With this slide in her Internet Trends deck Mary Meeker is making the point that as internet penetration passes through 10-20% in India companies matching the scale and significance of Netscape, Yahoo, Amazon, Tencent and Alibaba will be created.
Generalising, I would say that the defining companies in any new market are anointed as adoption of the new technology or product passes through 10-20% of the potential customer base. The scale and significance of those companies then depends on the size of the market and the opportunity for profit.
Thinking about ecommerce and marketplaces where we focus, general purpose companies like Amazon and eBay were market leaders as internet adoption passed through 10-20%, but then as other categories of commerce have come on line it seems to me that we’ve seen the same movie play out over and over.
In the UK Music and Video, Books and Electricals are all verticals with ecommerce penetration of over 40% (see here) and the opportunity for new businesses looks like it’s largely behind us. Amazon is perhaps the major winner, both through it’s own efforts and through acquisitions, with Spotify and Apple also having significant share.
In clothing and homewares which were respectively 14% and 11% penetrated in 2013 there have been some big businesses built – e.g. Net-a-porter, ASOS, and AO.com, but it very much feels like these markets are still playing out and there is plenty of scope for new opportunity. We are investing heavily in these verticals.
The remaining categories of DIY and Gardening, Furniture and Floor Coverings, Food and Grocery and Health and Beauty are all at 6% penetration or less and all lack a clear winner, and again we are investing heavily.
So far in this post I have talked about ecommerce categories at the highest level, but the 10-20% market share dynamic also plays out in definable sub-categories which require different approaches or technologies to the parent category to bring them online. Self catered holidays is a good example. PhoCusWright estimate 45% of travel was bought online in Europe last year and yet the lower penetrated self-catered sub sector has spawned large companies quite recently and AirBnB, HomeAway and others are still battling for dominance there. In the long run sub-category winners are likely to be consolidated by the category leaders, but that could be for significant sums, depending on the opportunity size.
The lesson for entrepreneurs, then, is to be the market leader in a definable category or sub-category as market adoption passes through 10%. It’s been said often enough that it’s starting to become a cliche, but first mover advantage, therefore, is usually the wrong thing to think about.