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Big companies get blind spots – which make space for startups

It is often the case that large companies and even whole industries lose touch with what it is that their customers like about them.  When this happens they often develop their own incorrect hypotheses about what it is that their public like (or should like), and then when they see startups beginning to take market share with an offering that misses what they see as a key attribute their reaction is to think that this new competition won’t be successful over the long term, and then they go on to make an inadequate response.

When I see this happening I get excited about the potential for making investments.

I’m writing this today after watching the video below which shows three newspaper guys arguing that blogs can’t be trusted and are therefore somehow different to them.  A) it isn’t as if news papers have an impeccable record for integrity (and I don’t buy that being able to complain to the regulator and have a retraction published at the bottom of a middle page two weeks later makes a difference), and B) good blogs build their brands and take time explaining their standards – Techcrunch does a good job of this.

The result of this misunderstanding about the importance of their own brands and reputation for integrity is that they have been somewhat blindsided by blogs.

Other industries in which this has happened over time include:

  • Open source software – it will never be secure enough/work well enough
  • VOIP – the quality will never be good enough
  • Music – there is something special about owning records/CDs
  • Books – nothing will replace the experience of browsing for books in a bookstore
  • Software – companies will never get comfortable with hosted apps that store key data outside the enterprise

Others which might come in the future (arguably, some might have come already):

  • Music – people will want to own a copy of their music stored on their hard drives
  • Books – people will always want to own (dead tree) books
  • Mobile operators – have sufficient control of their customers to take a cut of their media purchases

You can’t take this stuff too far of course – some of these things will never happen – but this sort of analysis is a good starting point for identifying interesting sectors.

If any of you can think of any more I’m all ears.