After attending startup school this year, and seeing the variety of different startups presenting, I was trying to break-down the difference between some of the successful but smaller startups and the 10B+ market-cap companies.
One difference that I noticed was the portability of competitive advantages to new problem sets. The large companies solved a problem early on and then kept finding new ways to leverage their solution to grow and grow.
One way to visualize this is to imagine a wrecking ball of momentum that can break down barriers of entry into new markets (or as MML co-founder Zao puts it, a "wedge"). This momentum can be so large, in-fact, that it can completely disrupt existing markets beyond just overcoming the barriers of entry.
Google is a good example of this. After building their initial search product they developed a skill in being able to take large datasets and analyze them in a way that provided useful information to the user. Take that approach in search and apply it to email, news, maps, website analytics, etc. and you have new types of businesses where you have a pre-existing competitive advantage.
Let's specifically look at Gmail. There were several large webmail providers before Gmail came out. While the massive free space proposition was one of the appealing factors to users, I'd argue that the rethinking of the webmail user experience is why most people use Gmail today.
Google leveraged their core strength of being able to analyze large amounts of text data to improve the core user experience of reading email. For instance, they provided better spam filters (cross-checked against their index of sites on the web) and email subject aggregation into threads using their ability to compare content.
Facebook has a large set of personal data and social relationships that can then be applied to different problems.
There is a hypothesis that everything is better with your friends. So many activities are performed with friends that Facebook has a near limitless number of ways to use their data to improve existing products:
- Photos are more interesting when you are able to see exactly who is in the photo.
- Events are easier to plan when all of your friends names and contact info are already readily available.
- This even works offsite on sites like Yelp, where it is useful to know where your friends eat-out and what they recommend.
The success of the Facebook platform is a testament to the fact that there are more opportunities than Facebook can even go after themselves. So by opening up the data, they are able to crowd-source the development of wrecking balls and then cherry pick the best ones to go after themselves.
The rapid growth of the valuation of Facebook reflects the fact that they have a huge upside if they keep executing on their vision of making everything social.
A more recent example. Quora has yet to use their potential leverage to enter a new market but it is possible. Quora is building a community of experts and a Wikipedia-esque DB of Q&A. If they manage to get scale and grow to expand to every topic, they can then use this data to provide user & expert generated answers to a variety of topics.
Similar to Facebook, they can now enter new markets using this data. Imagine, for example, a travel site where the information is structured using common questions people may have regarding a given destination: What is the best place to stay in Paris?
, What should I see in Paris?
, What are some good but cheap Parisian restaurants?
and so on. They could then monetize such a site using AdWords style advertising since anyone using the site to find answers to these types of questions has some purchasing intent already. They have a leg-up on existing travel sites, as well, since they have a system of aggregating information from several sources into a definitive "answer summary".
What other examples can you think of where companies have used a solution developed originally for one problem and spun it into a new disruptive business? Share your thoughts in the comments.