Identifying, building, defending and leveraging competitive advantage has been, and will remain, the foundation of successful marketing.
It is also the essence of strategy: making choices with incomplete information that serve to shape the future to your benefit as it arrives.
The challenge is, the location of competitive advantage has moved, and many, if not most, have failed to pick the move.
Think about it.
Until the early 2020’s, competitive advantage was still all about brand, scale, control of supply chains, access to capital, and the ‘old boys network’. To use Charlie Mungers description, they constituted the ‘Moats’ around successful businesses. Kodak, Xerox, GE, GM, Exxon, IBM, Wal-Mart, P&G, and the banks and insurance companies ran the world on the basis of wide and deep moats built on these 5 factors.
Suddenly, the world moved on.
We watched as a raft of new businesses leveraging the capabilities of the internet took over. Along with the obvious Amazon, Facebook, Alibaba, Google, Uber, Air BnB, eBay, Netflix, Salesforce, and others that are pure internet plays, you had Apple, Microsoft, and more recently Tesla, combining the connectivity of the net with the ‘old school marketing moats’ in whole new ways.
What made the difference?
Each of the newbies benefitted from network effects.
Those that dropped out of sight did not.
Even some of the tech giants of the very early 2000’s, such as Yahoo and Alta Vista have dropped out of sight because they failed to recognise the potential value they had in their hands. They did not leverage the potential network effects.
Those network effects have two differing core types:
- An ecosystem of complementary, and often partially competitive enterprises that support each other’s efforts. This occurs particularly often in R&D, early-stage commercial development and in logistics and supply chain management.
- Double sided markets, such as eBay, Facebook, and Air BnB, where the value of the offering increases with the number of people connected to it.
The answer to the question posed in the header: in your networks!
On a simple scale you see it all the time in retail. The specialist shoe shop in the mall collaborating and cross promoting with the fashion dress shop.
Your networks will build as you create value for others greater than the cost of being a part of the network.
