Tag Archives: Economics

Beating the Other Guy – Be First or Don’t Play

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Don’t you just hate losing?

Since joining the “business world”, I’ve noticed there is a big value in beating the other guy.  You just can’t afford to lose.  Whether it’s because your execs understand beating a rival better than your numbers, or just a matter of getting the brand presence to control a new market, you’ll find the winning formula is being different.

Easy Ways to Differentiate

Be first to enter a market – Does it matter if the first store that shows up in your town is a Walmart or a Target?  Well if both of them are able to offer good first customer experiences the first one in town will have a huge advantage.  When you’re second you have to pay more for your first customers than the guys who showed up first.  If Walmart is first, and I go there and it is a good experience… I’ll probably keep going back.  If Target opened up across the street, I’d still go to Walmart unless Target somehow talked me into shopping them.  (Coupons, Grand Opening Sales, Lower Prices, Better Quality…. all these things require communication… which isn’t free.)  Now in a retail situation there are other factors such as location and national brand value… but in a conceptual context (all other things being equal) the store that is first is best because to the customer ignorance is bliss.

Be first to enter an emerging market with a quality product – So who owned an Apple product in 1999?  And who owns one now?  The MP3 player wasn’t a new idea, but one with 20GB of memory was.  Enter the iPod the greatest thing ever invented for music super-listeners. (Those people who actually have 20GB of music that they listen to.)  The memory combined with a clean design and most importantly a very easy to use music management tool was by far the highest quality product in the emerging market of MP3 music.  When you’re the first to do something that is quality, you become the flagship brand of the market.  Since 2000 Apple has continued to follow this strategy of finding the emerging market and building the product that is by far the highest quality customer experience.  (not that I’m in love with Apple but seriously, iPod, iPhone, and iPad are the first real players in their category and are the standards by which others are measured)

Don’t be a copy cat - When you’re the second brand someone hears about doing something… well how do I say this… while you’ll get a good ROI and some form of repeated success… you’ll have also just become the Burger King to someone else’s McDonald’s.  The first brand gets the press and the initial customer praise for the idea.  But only if you copy what that brand does do you give them the most valuable thing they could possibly earn from being first.  When you copy what another brand does, you declare them the winner, the innovator, and the better of the two of you.  Being the only company that does something is cool… but it’s nothing like being the company that customers identify as the innovator who leads your brand category.  Every leader needs a follower, don’t be the follower in the market.

Pick your battles - My mother used to say that to me all the time, but it took reading it in “The Art of War” to realize what it means.  When you get a chance to win big (don’t follow this thinking when gambling) you need to go all in.  When you are first, when you are truly best (listen to learn if you are), and when others are publicly chasing you… that’s when you fight with everything you have.  When you’re the one chasing… don’t waste your resources on it, 3 months later you may need those resources to get something you can lead off the ground.

Now while I know that the above may seem like the same basic lesson over and over again, it is.  Be first if you’re going to be there at all.

Thanks for Listening,

Zach West

How DirectTV will hit Cable like Netflix hit Blockbuster (NFL Sunday Ticket Coming to PS3, No Dish Required)

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A few years ago Netflix launched a cool new thing that allowed you to stream Neflix movies and TV shows on your computer. As of June 2011 that little service made up 30+% of US internet usage. (Surpassing bit torrent sites) Now bring us to the present day, and DirectTV might just be on the road to a similar move.

DirectTV like Netflix has a core business idea. Netflix sent you movies by mail with a subscription while DirectTV went around the cable companies and offered a larger offering of entertainment via the satalite dish.  Then comes the idea.

Netflix

What if we used the internet to distribute our content on top of our DVDs by mail… Integrate ourselves into every possible connection point to the internet, from you PC, to your Xbox, and even your TV.  (I’m not going to over do this story with details, but you get the picture.)

DirectTV

DirectTV has already built the relationships needed to have all of the channels people want.  (Including exclusive rights to every single NFL game)  But there is a demand issue with this exclusive rights package.  You can only get access to NFL Sunday Ticket if you have a DirectTV dish.  (And back to my old friend Economics we go…)

Realizing the true demand curve- DirectTV made a barrier to entry where a customer had to buy a dish in order to even become a part of the group able to demand NFL Sunday Ticket.  (along with other content)  But when they made the move to offer the same content package via the internet all of a sudden a lot more people became qualified to buy NFL Sunday Ticket.  By removing the barrier to entry Direct TV just opened up a whole new market.

Building a Content Empire on the skeletons of cable companies- First Sports is up for grabs.  We’ve already scene ESPN make a move to create ESPN3 to broadcast sports over the internet, and into a number of gaming systems. (PS3, XBOX, etc.) But ESPN couldn’t go all in, because of a number of contract issues requiring many of their sporting events only to air on TV.  Enter DirectTV with what seems like full access to deliver all the NFL content.  (I’m not going to write a whole break down of how many people watch the NFL, I think we all know it is a ton of people.)  Then in time what if DirectTV became an app on your phone, tablet, computer, gaming system, and even your TV.  DirectTV could become like Netflix but for live content.

I’ve been saying for more than a year, that the only reason I pay for TV is live sports.  I can’t wait for this to become something I can get anywhere.  (And on a side note, I can’t wait to lower my cable bill to just the internet.  Not the biggest Fan of Comcast)

Thanks for listening,

Zach West

This post is a breakdown of my thoughts after reading: http://mashable.com/2011/08/17/nfl-sunday-ticket-ps3/

The NCAA can’t win in Miami (Punishment won’t solve the problem)

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The NCAA has yet another issue at their table this week.  The University of Miami sports program broke the rules.  This is a very high-profile school that brings in a ton of money to their school and conference every year.  (Tough spot for the NCAA)

Here is what the NCAA will do:

They’ll punish the “U”: take away some wins, maybe some money, and put them on probation.

Here is why any punishment the NCAA chooses won’t work:

So if you’ve read this blog before you’ve probably picked up on me liking to see things from an economic perspective.  Which in most cases is simply a matter of following the incentives.  The NCAA has a major issue, no punishment will be incentive enough for a big program not to cheat.  Lets break this down.

Incentive not to cheat: NCAA might retroactively take away achievements (not money), and you might have to sit out of the money for a year (impact could last 3 years but still not a long time)

Incentive to cheat: Okay stay with me on this-

1. The school makes a lot of money from Athletics (Football specifically)- Both Athletic and Academic donations are made at football games, bigger donations are made at Bowl games.  (So right off the bat, the whole university has an incentive to win.)

2.  Winning- Having an amazing coaching staff is nice, and a genius coach is good too… but in College Football the team with the best players is the one that wins.  (Just ask Charlie Weis and the Notre Dame)

3.  There is a limited number of elite players- So a football team has 22 starting players, yet each year there are only really 100 or so players who are supremely gifted.  (The Players have differentiated themselves on the field, how does a college differentiate itself?)

4.  If one school is doing it, we need to do it- Remember that the school has a huge incentive to win so they can get money.  (From TV or from donations) Well once one school begins to get more than its fair share of the 100 supreme players, the others have to keep up.  (No different than how Airlines or Hotels keep one-uping each other to get you to stay with them.)  Sometimes your facilities, fan base, and tradition don’t differentiate your school… But a car or a girl might.

5.  Once you’ve established athletics as a major source of money, you’ve been getting this money for decades.  (A short suspension isn’t going to do anything)  Your school has lined its pockets for years, they have money put away for a rainy year or two.  (No different than an other major corporation.)

So how do we fix this?

Athletics is a business, treat it like one.

1.  The NCAA needs to TAX the revenue as it comes in, not punish after the fact.  The Tax should pay for better enforcement.  As enforcement improves and schools get caught, the punishment shouldn’t have anything to do with the football programs.  If you get caught your % of revenue that goes to the NCAA tax increases, meaning if you want to differentiate yourself with better gifts for players… go for it.  Just know that as you do that, the amount of money you make will be about the same because you tax will progressively increase.  (I personally don’t care what the money ends up going to, maybe academic scholarships, poorer athletic programs, or maybe the NCAA might pay its labor force some actual money. (but that’s a different story for another day))

2.  There really isn’t a #2 here… I could go down the route of paying the players what they are worth but honestly we all know that is an issue.  (More so for the labor issues than schools cheating.)

So in case you missed it here is the deal.  Take the incentive of direct athletic money off the table.  (Tax all athletics donations, sponsors, and other income and level out the field a bit.)  Cheating is just a sign that the system is broken, not that schools are bad.

Thanks for listening,

Zach West