Bad competitors are ruining markets everywhere...

Bad competitors are ruining markets everywhere...

Summary:  I've been thinking about "bad competitors" after coming across this excellent speech on the future of newspapers by Phil Meyer, Knight Chair in Journalism, University of North Carolina at Chapel Hill at a conference in August 2005. [Craig Newmark is founder of Craigslist, the classified advertising company.

TOPICS: Hardware
 I've been thinking about "bad competitors" after coming across this excellent speech on the future of newspapers by Phil Meyer, Knight Chair in Journalism, University of North Carolina at Chapel Hill at a conference in August 2005. [Craig Newmark is founder of Craigslist, the classified advertising company.]

...they [newspapers] don’t have a monopoly. As sure as Craig Newmark is sitting in this room, they don’t have a monopoly on classified advertising, and there’s lots of other stuff they no longer have a monopoly on. They have a monopoly on being newspapers. But that’s not the point. The point is that the services they provide are being provided cheaper and more somebody else.

I first met Craig at this meeting and I shook his hand and I said, “Craig, you are what the Harvard Business School calls a bad competitor.” A bad competitor is somebody who will provide a better service at a lower profit margin. Since Craig isn’t interested in any profit margin at all, he’s about as bad a competitor as you can get. And this is going to continue.

Check out the The Sunday Times (of London) recent feature on Craigslist quoting Craig Newmark and Craigslist CEO Jim Buckmaster: From Sunday Times May 7 magazine: Falling for super-geek
. . .Newmark drives a Prius, a petrol-saving hybrid car. Buckmaster has never owned a car. They both take the bus to work in the morning. “I don’t really want a Rolls-Royce or a huge, fancy house,” says Buckmaster. “Money is important until you have enough of it to be comfortable with. Beyond that, I think it’s a very mixed bag.” . . . For Newmark and Buckmaster, the internet has a higher calling than money-making. It’s a view many shared at the start of the dotcom revolution. But one by one, Craigslist’s contemporaries at firms like eBay and Google have joined the rat race and made billions. The Craigslist duo could easily join the dotcom rich list if they chose to sell the company. The idea is anathema to them. . . .Classified Intelligence Report, an industry newsletter, found that in San Francisco the main newspapers lost over $50m in classified revenues in 2004 because of the Craigslist effect.

[Please note: I am friends with the Craigslist team, and have eaten many a meal at the generous table of Jim Buckmaster and Susan Best, and Craig is often there too...]

There are bad competitors in the enterprise IT arena, especially if you look at the way enterprise software competitors are trying to turn their competitor's core markets into commodities. Nicholas Carr over at Rough Type says it well (in reference to one of my posts about SAPs strategy.) From Stack War:

SAP's trying to commoditize the database, by promoting, for instance, the open-source MySQL; Oracle's trying to commoditize middleware, also by promoting open-source options; and IBM's happy to commoditize the applications (while maintaining an escape hatch to "business process automation" up above the stack). It's an interesting dynamic that, in total, would seem to simply accelerate the commoditization of everything.

-And you can see it in the music industry too. Take a look at Yahoo Music, one of my favorite web services. For just $5 per month I get access to an amazing catalog of music, any time, any place, even from a friend's computer-- you'll never use iTunes again. You'll certainly never buy another $20 CD.

-Take a look at the dozens of me-too companies in each category funded by Silicon Valley venture capitalists. There are more than a 120 news aggregators for example, and more coming. How many "wiki" companies are there? Every new idea in what they call "Web 2.0" is copied and commoditized within weeks.

-The outsourcing business is driven by bad competitors. Overseas IT services companies that do it for far less than local companies. They could get more money for their services but choose not to so that they can win more business.

-Somehow, in the 1980s, the US chip industry managed to persuade the US government to punish its bad competitors. In those days it was the Japanese memory chip makers and Intel (INTC) was leading the push for tariffs against Japanese competitors for "dumping" on the US market. Dumping meant producing chips for less than the cost of their production, to win market share. That became illegal.

-Robert Scoble, Microsoft's top blogger creates millions of dollars in good PR for his employer for the cost of an engineer's salary, about $100k. Microsoft's PR agency Waggoner Edstrom cannot compete with the ROI on Mr Scoble. It's something PR companies everywhere will have to face.

And there are many other examples of competitors either behaving stupidly and ruining the market for everyone. Or, competitors that don't monetize the markets to their fullest opportunity and thus are not creating massive wealth for themselves, their investors, or their employees. So where does this trend lead?

Should it be illegal to make a loss in order to gain market share?

Should it be illegal for companies to make bad decisions that ruin the market for everyone?

Does a company have a moral or ethical obligation to increase the monetization of a market so that it can employ more people and provide additional services for its communities?

Are companies that use very profitable business groups to prop up less profitable businesses groups acting as bad competitors?

For example, Hewlett-Packard's printer group has subsidized the IT group in the past.

Are the telcos and cable TV companies "good competitors" because they seek to block any Internet threat that would commoditize their services and thus force massive layoffs?

This bad competitor trend will only intensify because it can't be stopped. What happens next?

Topic: Hardware

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  • I'll make my own definition for 'bad competitor'

    The article seems to be a nice piece of indirection. Not being an
    economist, I don't feel compelled to use their definitions...
    assuming that you got the definition right. From my perspective,
    I don't see a problem with someone in a market being able to
    produce a product at a lower price or being willing to take less
    of a profit. In general, I do consider it to be 'bad competition' to
    leverage a monopoly or even just solid profits from one market
    into the destruction of another market. As an example, take a
    third rate Internet browser and tie it into an operating system in
    order to remove the profits necessary to maintain the market
    leading browser. What has happened to the PC software
    business is natural considering the way MS got away with
    financial murder. We now have open source software (as
    opposed to Free Software). I'd rather see an open market for PC
    software but I guess I have to settle for big hardware funding
    open source software in competition to MS.
    • Why does 90% of the messages here always lead to MS bashing?

      It lacks imagination. The article was not about MS.

      Do you really think that there would be a Firefox today if Netscape had remained king of the browsers?

      If you recall correctly the other commercial browser that was hurt by MS giving their browser away from free was Netscape which was a POS. At that time MS IE was superior to NN, others can blab all they want about that but it is fact, NN4 sucked eggs and consistantly threw lunch. Now all or nearly all browsers are free, this was the result of MS 'tie it into a OS' and you are now *benefiting* from this turn of events. And yet, narrow minded people claim that MS is evil because they beat Netscape at that time even through they have better choices today because of MS's actions.
      • This is a valid argument

        The argument is business models/competition. MS is fair game in this realm. The model MS set up by using it's influence to crush competition is one well sought after. The modern model is to buy your competition and shut them down.

        I feel bad for people like you who can only see roses coming out of MS. MS is quite fair game when it comes to most business and technical discussions. In many ways they did it first - however they have never written one line of origonal code. All of MS' initives has been in the business and marketing arena.

        and as far as to why MS is evil - there just isn't enough blog space to explain it to you.
        • Don't feel bad for me, you lack vision

          I do not 'only see roses coming out of MS', you have no grounds for saying something like that as you know nothing about me, this is a typical response that I expected from the drones on this server.

          I work with Linux developing embedded telecom systems, I would never even consider doing that with a MS solution because it is not their strong point and their embedded solutions do not work. I use a dovecot IMAP on a Linux server for E-mail even though I have all of the software and licensing required to run Exchange on a MS server. I use a Linux server for a router and firewall when I have all of the software and licensing required to use MS products for the same purpose. I could continue citing examples of where I use products not made by MS when I could use MS products but that is a waste of my time.

          I am not the one that needs to have things explained to me, I have an open mind while many here just regurgitate the rants of others without thinking (if they can think at all). You always have a choice and no one makes you or people like you use MS products. If MS makes the competition shut down then why is there still a Sun, IBM, Novell or Apple? The companies that could not compete with MS perhaps should have been shut down anyway. IBM has taken out their fair share of competition but you don't see any IBM bashing here. Why, because it is not fashionable.

          I use what works best, sometimes that is MS and sometimes it is not. Don't like MS? Don't use their products and stop whining.
      • Not MS but Monoply Bashing

        If MS would have put out IE as just a free product, the field would have been more level. By forcing everyone to use IE by intertwining it with the operating system giving NO ONE the oportunity to compete without extra ordinary effort and knoweledge on the users part, they used their monoply power to destroy others not as powerful.
        • Monopoly is the goal.

          Think about it.
          What does EVERY Company, Corporation, Business or other 'entity' involved in Competition (defined as the positive good regulation mechanism of Capitalism by Smith's famous "Wealth of Nations")try to do?
          To END competition, by any means, fair or foul.
          This is why the Constitution grants exclusive rights to inventors and writers "for a limited time" only to have Congress (bet you can guess which party was in power at the time) turn "limited" into 99 years to 'protect' ONE company's (Disney) "intellectual" property.
          This isn't protection in order to SPREAD process or idea, but guaranteed and unregulated monopoly.

          Any idea that Capitalism SEEKS competition is pure B.S..

          So CRY ME A RIVER about 'lost' profits.
        • And just how were you *forced* to use IE?

          For that matter how am I forced to use MS media player? I use iTunes and the Jukebox software that came with my Creative Zen, not MS Media player. MS didn't force me or you to use either media player or IE.

          I never saw MS IE bundled with Apple Power Macs or Sun Solaris machines (there was a time that you could get IE for those platforms). Oh my gawd! That means that Apple and Sun were using their EVIL monoply to destroy MS!!!!!!

          Please, this nonsense example of yours is getting old and not close to realistic.
        • "by forcing everone to use IE"

          That's the kind of blind exageration (and flat out lie) that he's talking about.
        • There's only ONE monopoly

          in the computing arena and it's not MS. There's only ONE bad competitor and it's not MS.
          Who is this denizen of the computing world? None other than Apple.
          Now I know that Apple Bashing is tantamount to Linux basshing, but if you are an intelligent person, you will see the facts.
          Apple has been bullying it's users since the first Mac hit the shelves.
          Apple performed a group study to find out how people would accept the new "mouse" input device.
          Apple found out that people rejected this device and insisted on using the arrow keys to navigate around the computer screen.
          Jobs was incensed when he discovered that users were too stupid to see how good the mouse was and how they rejected the millions he spent on to fix these stupid users, he produced the first Mac keyboard without arrow keys...go ahead...look at pictures of the original Mac...that keyboard has no arrow keys! The catch is that the arrow key functionality was built into the OS, Jobs just chose to force users to his vision regardless of what the masses wanted.
          And you can go on from here...anybody remember the first Juniper hard drives? Apple drove them out of business because they were undercutting Apple's hard drive prices!
          How about Mode32? There was a niche company who developed a 32 bit processing mode on the Mac IIC computers so that the computers would work with the new OS7.0. Apple in their next release 7.01 included a stolen version of mode32 in their OS and the company that wrote the mode32 program went out of business combatting Apple's lawyers.
          Apple has effectivly pushed Adobe out of the Mac market by including for free, functionality tha Adobe relied on for revenue generating. As a result, Adobe pulled most of the products out of the Mac market.
          What about how Apple drove their competitors out of business by offering clones, then suddenly stopping thereby closing any revenue to clone manufactureres?
          Apple has consistantly moved to alienate themselves from their loyalist users...which I don't understand why people still follow the cult of mac...
          Microsoft is not a monopoly because anybody can add what they want to their os...They can even run the OS on ANY computer in existance.
          Apple is a true monopoly because Apple controls the OS, Apple controls the hooks into the OS and Apple controls the hardware and Apple controls the software.
          So...who's the monopoly here?
          Obviously Apple
          • Yeah but...

            Apple is and always has been less than 6% of the market. their evil ways have indeed bitten their ass off.

            MS is not nealy as benign. MS, as apple, has has 20+ years to develop a working OS, with few bugs or security holes. I would hesitate to call 2k secure, and I will never call XP secure. Longhorn, or whatever it's called now, is their last hope.

            As far as predetory practices, those are well documented. I will give you only two however to save time and space (a first for me)

            1 - MS drove a very well written OS called GEOS under beecause everwhere (nearly) that sold it also sold DOS. MS would pull it's DOS from the shelves if they sold any other OSes such as GEOS. (GEOS was a graphical desktop that used very little system resources, and was vastly superior to windows.)

            2. Microsoft flat out stole the executable for DOUBLESPACE, which would "double" the useable size of a hard drive in DoS 5.something. They were sued, but still held onto the code and re-wrote it to drivespace (very inferior, BUT it came with the next .1 versions of DOS). double space went under because MS was GIVING away it's program. Their income evaporated.

            my last point, and likly the last word here.

            SL is great, I used it when I lived in the area. IT's very custom to an area. THAT's why it's popular, and unlike MS, Apple, and other harvard-run companies (neither Jobs or Bill has official degrees when they started) they are not predatory. they actually LISTEN to their customers.

            I mean.. GODO GOD Apple recently threatened with a law suit a guy who FIXED the heating problem with the new apple notebooks.

            We really need to go BACK to when businesses were EXPECTED to be honorable!
  • Who are the real "Bad Competitors?"

    It seems that the ones who are concerned with "bad competitors" are the ones who view themselves as the primary player in the customer service chain. How many times do industries need to be shown that meeting customer needs and wants is what drives the markets? The bad competitors are the ones who work toward containing the customer's options, all to better their own bottom line.
  • The people at Harvard Business School are concerned about profits

    not about consumer satisfaction, unless of course it means higher profits. Consider the source. This is a Bad Competitor for the over paid CEO's and the corrupt politicians in the back pocket of the oil industry.
  • Am I missing something here?

    For as much as I don't like people undercutting my industry, the opposite phenomenon is called "price gouging" and nobody likes that either.

    Welcome to free enterprise, folks. Adapt or die: first rule of business.
    Anthony Volpe
    • Bass Ackwards Spin Zone

      "Price gouging" is standard business practice now days and this writer presents that quite clearly. To charge what a service or product cost with a moderate profit is old hat. The in thing is to charge ?what the market will bear? and if you don't do that you are ?BAD?.

      This guy Foremski can take his philosophy and shove it as far... I believe the ?Craigslist? idea is a much better way to do business. Guess I am just old fashion and BAD
    • Am I missing something here?

      "For as much as I don't like people undercutting my industry, the opposite phenomenon is called "price gouging" and nobody likes that either."

      undercutting (or scabs as we called it in my business)don't belong in the business....Price gouging? depends on what you mean,some people just don't get it that you get what you pay for...if your talking about the scabs that undercut and now want to charge more money for the same shabby work then that is gouging. Quality work has no price tag (find it first then we'll talk)
  • Long history of this behavior

    Since the dawn of capitalism we've seen behaviour like this (i.e. selling products below cost in order to gain marketshare and drive competition out of business.) Several decades ago laws were put in place to police behaviour like this--e.g. the attempt in the 1970s to protect the US steel industry from Japanese 'dumping' steel into the US market at below cost. Though I'm not particularly interested in bashing Microsoft, that has obviously been part of their business strategy-using cash generated from their PC monopoly to fund money-losing products in other business areas in order to gain marketshare (the browser wars, MSN, x-box, etc. etc.)
  • Craig's list was first

    and best!
    Having lived in the Bay area, I know well of Craig's list. It is simply the best, easy to use, basic website for what it does. I can go on there and find exactly what I'm looking for, IF it is on that site. if not I move on. THAT is what the internet is about. GOD HELP ME if EVER any ONE site became the be-all of anything. sure as HELL isn't the best source for MS-related information - it's simply the largest collection. Much of the best infomation is out there on personal blogs, websites, etc. FREE sites I would point out.

    MS understands this and lets it be. Hell, Apple doesnt even bother wiht tech support openly on it's website. It's there but not the easiest to find. I have a better time going to yahoo or google and running a search (ok I use the search bar in firefox) for what I need. I get more answers, and generally better help anyway.

    As far as what Craigs list does, I am honest unable to find any other site that provides the same service, as easy as CL. I am generally looking for information in the local newspaper that is public domain, which these other sites want MONEY for me to access. They are welcoem to charge whatever, so long as I am free to go to anohter site.

    And one last thought... Bad competition is for idiots who think money is everything. it's because of this mindset, we stil pay a fortune for Nike's which are still made by slave labor in some poor country. The shoes (whose quality I question) could just as easilly be made in the US, for the same cost, if Nike was willing to suck up profit, and do the right thing.

    Bad competition is what made Enron, the Oil companie, Bush, and the rest of them insanely rich with not one thought of what it would do to the economy. None one milisecond. Had they done so, we would be in a much better world.

    In closing. I'm all for making money. I'm all for profit. If you have a product people are willing to pay, charge for it. But be sure you spread the wealth as well. Hire people in your own area/state/country. Be willing to sacrifice profit (which is well above and beyond all salaries and costs) to better the country. Pay your taxes - they made your success possible in the first place.

    So go, GO MAKE MONEY! But dont bitch because someone else has a product people would rather pay or buy into because it's preferred. Find out a better way to get people's attention. THAT is how a truly FREE market works.

    A rising tide lifts all boats.
  • Bad competition is relative

    Think about this: at the top of the food chain you have these newspapers with their classified ads, and then you have craigslist at the bottom. From nothing, it turns into a phenomenon that cuts into the cheese of a wealthy few. This is called redistribution of wealth. Bottom line, since the few no longer can exclusively provide a service that at a profit to themselves because it is now cheaper elsewhere, the wealth that would have dropped into their coffers stays with those who would have been paying.

    A more prevalant example of this trend of "bad competition" is the whole battle of net neutrality. In one corner, the phone companies losing money to the VOIP players. In another, the cable companies losing money to web delivered TV, news, games and other entertainment. And against them both: the web based companies providing all of these services and siphoning profits from these companies.

    Do you think they will sit idly by and let it happen? NO WAY! They're going to buy themselves a new law that will allow them to do this! Much like the DMCA provided another giveaway to the music industry! They can restrict who can copy their technology, but if you've already bought a copy in one format, it doesn't give you a permanent license to the content, just the copy.

    So watch as the Telcos try (and will probably succeed if the republicans aren't ousted in November) to pull this one off. It will be the end of "bad competition" for VOIP and other webified entertainment (streaming video!).

    And that, my friends, is why the US is more and more ceasing to be the best place on the planet to do business as a small time player.
  • economics always was a stupid study

    "Should it be illegal to make a loss in order to gain market share?"

    Why on earth would any intelligent person say this? If I can offer a service for free, why should I have to charge for it? Why should I be concerned with the old guard whose process neccessitates that they charge for the same service?
    Progress changes things. Companies change, companies die and new companies emerge. The recent prolific philosophy that corporations are ENTITLED to a profit (or even entitled to exist at all) and consumers OWE business anything is simply daft. Only in a political environment fraught with corruption could such an attitude thrive. And yes, the music industry is a very appropriate example to raise here. They have been screwing both the consumers and artists for decades. Now that technology has made them irrelevant and their business model is dying, the only way for them to continue is with legislation that forces everyone to support their business model. This, my friends, is not capitalism, is not for the good of society and is just not a viable longterm solution. It kills progress and innovation. It is a drag on the economy. This type of thought process would have us all still using the telegraph and pony express.
  • Bad definition

    com-pet-i-tor, n., One who competes, as in sports or business; rival.

    Somebody who will provide a better service at a lower profit margin is a GOOD competitor - good for consumers, good for progress, and good for established businesses smart enough to adapt. They would only be viewed as bad competitors by the established players in a given market who are unwilling or unable to find a way to continue differentiating themselves. If newspapers are dead because they no longer provide a service people are willing to pay for, then they join the makers of buggy whips and countless other products that faded away over time. What you're suggesting is we pass a law to reduce competion. Then we call it "good competion"; how Orwellian.

    Harvard's definition implies oligopolies are superior to a free market. By Harvard's definition, the oil companies are great competitors, and Dell is awful. Right.