And it’s done this with only two car models being released to the market.
• iTunes et al. This example is even more telling as the music industry (the big three: Universal, Sony and Warner) actually had a chance and still missed it. Music downloads were not part of their market-share calculations until well into the 2000s, by which time the game had already been won by others. The near miss with Napster was a pure gift of prophecy that they chose to ignore. The market wanted new delivery methods. iTunes should have been the result of a collaboration with the music industry stalwarts, as should Spotify, Rdio and a host of others. Instead, music newbies took centre stage. The industry was too busy fighting lawsuits to see the opportunity to remove massive parts of their cost infrastructure by going digital. They were too busy competing to ship thirty-dollar pieces of plastic instead of finding ways to deliver new music to music fans.

Redefining industries through infrastructure

When we look at it closely, we see that what was once mandatory in certain industries is now becoming optional. This is further proof that access is more important than ownership. In the accommodation game, we no longer have to own buildings. In the transport game, we no longer have to own vehicles. In the music game, we no longer have to sign artists or have stores. In the knowledge game, our curators are the crowd. In each of these examples pieces of the infrastructure have been removed in ways we would never have thought possible.

As markets are redefined, companies have to go further back to the actual need and much closer to the user’s needs to ensure they don’t get disrupted in unforeseeable ways. What spaces are there where you can rest your head? What options are emerging in the short-trips travel market? Where do people hear music these days? Where do they go to seek information?

Companies have to widen the circle of industry reference before they can understand whether or not they’re measuring relative success without being blindsided.

Collaboration with competitors

When the landscape of an industry is changing, it’s often better to collaborate than it is to compete because industries and the way people connect and transact with the new ground needs lots of development. Sometimes it’s better when competitors invest effort in transitioning the customer base to the new method rather than stealing from each other.

This is no more prevalent than in the social-media space. The two largest competitors, Facebook and Twitter, actually collaborate via their open APIs. This enables a Facebook status update to appear in Twitter and a tweet to be automatically posted on Facebook. This may seem trivial now because we’re so used to seeing the cross-interaction, but it’s a radical departure from the industrial way of thinking. It’s akin to the ABC having a box in the corner of its screen with NBC playing in it. The open market allows for cross-fertilisation and growth of a new market. By collaborating with each other the space they compete in — their ecosystem — gets bigger.

We’ll just buy the winners

A popular corporate strategy has long been to buy the innovators. It worked well for traditional media, traditional retail, packaged goods and the auto industry. It’s also something the tech industry of Silicon Valley, and elsewhere, is not immune to doing — making a plan to buy the new winners and threats. This a strategy that’s absolutely valid when there’s a shared infrastructure and go-to-market strategy, but it can fall short when the prize of winning is big and the price of missing it destroys an old business model. For example:

• What if the new star is not for sale?
• What if we can’t afford to buy them?
• What if they get bigger than we ever were?
• What if they put us out of business before we get a chance to react?

Contending to buy potential threats is not a smart play when the new winners are more profitable and yield a higher return on investment. Especially when the acquisition target’s business model is highly unlikely to plug into the old one and synergy is highly unlikely.

The pace of change

Companies have to disrupt themselves. With the knowledge that the landscape is creating a more fragmented environment, the best strategy is to embrace the inevitable. Companies have to be the creators of the new revised infrastructure in their industry. They have to try to put themselves out of business; that is, to have a skunkworks mentality. It can’t be about new products or incremental innovations. It needs to be about building new methods with which to go to market, not just new things to put into the market. The change we’re living through is environmental, rather than about the species that live in the environment. So it requires much more than improvements on the existing; it requires new systems.

What smart companies are doing is creating external environments for radical innovation. The Google X lab, for example, carries out research and development that’s breaking totally new ground. The aim of the Google X lab is to create 10-fold improvements in the technology they release. As with all classic skunkworks, they’re in a different building so that the existing business culture doesn’t infect their purpose.

skunkworks: a small, independent, loosely structured group who research and develop a project primarily for the purpose of radical innovation (Wikipedia)

Internal venture capital

If the new players in the market are consistently being beaten by startups, why not join them? There’s no reason why any large company can’t redirect R&D capital into a skunkworks, or their own venture-capital arm. Outsourcing is not a new concept. It’s used for creative advertising development, manufacturing, administration, legal and accounting. Almost every function of a business can be and has been outsourced, so why not innovation through the employment of venture funding? An industry realm focused venture-capital fund sponsored by an industry about to be disrupted may be the best investment it can make in surviving the upheaval.

For large corporations to maintain their position they need to jump the curve instead of making small, financially-safe innovations. That’s no longer enough. The R&D focus needs to be a 10-times better mentality, such as the venture capital industry, whose business model is to invest in organisations that aim to change the shape of an industry. But this takes serious courage, the type that most career corporate managers don’t have.

Cold War era thinking

It’s funny how what’s happening in the geopolitical environment and the business environment are often aligned. It seems that the shift we’ve seen in modern warfare is much the same as what’s happening in business. During the Cold War era we knew who the enemies were. The US and USSR both played a game of trying to out-resource each other, creating an aura of power as both led the way in the arms race, a quantifiable game where both parties employed the same techniques, though they did have opposing political philosophies.

Then, in the new century, not long after the web arrived the enemy changed. Terrorist cells not using any of the traditional resources and infrastructure have become the biggest threat to Western civilisation. Even modern warfare has fragmented away from the nation states to what could possibly be described as a startup mentality by using skinny resources to infiltrate a market. In much the same way as large businesses have been disrupted, the impact of the new player was largely unexpected and came without too much warning. It’s always most difficult to find an enemy you can’t see, or even worse, one that you don’t take seriously when it first appears because it is too small and has nowhere near the resources of the big boys.

During the Cold War era, big brands played the same game, trying to out–‘Super Bowl’ each other with their giant advertising campaigns and product launches (for example, obtaining the rights to the Rolling Stones song ‘Start Me Up’, which was used in the commercial for Windows 95). But big brands and companies need to pay attention to what’s happening on a global scale, not just in business but in all forms of battle, whether they be corporate or nation state. The smaller more nimble invisible competitors are the ones we really have to be careful of.

Ignore resources and self-disrupt

The move in focus should be defined as this: move from an industry focus (large industry agglomerations) into small user-centric models. Pieces of the market are breaking away from the historically vertical structure of industries. As we move to a more horizontal marketplace, ownership resources pale into insignificance compared to direct access to users. Whatever industry a business is in, it can be sure that someone is working hard now to fracture it with their new connection method. What we can be sure of is that the new technology and environment will make the disruption inevitable. Business can be in control of the choice to self-disrupt its own system before someone else does it for them.

All change has unexpected downsides. With industries being flipped upside down and lives being tracked, it can feel like our private lives are being invaded by others. But privacy erosion, in real terms, is nothing new.