Importance of Competitive Advantage in Tech Companies

If you look at StackOverflow, you will see that community can be a major competitive advantage, as it would be hard for someone to compete well against it.

But, if you look at Facebook and Myspace, community there is less of an advantage, as people may be on both and can shift from one to the other, depending on their mood, or where more of their friends are.

In tech companies, the main competitive advantage will be the employees, as their ability may be your limiting factor, or the thing that will help you continue to advance against competitors. I remember someone at Disney (I am guess Eisner) stating that his most valuable resources leave every night.

I think flexibility is a major advantage. If a virtual reality social networking site was easy to use, and was able to start attracting people, I doubt that Myspace or Facebook could adapt well, for example. If you have a loose coupling between parts so you can switch pieces in and out quickly, and you have picked languages that will enable you to take advantage of new features, then you may be able to compete regardless of how the markets change.

I think focus is an advantage. for a small company, as, if you try to spread yourself too much then you will find that you are not doing any one thing well, but are alright at several things, but, you are competing against companies that do what you do, but they do it well.

when you get larger then focus is more of a detriment. For example, Google has moved away from focusing on search, and now they are trying to define themselves in some other fashion, but, what they are doing is constantly creating waves when they release new products. For example, if they can get the kinks out of Nexus One, then it may force a change in releasing phones that are so tethered to one carrier, as it appears that Google can reduce the cost of the untethered version and still make a profit, since their cost appears to be about $179/phone.

If you can find a way to be known for something done in a better way, then you can have an advantage, as you are on version 2 while everyone else is on version 1. For example, Toyota and their hybrid engines. They are ahead of their competitors, as they were early out and were able to learn from past mistakes, so while their competitors are still learning those lessons, they are learning new lessons from improved technology. Or, if you were the first to use recycled carpet to make carpet tiles, then, you can make deals with companies that remove carpet, and buy their old carpet, which makes it harder for your competitors to compete, as you are locking up the supply more, reducing what they can use.

Apart from the things already mentioned, I believe domain knowledge/expertise can be a significant competitive advantage. So is being the first entrant to the market (first-mover advantage).

Also, I take issue with the notion that "things can be mimicked ... easily." I think the business side often underestimates the amount effort and cost required to build a stable production quality product. Joel Spolsky discusses this to some degree in his article Good Software Takes Ten Years. Get Used To it .

Competitive advantage can stem from a number of sources. But it is, fundamentally, what your company is about. So, your competitive advantage should stem from the very concept of your company.

For instance, Dell was able to sustain competitive advantages in cost and customization for years -- because the company was built around the concept that these were important factors. That meant that Dell focused on managing its supply chain long before most other computer manufacturers did.

Twitter believed that it had a competitive advantage of friction -- they made it easier than everywhere else to sign up and post. (A lot of their other features came later.)

Customer service is a great example. That's Zappos's advantage; but that's not the only possible advantage in e-commerce, witness Amazon with almost no (conventional, at least) customer service. Amazon's advantage is in selection, if not more.

Generally, competitive advantages stem from one of several areas: - Sales & Customer Service - Branding & Marketing - Operations (that is, how you make whatever it is you make) - Finance (that is, your access to capital)

So look deep down in how you deal with these areas, and see: what distinguishes my company from my competitors in these areas? Do any of these differences deliver a specific advantage? How do I quantify it? How do I defend it?

If you are protected by government, then you have the biggest source of competitive advantage.

Take a look at Proton car, a Malaysia-made car that couldn't survive even a single day if left alone in a fair and competitive market. The reason why Proton enjoys a near monopoly in Malaysia is because it has the biggest competitive advantage in the world one can ever imagine; government protection. All imported cars are levied with a tax more than 100% so that Malaysians will think twice before getting an overseas car.

So, try to make favor with government officials, and sell them your idea. You already have the biggest competitive advantage.

IMO, competitive advantage in the tech sector usually stems from one of these things:

• Network effects. This is the one everybody wants. eBay is the only major player in the online auction space because getting more customers intrinsically improves the product (by providing more buyers/sellers to potential sellers/buyers).
• Reputation. Especially online and especially for big purchases, switching to a new, unproven provider that nobody's ever heard of is like playing the lottery.
• People. If your company is known as the leader in the field, it will tend to attract most of the better people interested in that field by default (though it will also lose a sizable minority of them because they'll find it more interesting to compete with you than to work for you!).
• Processes. This doesn't have a self-reinforcing effect on the positive side, but companies with bad processes tend to get worse and worse. So if your company is the only one in your field without corporate pathologies crippling its development team(s), you have a huge edge.
• First-mover advantage and momentum, as mentioned above. Usually this has to be leveraged into one of the above areas to sustain you for long, though.

The gentleman who mentioned the power of bribing the government also has a point (sadly).