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.

Rocketspace ‘s Logan: “even Russian companies go to the US to conquer the world!” – #blogbus

Duncan Logan, founder of Rocketspace is originally Scottish and moved to San Francisco some time ago. His first venture didn’t work but 20 months ago, he then decided to found Rocketspace. Rocketspace could be described as “offices as a service” Logan said. He confided to our team of bloggers that he had read the Lean Start-up and he tested the principles he’d found in the book by creating a fake company and posting an ad on Craigs’ list. He got something like 10 requests by companies in 12 hours. Then he tried again by adding that only tech companies are wanted and he got 15 responses in 12 hours. That’s how Rocketspace, start-up accelerator in downtown San Francisco, was born. Today, Duncan Logan delivered his vision of why the Valley is the world’s most exciting place for high tech entrepreneurship. 

[note: this piece was originally written for the Orange Live Blog which I manage and created]

image

Duncan Logan, founder of Rocketspace delivered his 360° view of entrepreneurship

a start-up accelerator in downtown San Francisco

15 companies are hosted by Rocketspace, and there is space for 150 people. According to Logan, this is the largest “tech accelerator” in San Francisco. “30% of companies hosted here are from overseas who want to mix with the ecosystem in the Valley. 30 other co-working spaces exist but this one is dedicated to tech companies” Logan added. Spotify was hosted here for instance, but there are also companies at seed money stage.

“Overseas companies have too broad offerings” Logan said, “US companies have narrower offerings and they therefore, they are much more focused; because it’s such a huge country” he said.

co-working spaces have nothing to do with real-estate

Within about 6 weeks from creation, it dawned on Duncan and his teams that “real estate has nothing to do with co-working, and that it was all about the eco-system. It’s all about speed here, most start-uppers don’t care about privacy” Logan added. As a matter of fact, most of them don’t worry about building a sales team either. ‘The real trend behind Rocketspace Duncan said is that before, you would have to raise a lot more money and spend more time on getting yourselves organised, now you don’t”. So how much would you need to get started? “Under half a million dollars” he responded “and after 15-16 weeks, they can have large numbers of customers without spending too much money” … that is in case it takes off, but the system is such that investors know what to expect.

young people don’t want to commute … nor get into an office

“Over here, young people don’t want to commute, they don’t want to own cars, so there has been a real emphasis for young companies to be based in San Francisco [rather than Silicon Valley which is an hour away from the City] and this is why real estate prices doubled in 18 months!” Duncan Logan added. Besides, “the valley is more about infrastructure start-ups (i.e. cloud computing, storage and servers etc.) whereas “the City is about young companies” he said.

image

“Tech founders aren’t very social”

Most of the companies here are at “A” stage he said. For most of them, the risk is on the entrepreneurs, VCs are always pushing for more evidence of future success, and when you are a first time founder you have to think about what business can be financed vs. trying to build the most amazing business” Logan said.

the 3 pillars of Rocketspaces’s business

Now we hit what was the most interesting part of the meeting. Logan delivered his vision for Rocketspace and described what makes it special. “We see ourselves as a kind of platform” he said and he described the 3 pillars of Rocketspace’s business:

  1. access to capital: close relationship with business angels, venture capitalists and Rocketspace have a very good view of deal flow, Logan said. Specially for outside companies, this is essential
  2. access to talent: MIT, Harvard, Stanford etc. “talent is one of the overriding factors” Logan said. “We nurture those relationships in order to bring talent to new start-ups and we can do this for nothing” he said
  3. access to customers: this is an “enormous growth item for Rocketspace” Logan said. Large companies like IBM or Microsoft are connected to the Office Space and this is what makes it possible for start-ups to connect to that ecosystem. “Smart companies are engaging with start-ups early in the process. They will come in here and they will say ‘we have a real interest in mobile payments’ for instance and we’ll start to shortlist maybe 4-5 start-ups and this is a very symbiotic way of doing business he said. IBM is working with dozens of start-ups for instance, and Rocketspace is constantly organising demo days and start-ups networking events. “Kodak, Blockbusters etc. took a different approach and refused to change the way they worked and they aren’t here anymore” Logan said.

“There are probably 250 very exciting companies around the world” Logan said, and we’d like to have them at least for Rocketspace for a year. This is our goal for the next 10 years.

How do you do networking?

We have four floors and 2 next door. We do a lot of dinners. “Tech founders aren’t very social” Logan said. We have up to 20 people at dinner and we have all the VCs that count at these dinners he said. There are 10 events going on every night on average in San Francisco and there are a lot of opportunities the entrepreneur said.

“We are not coaching hands-on like an incubator. Obviously it’s all our interest that they succeed. We never publicise who is here. We are fiercely independent. We give 3 contacts for bankers, VCs, partners etc. Rocketspace refuses to take sides.

A lot of this has a lot to do about how companies are getting funding. “VCs are aggressive. They probably see 250 companies before they invest in one. Yet, once they do they are pretty nervous. By the time a start-up is raising money, there will be up to 3-4 VCs competing with one another. So once they are committed they are pretty aggressive. It’s so hard to get in for them… Yet, for start-ups it can take them months before they can find an investor” Duncan Logan added.

I don’t think there is too much money, but the amount of money required to start a new company has dropped the founder of Rocketspace said.

why is Silicon Valley different?

There are great start-ups in UK, France and other places. But when you are in football you have to be in a environment in which you can rub shoulders with top class teams otherwise you don’t know whether you are good at the game or not. That was Logan’s way of explaining  that the premier league is taking place in Silicon Valley, this is where you compare yourself to the best companies. People like Reid Hoffmann (founder of LinkedIn), you understand that they have a different understanding of the world Logan said.

but there are other reasons why …

Scale is the issue, mostly in Europe (where there are many languages spoken and smaller numbers of users who are culturally very fragmented). Indian and Chinese companies can scale Logan said. We see copycat ideas happening in certain places like China and India and “they can crack America!” he said. You have to be in the sort of size like dropbox, airBnB etc. and India and China can achieve that kind of scale and found multibillion dollar companies”.

“Even Russian companies” he added “when  they want to conquer the world, come to America!”.

plans to expand to other countries?

“US immigration laws are ridiculous” Logan said. “We are tripling our size here in San Francisco but  it would make sense to have a Rocketspace in Europe (it could be London or Berlin) and one in Asia” Logan added. Plug and play tech centre  (where we are headed to now) were the pioneers he said, but their mentality is very commercial, and there is an obligation to fill the spaces. Roketspace sees themselves as very different from that.

Rocketspace ‘s Logan: “even Russian companies go to the US to conquer the world!” – #blogbus

Duncan Logan, founder of Rocketspace is originally Scottish and moved to San Francisco some time ago. His first venture didn’t work but 20 months ago, he then decided to found Rocketspace. Rocketspace could be described as “offices as a service” Logan said. He confided to our team of bloggers that he had read the Lean Start-up and he tested the principles he’d found in the book by creating a fake company and posting an ad on Craigs’ list. He got something like 10 requests by companies in 12 hours. Then he tried again by adding that only tech companies are wanted and he got 15 responses in 12 hours. That’s how Rocketspace, start-up accelerator in downtown San Francisco, was born. Today, Duncan Logan delivered his vision of why the Valley is the world’s most exciting place for high tech entrepreneurship. 

[note: this piece was originally written for the Orange Live Blog which I manage and created]

image

Duncan Logan, founder of Rocketspace delivered his 360° view of entrepreneurship

a start-up accelerator in downtown San Francisco

15 companies are hosted by Rocketspace, and there is space for 150 people. According to Logan, this is the largest “tech accelerator” in San Francisco. “30% of companies hosted here are from overseas who want to mix with the ecosystem in the Valley. 30 other co-working spaces exist but this one is dedicated to tech companies” Logan added. Spotify was hosted here for instance, but there are also companies at seed money stage.

“Overseas companies have too broad offerings” Logan said, “US companies have narrower offerings and they therefore, they are much more focused; because it’s such a huge country” he said.

co-working spaces have nothing to do with real-estate

Within about 6 weeks from creation, it dawned on Duncan and his teams that “real estate has nothing to do with co-working, and that it was all about the eco-system. It’s all about speed here, most start-uppers don’t care about privacy” Logan added. As a matter of fact, most of them don’t worry about building a sales team either. ‘The real trend behind Rocketspace Duncan said is that before, you would have to raise a lot more money and spend more time on getting yourselves organised, now you don’t”. So how much would you need to get started? “Under half a million dollars” he responded “and after 15-16 weeks, they can have large numbers of customers without spending too much money” … that is in case it takes off, but the system is such that investors know what to expect.

young people don’t want to commute … nor get into an office

“Over here, young people don’t want to commute, they don’t want to own cars, so there has been a real emphasis for young companies to be based in San Francisco [rather than Silicon Valley which is an hour away from the City] and this is why real estate prices doubled in 18 months!” Duncan Logan added. Besides, “the valley is more about infrastructure start-ups (i.e. cloud computing, storage and servers etc.) whereas “the City is about young companies” he said.

image

“Tech founders aren’t very social”

Most of the companies here are at “A” stage he said. For most of them, the risk is on the entrepreneurs, VCs are always pushing for more evidence of future success, and when you are a first time founder you have to think about what business can be financed vs. trying to build the most amazing business” Logan said.

the 3 pillars of Rocketspaces’s business

Now we hit what was the most interesting part of the meeting. Logan delivered his vision for Rocketspace and described what makes it special. “We see ourselves as a kind of platform” he said and he described the 3 pillars of Rocketspace’s business:

  1. access to capital: close relationship with business angels, venture capitalists and Rocketspace have a very good view of deal flow, Logan said. Specially for outside companies, this is essential
  2. access to talent: MIT, Harvard, Stanford etc. “talent is one of the overriding factors” Logan said. “We nurture those relationships in order to bring talent to new start-ups and we can do this for nothing” he said
  3. access to customers: this is an “enormous growth item for Rocketspace” Logan said. Large companies like IBM or Microsoft are connected to the Office Space and this is what makes it possible for start-ups to connect to that ecosystem. “Smart companies are engaging with start-ups early in the process. They will come in here and they will say ‘we have a real interest in mobile payments’ for instance and we’ll start to shortlist maybe 4-5 start-ups and this is a very symbiotic way of doing business he said. IBM is working with dozens of start-ups for instance, and Rocketspace is constantly organising demo days and start-ups networking events. “Kodak, Blockbusters etc. took a different approach and refused to change the way they worked and they aren’t here anymore” Logan said.

“There are probably 250 very exciting companies around the world” Logan said, and we’d like to have them at least for Rocketspace for a year. This is our goal for the next 10 years.

How do you do networking?

We have four floors and 2 next door. We do a lot of dinners. “Tech founders aren’t very social” Logan said. We have up to 20 people at dinner and we have all the VCs that count at these dinners he said. There are 10 events going on every night on average in San Francisco and there are a lot of opportunities the entrepreneur said.

“We are not coaching hands-on like an incubator. Obviously it’s all our interest that they succeed. We never publicise who is here. We are fiercely independent. We give 3 contacts for bankers, VCs, partners etc. Rocketspace refuses to take sides.

A lot of this has a lot to do about how companies are getting funding. “VCs are aggressive. They probably see 250 companies before they invest in one. Yet, once they do they are pretty nervous. By the time a start-up is raising money, there will be up to 3-4 VCs competing with one another. So once they are committed they are pretty aggressive. It’s so hard to get in for them… Yet, for start-ups it can take them months before they can find an investor” Duncan Logan added.

I don’t think there is too much money, but the amount of money required to start a new company has dropped the founder of Rocketspace said.

why is Silicon Valley different?

There are great start-ups in UK, France and other places. But when you are in football you have to be in a environment in which you can rub shoulders with top class teams otherwise you don’t know whether you are good at the game or not. That was Logan’s way of explaining  that the premier league is taking place in Silicon Valley, this is where you compare yourself to the best companies. People like Reid Hoffmann (founder of LinkedIn), you understand that they have a different understanding of the world Logan said.

but there are other reasons why …

Scale is the issue, mostly in Europe (where there are many languages spoken and smaller numbers of users who are culturally very fragmented). Indian and Chinese companies can scale Logan said. We see copycat ideas happening in certain places like China and India and “they can crack America!” he said. You have to be in the sort of size like dropbox, airBnB etc. and India and China can achieve that kind of scale and found multibillion dollar companies”.

“Even Russian companies” he added “when  they want to conquer the world, come to America!”.

plans to expand to other countries?

“US immigration laws are ridiculous” Logan said. “We are tripling our size here in San Francisco but  it would make sense to have a Rocketspace in Europe (it could be London or Berlin) and one in Asia” Logan added. Plug and play tech centre  (where we are headed to now) were the pioneers he said, but their mentality is very commercial, and there is an obligation to fill the spaces. Roketspace sees themselves as very different from that.

my views on the Silicon Valley Blogger Bus tour – #blogbus (2/2)

For those who don’t know yet, I (as Director, Web & Social Media at Orange), I will be part of the Silicon Valley Blogger Bus Tour 2012, which will take place in September (17-22) as a blogger … and the organiser of that tour. Here is my take on why I am participating and what I am expecting to do/see there:

I’m a Jack of all trades. I’m not just a blogger, I’m also the organizer of the Tour. On this Tour we’re dealing with blogger PR in a different way than it usually is done in big companies like this.

What we do here is we partner with the bloggers : we work together as a team, and the fact that I’m also a blogger makes it possible. It’s a matter of us going over there together, reporting and sharing our enthusiasm and content.

To me this is very important : it’s how good content is produced and engrossing stories started. And I’m not even talking about the friendships that are being initiated between members. Undoubtedly those who are taking part in these tours are invited to other tours, depending on their skills and focus.

my views on the Silicon Valley Blogger Bus tour 20    12 as an organiser

We also want to look at the way we organise the tour. A member of my team is going to have a subjective look at what other bloggers are seeing, through their blogs and contents. So we’ll be able to tell a story about the story as well.

And finally, how are we going to tackle the main subject, which is innovation in the Valley? I really wanted to give a different angle about this SoLoMo (social,local,mobile) approach in the Valley, so we’re going to see many innovators to understand whether or not innovation is still thriving in the Valley although I don’t have much doubt about that, knowing how it is over there.

It’s my 7th time there and I’m sure we’re going to have an exciting time. So stay tuned to the live.orange.com and don’t miss a thing about the Orange Blogger Bus tour 2012.

#leweb12 – hoteltonight: “smartphones are where the market is going”

The Silicon entrepreneur explained that there are 2 main groups of hotel bookers. One is for people who have the time to book in advance, be it for business or leisure, whereas the other group is impulse bookers. These are the ones that Hoteltonight is catering for: “they are presented with last minute deals. Having an app in your pockets truly changes the way you think about hotels” Shank added.

[note: this is a guest post I did yesterday on behalf of the live.orange.com blog]

[Sam Shank, chain start-up entrepreneur and founder of Hoteltonight]

In the US there are a lot of chains but a lot less in the UK. “The ownership is very fragmented, and this is the bread and butter because people can choose and pick up new places that are nice” Shank said.

not just a High end service?

One could be tempted to think that this is a very exclusive service for the rich and wealthy, but Sam Shank disagrees strongly with that statement: “we want to be something for everyone. It goes from luxury hotels to more basic hotels and even business hotels” he said. The application delivers 3 deals from a selection of 20 hotels each night. Hotels are competing amongst themselves and “nothing can be predicted” Shank said. This emphasises the lastminute effect in so far as you can’t choose what hotel to stay in in advance.

the market?

Admittedly, there are “many vendors in the same space” and some are multi-million companies such as Expedia for instance. “The main way hoteltonight competes is from singular focus and mobile, content and merchandising, customer support and online marketing” Shank said. The start-up’s singular focus on mobile, and their advantage on competition is that they have no legacy systems. Most businessmen are using their smartphones on the move but “it is still a challenge when teaching people that they should use only mobiles” Shank added.

In essence, Hoteltonght is focussing only on last minute deals and mobiles are well suited for this. Besides, it’s a marketing channel for hotels because 90% of buyers have never stayed in the selected hotel before.

Shank’s third start-up

Hoteltonight is Sam’s third start-up: “all have been successful but I know that lack of focus is reason number one for failure” Sam Shank explained, and this is why they focus on smart phones, also because “this is where the market is going” he concluded.