Its easy when we are being successful to stick our heads in the sand and believe our own PR. We can easily brush off minor threats with the argument that the customer wouldn't go for whatever was being offered. We hold on to the belief that we know best what trade-offs they are not willing to make. Be careful. As soon as you start believing your PR and juicy rationalizations as to why you will continue to be successful, you are setting yourself up to fail.
Take the local phone company. For many years, they held a monopoly providing phone service to consumers and businesses. When the threat of the early VoIP (voice over IP) providers emerged, they discounted the risk saying that the customers wouldn't accept the “low quality” and “unreliability” of this new service. They pointed to the poor audio quality of the early providers as one example of why they were not a threat.
What they failed to comprehend was that technology would improve (improved broadband speeds, better audio codecs, etc) and that a new business model could emerge which would present a tipping point for customers. The net effect was that when these all came together, customers switched in mass because the quality was “good enough” and “price was right”. What emerged was a new competitor they were unprepared to compete against. Such companies as Skype, Vonage and Comcast became the “new local” phone company.
While this was going on, the wireless operators came in and started taking away the local phone customers also. How? Customers recognized that the wireless service quality was “good enough” and that “mobility” was key given the changing lifestyle.
Its interesting to note that the phone companies came into existence because the telegraph companies turned down the invention of the phone. They felt that there would be no need for phones as the telegraph worked just fine.
What was the blind spot for the local phone companies? They had made some assumptions about their customers:
- They would value superior quality (99.999% reliability).
- Customers were willing to trade-off quality for other things (price, mobility)
- They had the best and brightest technologists and business thinkers and that smaller companies wouldn't be able to out innovate them.
- A handful of engineers in Europe created Skype … enough said.
- Nobody could do it cheaper.
- New business models such as free VoIP forced the industry to restructure to compete.
- Government regulations would protect them as a monopoly.
- The 1996 Telecom Act was the crack these new competitors needed to compete. Competition is good.
The lesson learned, be careful of your assumptions …
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