Economics: More Competition Leads to Less Competition (the rule of three)

The Rule of Three by Sheth and Sisodia

today’s selection is a (very old post) dated 2006, taken from this very blog …

… in which I was commenting on a book entitled “the rule of three”. I realise that this analysis is still – or maybe more than ever pertinent – and therefore I decided to revive this post, update it significantly, and submit to my readers again today.

Have you ever wondered why most markets – when they are mature enough – end up being dominated by 3 players? Sheth and Sisodia (2002 – buy it from Amazon; note that there are second hand books available from as little as £0.49!) have carried out a study about this and their book is available in electronic format too (buy an kindle version here for £9.99). 12manage.com comments that this is not applicable to Europe. On the contrary, it does apply to Europe too, or any other area for that matter, provided local markets are open to fair and unbiased competition and transparent (I know, this is a paradox, fair competition leads to less competition in the event).

For instance, if you apply this rule to the telecoms market, it is very likely that you will find that the rule applies in each country/zone of influence individually (multi-national markets). It’s not that the rule is false. It’s just that those markets are heavily regulated and therefore, keep introducing new devices to revive competition at regular intervals.

In the US, the situation is different though; a few decades ago, AT&T was broken into small companiesby the regulator, but the rule of 3 applied in the end nonetheless (Stephen Colbert described this phenomenon in a classic pitch, click the Colbert picture below to view an extract). The process of introducing more competition ended after that though, it is not the case in some European markets in which new devices are still being introduced to fuel competition and lower prices (transparency : I work for a Telco, my comment is and will remain neutral for obvious reasons)

Where globalisation has already happened (for instance in the fast food market), the rule will apply across Europe with Mc Donald’s, Quick or Burger King and the rest of the niche players for instance. Does that mean that the ultimate goal of open competition is … less competition? Eerie isn’t it?

A final comment is that not all markets, even in the high-tech sector, are truly global. Whereas the IT market is for instance (same brands, strong consolidation, same products sold from one end of the planet to the other etc.) others aren’t. Besides, a multi-national market (i.e. an addition of heavily idiosyncratic markets in many countries) isn’t really the same as a global market. In multi-national markets, many discrepancies persist, even when the brand itself is global.

Zipf’s law

Seth Godin described this phenomenon in a different way, in his famous opus entitled “unleashing the idea virus“. Here is the passage about what he calls “Zipf’s law” (the book is rather old too, but it doesn’t matter anyway, what Seth described then is still valid now).

There’s a name for this effect. It’s called Zipf’s law, after George Kingsley Zipf (1902-1950), a philologist and professor at Harvard University. He discovered that the most popular word  in the English language (“the”) is used ten times more than the tenth most popular word, 100 times more than the 100th most popular word and 1,000 times more than the 1,000th most popular word.

It’s also been discovered that this same effect applies to market share for software, soft drinks,automobiles, candy bars, and the frequency of hits on pages found on a website. The chart above shows actual visits to the different pages at Sun’s website [editor’s note: in 1996] .In almost every field of endeavor, it’s clear that being #1 is a lot better than being #3 or #10.There isn’t an even distribution of rewards, especially in our networked world.On the Net, the stakes are even larger. The market capitalization of Priceline, eBay and Amazon approaches 95% of the total market capitalization of every other consumer ecommerce stock combined [editor’s note: still in 1996]. Clearly, there’s a lot to be gained by winning.

of entrepreneurship in Silicon Valley –#blogbus

eye-largeOn day 4 of our Blogger Bus Tour, we met with Carlos Diaz, the CEO and founder of Kwarter and Guillaume de Cugis, CEO and co-founder of Scoop’it, two French entrepreneurs who left their country in order to take their venture to the next level and … change the world! (this post was originally written for the Live Orange Blog)

Kwarter, how it all started

imageKwarter started off with sports. The idea is to use your mobile in order to connect and comment, hangout. There is also a gamification (see my Vlab piece on that subject) angle of using such kinds of applications while watching TV and changing the user experience: the more you engage, the more you get points and also credits and eventually, you are able to redeem your credits to get t-shirts and other freebies.

The start-up decided to tackle sports as their first topic (Fan cake, the first social game to be edited and released by Kwarter is just about that) because “just watching TV isn’t enough anymore. The trend seen in Silicon Valley is to turn each passive experience into an interactive one”. The focus is on American sports only at the moment: American Football, Hockey and Baseball … but it should be a piece of cake (sorry, I couldn’t resist it) to extend it to European preferred games such as football and handball.

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[Carlos Diaz, CEO and founder of Kwarter]

Diaz, the founder of Bluekiwi Software, whom I have known for years and I was very happy to see again in San Francisco, started the company in Summer 2011 and did a quick prototype which helped him raise  seed money very quickly. All this is very classic, although many start-uppers tend to forget about it; the name of the game is: prove the concept quickly, put together the technology, build the user engagement model, and find the business model … fast. Things have to go fast in the land of the Gold Rush.

a pivot around the initial business model

“The first idea was to have our own application and build traffic based on our brand. The ten next years will be about Gamification” Carlos Diaz added. In 2011 they Kwarter’s pilot was turned into a platform for other brands because they realised that they had to do this for others, not under their own brand. A few weeks later, they signed a deal with Turner and Bud Light; just that! Turner will kick-start its operation about the Baseball playoff. And we are not talking about small business but “half million dollar deals!”.

Diaz – like many others we saw in Silicon Valley – has managed to make his company pivot around its existing business model and hit the bull’s eye. Well done!

big corporations doing their shopping

“I was really amazed at the way on how large corporations were shopping for innovation in the Valley” Diaz went on. “What we do with Turner will be very disruptive: whatever you do will be displayed on the screen. For instance, as baseball players will be displayed on the screen, an overlay bubble will be shown with comments from Kwarter such as “20% of people believe this player will do a home run!” Baseball fans won’t have to wait for too long for the launch date will be October 5th, 2012.

Twitter (but not Facebook) is paying for TV channels to use its service

“So far we see the Twitter mentions on TV. But Twitter is paying broadcasters for this” Diaz said. “This is why Facebook isn’t seen on TV because Facebook refuses to pay for that kind of display”.

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setting up one’s business in the Valley

Is it easy to set up a business here when one comes from Europe? “Sometimes I feel like Silicon Valley is like Disneyland” Diaz explained facetiously. “People are very naïve and they think that building a business is easy but it’s not. Just being turned down in Europe isn’t sufficient to launch a good company in the States” the French entrepreneur added.

“in 1999, Silicon Valley was a boring place!”

De Cugis said that “in 1999 and 2001 Silicon Valley was a very boring place. It all changed with Social Media, when some tech tsars became stars. It took me two years to adapt to the way of doing business here. After six months you realise that if you want to be part of this game, you can’t be part of it because you’re not part of the ecosystem and I started getting very frustrated. Then I realised all this was for real and I adapted to the way I needed to think of this as a real business. One year isn’t enough, it takes two years at least. And partnering is one thing but you need to have a good reason to come here.

living in the Valley is expensive, taxes much higher than France

“This is a difficult move” Diaz went on. “Personal life is very expensive here, even more if you have kids. A house with 2 kids costs $6,000 per month! Taxes are a lot higher than even in France. And this is because life is so expensive that people want to get very fast. This is why people want their projects to take off in such a hurry. People are very focussed on their jobs but they sort of work round the clock and have no vacations. Here there is nothing apart from tech, everyone is in high-tech. Even the salesman from the AT&T shop wants to start his own start-up”.

Scoop’it, from Toulouse to the Valley

Scoopit also went to NYC and hesitated between NYC and Silicon Valley. In NYC, the tech scene is competing with a lot of other things though. “If you go to the local Starbuck’s there, there are few chances that you will bump into a tech entrepreneur” De Cugis explained. “Here it’s a small city, there are only 700,000 inhabitants. You could go to a meet-up every night. And all that happens in Soma, you don’t even need to drive up to Silicon Valley.

setting up your business in Paris is a mistake

Although many would disagree, Diaz declared that “founding your start-up in Paris is a mistake, unless you are into Fashion or if you want to become a leader in your own country. All successful French start-ups (e.g. Meetic, Priceminister,…) aren’t known by anybody here. In order to do something to change the world, to be a game changer, one has to have a large market to start with” Diaz contended.

changing the world is hard

Yet, changing the world is hard… even in the Silicon Valley, and if believing in one’s dreams is important, one needs to avoid pulling the wool over one’s eyes. This, in a nutshell is what I withdrew from that passionate exposé by Carlos and Guillaume.

Gamification at Vlab: buzzword or real business driver? – #blogbus

eye-largeThe MIT Stanford lab was founded 22 years ago. Orange is a sponsor of VLAB and we attended a meeting on Sept 19 on the Stanford campus on the subject of gamification. Vlab had gathered a unique bunch of top international experts from Silicon Valley in order to debate this concept. Despite the fact that many think badly of Gamification, our users have explained that gamification isn’t about games but bringing gaming mechanism in business activities and this was all about rewarding and creating a great experience.

[this post was originally written on behalf of the live.orange.com blog]

1. Margaret Wallace(below)introduced the session. Margaret is the CEO and founder of Playmatics. She began her pitch by saying that games have been around for thousands of years. Her definition of gamification is “the application of games mechanisms in non gaming situations, it’s not about angry birds and such like” she said. Why bother gamification? there are a lot of detractors of gamification Margaret said; the Gartner hype cycle is placing gamification at the very top of the Gartner hype cycle “so you are here at the right moment” she added. There are many ways that games can be inserted in business, such as Nike running, Ford’s mobile app, energy orb (an orb which changes colour according to the status of the electricity grid) … even political groups are using gamification to recruit people Wallace said; Pdt Obama has a Foursquare account for instance. From then on she handed the floor to the other panellists.

image

Margaret Wallace (above)

image2. Courtney Guertin (above), Co-founder of Kiip was next on the stage and he presented the concept that he and his partner have designed. The idea was to reward users, through mobile apps and disrupt the mobile app space. In July 2010 they built a demo and started sharing this idea around them. They ended up raising $ 300 k. But “raising money is the easy part he said; the difficult thing is building the business”. They then built the platform for rewards (thanks & acknowledgements). They also wanted to avoid building something “intrusive or annoying”. The business model is simple. They charge brands and users are rewarded for their engagement. Among his advice were to understand that the team is everything, and to be prepared for difficult days too. He added that brands, at the outset, didn’t realise that people of all ages were playing games. Not just kids but middle aged mothers and even people above 50 he said. Brands are now, after a few years, very knowledgeable about that and this is why gamification has got a bad name. What you really need to do is how you can create a great experience like this company that decided to change an escalator which no-one wanted to use, by turning it into a living piano; instantly people started to use this escalator for the sake of the experience that it was providing.

image

3. Andrew Trader (above), venture partner at Maveron was next. He has been part of the gamification world on both side: as part of the family team at Zynga and from the investment side too.  The value of gamification in his mind starts with the value of relationship capital. This is what – in his mind – makes farmville so relevant. One has to try and incentivise users to engage more deeply; gamification mechanisms are similar in games like Farmville and business gamification he said.

image

4. Joshua Williams  (above) from Microsoft jumped in the conversation at that time. The idea of gamification according to Joshua is “how we can get a task done in a more engaging and fun way, and less painful. To him there are a lot of challenges with gamification which are overlooked. It’s a double-edged sword but he think that it’s worth looking into.

image

5. Amy Jo Kim (above), founder and CEO of Shufflebrain said that a lot of her practice recently has been to tune reputation systems to make them more engaging. “We could call that gamification” she said. Her perspective, is that what makes games compelling is in the design; people are getting smarter faster she said. You have to design systems which have the dynamics of games she said. You have to look at the “large word of zero sum gaming” she said. She predicted we would see a lot of innovation in that space in the future.

image

3. Rajat Pahsaria (above) was last. Rajat is the founder and chief officer of Bunchball. Beyond the buzzword he said there are values to gamification such as rewarding users, enhancing the experience etc. “We have a wealth of big data which is telling us what our users are doing” he said. And this is what gamification does” he said, using these techniques which have been going for years, i.e. rewarding users.

Gamification at Vlab: buzzword or real business driver? – #blogbus

eye-largeThe MIT Stanford lab was founded 22 years ago. Orange is a sponsor of VLAB and we attended a meeting on Sept 19 on the Stanford campus on the subject of gamification. Vlab had gathered a unique bunch of top international experts from Silicon Valley in order to debate this concept. Despite the fact that many think badly of Gamification, our users have explained that gamification isn’t about games but bringing gaming mechanism in business activities and this was all about rewarding and creating a great experience.

[this post was originally written on behalf of the live.orange.com blog]

1. Margaret Wallace(below)introduced the session. Margaret is the CEO and founder of Playmatics. She began her pitch by saying that games have been around for thousands of years. Her definition of gamification is “the application of games mechanisms in non gaming situations, it’s not about angry birds and such like” she said. Why bother gamification? there are a lot of detractors of gamification Margaret said; the Gartner hype cycle is placing gamification at the very top of the Gartner hype cycle “so you are here at the right moment” she added. There are many ways that games can be inserted in business, such as Nike running, Ford’s mobile app, energy orb (an orb which changes colour according to the status of the electricity grid) … even political groups are using gamification to recruit people Wallace said; Pdt Obama has a Foursquare account for instance. From then on she handed the floor to the other panellists.

image

Margaret Wallace (above)

image2. Courtney Guertin (above), Co-founder of Kiip was next on the stage and he presented the concept that he and his partner have designed. The idea was to reward users, through mobile apps and disrupt the mobile app space. In July 2010 they built a demo and started sharing this idea around them. They ended up raising $ 300 k. But “raising money is the easy part he said; the difficult thing is building the business”. They then built the platform for rewards (thanks & acknowledgements). They also wanted to avoid building something “intrusive or annoying”. The business model is simple. They charge brands and users are rewarded for their engagement. Among his advice were to understand that the team is everything, and to be prepared for difficult days too. He added that brands, at the outset, didn’t realise that people of all ages were playing games. Not just kids but middle aged mothers and even people above 50 he said. Brands are now, after a few years, very knowledgeable about that and this is why gamification has got a bad name. What you really need to do is how you can create a great experience like this company that decided to change an escalator which no-one wanted to use, by turning it into a living piano; instantly people started to use this escalator for the sake of the experience that it was providing.

image

3. Andrew Trader (above), venture partner at Maveron was next. He has been part of the gamification world on both side: as part of the family team at Zynga and from the investment side too.  The value of gamification in his mind starts with the value of relationship capital. This is what – in his mind – makes farmville so relevant. One has to try and incentivise users to engage more deeply; gamification mechanisms are similar in games like Farmville and business gamification he said.

image

4. Joshua Williams  (above) from Microsoft jumped in the conversation at that time. The idea of gamification according to Joshua is “how we can get a task done in a more engaging and fun way, and less painful. To him there are a lot of challenges with gamification which are overlooked. It’s a double-edged sword but he think that it’s worth looking into.

image

5. Amy Jo Kim (above), founder and CEO of Shufflebrain said that a lot of her practice recently has been to tune reputation systems to make them more engaging. “We could call that gamification” she said. Her perspective, is that what makes games compelling is in the design; people are getting smarter faster she said. You have to design systems which have the dynamics of games she said. You have to look at the “large word of zero sum gaming” she said. She predicted we would see a lot of innovation in that space in the future.

image

3. Rajat Pahsaria (above) was last. Rajat is the founder and chief officer of Bunchball. Beyond the buzzword he said there are values to gamification such as rewarding users, enhancing the experience etc. “We have a wealth of big data which is telling us what our users are doing” he said. And this is what gamification does” he said, using these techniques which have been going for years, i.e. rewarding users.

Chinese Internet industry ready to grow beyond borders (1/2)

Attribution Chinese flag photo, some rights reserved by Philip Jägenstedt

by Alban Fournier (http://www.value2020.net) QQ ID: 1557637787

Alban Fournier is a graduate from Essec Management School in Paris. He has proficiency in Management, Change Management, Marketing and Consulting services. He has worked on various engagements with Schneider Electric and Tencent, the leading Chinese Internet company.

China will be the World’s next Internet giant!

Which Internet company generates the greatest number of micro transactions for virtual goods on a daily basis? If they were asked this question, most of our Western readers would undoubtedly mention Google, or Facebook and they would be wrong. In this piece, I will explain why China is virtually the only country that is able to compete with the United States of America with regard to the growth of its Internet industry.

China has the world’s largest Internet audience thanks to its population, the world’s biggest with more than 1.3 billion people. With the strong increase of its Gross Domestic Product, extraordinary engineering talent, plenty of venture capital, Chinese entrepreneurs and large firms have now the resources to compete worldwide.

What makes the the Chinese market stand out is that Chinese people use intensively their mobile phones. They are not just using their devices to communicate with other people : they also play games, issue payments and perform many other things online.

Overall, Asia is ahead of us with regard to the usage of mobile devices, Japan and Korea being the most advanced countries. This high and ever growing usage of mobile communications empowers local players such as China Mobile (70% of the market), China Unicom (20%) and China Telecom (10%).

[China Telecom phone booth image AttributionNoncommercialShare Alikesome rights reserved by mjaniec]

According to CNNIC[1], the total number of wireless Internet users in China reached 302.7 million at the end of 2010, representing 66.2% of the local Internet user base. Such high equipment rates were mainly driven by the superior wireless data infrastructure in the country and the availability of mobile applications such as WAP portals, Instant Messaging (IM) and social games. Secondly, while traditional Text Messaging (SMS) continued to develop after a year of strong growth in 2009, microblogging enjoyed explosive growth and emerged as a major social media contender in China.

Telecom is still a local industry in China … as of now

A characteristic of the Chinese technology industry however is that few of those Chinese companies, however successful, have decided to go beyond their own borders. There are counter examples with firms like Huawei which has now managed to become a global company and has clients in many countries, namely by providing infrastructure equipment to Western network and service providers.

And the winner is … Tencent

Getting back to the question I asked at the beginning of this post, the World’s leading Internet company in terms of the number of online transactions on a daily basis is neither Google or Facebook; it is a Chinese company and is name is Tencent. The next part of this piece will be dedicated to their success story.

… to be continued.

________________ [1] http://www.cnnic.net.cn/