Revitalizing Competition: Shifting the Balance of Power from Fat Incumbents to Hungry Insurgents

Fred Wilson had a post a while ago describing how Yelp helped him find quality coffee and dining on a trip to LA, allowing him to avoid chain store coffee and food.  He applauded Yelp’s ability to provide consumers and smaller establishments a way to bypass the scale advantages of big brands, allowing them to compete for customers who in another era would not be able to find the smaller guys.

This illustrates a much larger point about the power of the Internet.  By providing a way for consumers to find a fuller set of providers of services or products, it allows them to bypass or neutralize some of the usual shortcuts that we, as consumers, use to keep our search costs under control, such as reliance on often stale brand names and “reputations.” By doing so, Internet business models can revitalize competition across markets.

When search costs are high so that consumers have to rely on short cuts to make decisions, they miss good alternatives.  There is also a tendency for the brand name to get lazy, fat, and content.  When consumers come to you regardless, suppliers that have been successful start cruising and going through the motions in their business.  This goes far beyond coffee and restaurants; it is true across consumer products, b2b products/services, and in professional services.  Through giving the consumer the power to  find information through a search engine, through sites that collect reviews on products or services, and through information passed via various social tools, the Internet can shake things up.  And it provides infinite opportunities for entrepreneurs to shake up the delivery of products and services by finding creative ways to intermediate between consumers and suppliers, providing platforms to spark competition between suppliers, help the consumer find better value, and enable overlooked or new suppliers to reach new consumers.

Examples are sites like Citysearch (local reviews), Yelp (local reviews), TripAdvisor (travel reviews), Ebay (small merchants), Etsy (small craft merchants), GroupOn (local deals) and indeed many other  internet businesses that do this in one aspect or another.  But as a basis for new business models, the insight that existing marketplaces can be disrupted by bringing attention to alternate suppliers has so much farther to go.  For the entrepreneur, it is one helpful way to conceptualize a business idea.