Beyond “category kings” – innovation over domination

Mary-Ann Vaughan

16 March 2017

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Category kings, market share-leaders in particular business sectors, have been a hot topic of debate and conversation for some time. As powerhouses in their industry, they typically generate 70-80% of the value in their respective sector. This is particularly so in technology services where companies like Google and Facebook benefit from the “net-effect”, meaning their service gains value the more people use it. What does their dominance mean for their industry and how do you compete in a sector dominated by a giant?

The most exciting companies create. They give us new ways of living, thinking, or doing business, many times solving a problem we didn’t know we had – or a problem we didn’t pay attention to because we never thought there was another way. Authors of the Play Bigger research.

Why are they the big players?

A study by Play Bigger finds that category kings earn 76% of the market cap of the whole category and that “five-sixths of the market value generated by these leading tech players comes from businesses driven by “network effects””.

Their success lies in the fact that they are not just making something to sell or to meet demand, they are innovating and carving out their own category in which to excel. Airbnb and Uber being prime examples of this. Not only do consumers benefit from the “net-effect”, but when some of these big players do well at seducing customers, they open up opportunities for other companies in parallel and ancillary services. For example Beyond Pricing for Airbnb hosts and the newly launched Optionspace in Germany, who intends to apply the Airbnb model to office space.

A category king’s success is also spurred on by consumer desire to be a part of the perceived best provider in that sector, particularly when they are influenced through word of mouth on social media. Everyone wants to work for these kings, use their service, invest or partner with them.

The big players are not only in the West

At the moment the dominant “giants” most commonly spoken about are very much focussed in the West, but other global players in Japan, China and Kenya are hugely valuable and dominant in their sectors.

Vodafone’s M-Pesa, Kenya’s mobile phone-based money transfer platform, launched in 2007 and has seen explosive growth. It provided a banking solution in remote areas where banks are scarce. Users of the platform are able to text money to other people, a service which has not quite yet been matched by Paypal, Facebook, Google or Apple. Users can also pay for goods and services and withdraw money. M-Pesa’s focus on geolocation means that the service is naturally very personalised, and this contributes to its success. According to the company, the distribution network of M-Pesa is almost equal to the total banking presence in India.

In 2016, China’s Tencent became the country’s highest valued corporation, surpassing state-owned enterprises such as China Mobile Ltd, and is now one of the top 10 in the world by market capitalisation. Tencent is best known for WeChat and QQ Games.

Closely following Tencent, is Alibaba the world’s largest e-commerce platform. The company went public in 2014, raising $25 billion -more than Facebook. Alibaba also set up Ant Financial, worth over $60 billion, who run the payment platform Alipay. Ant Financial purchased US based Moneygram this year, in their drive to expand globally.

They are beyond “category kings”

I would say that these companies are actually beyond category kings . What is interesting about them is that now that they’re leaders in their respective category, they are trying to redefine other categories. Many of these companies are extending beyond their original category and making waves in others, i.e. banking, media, automotive. They are conquerors of others!  

Laura Dinneen – Insight Partner a Good Rebels.

Amazon’s acquisition of Zappos, an online clothing and shoe company, in 2009 prefaced their move into the clothing and fashion industry.  Zappos may have been considered a threat at the time. They have an extremely customer focussed culture, excel at customer service and their infrastructure and technology platform has proved very successful. All things that Amazon were keen to learn from and incorporate into their own offering.

More recent advances into new categories include king of search, Google, for instance with their Project Loon, “balloon-powered internet for everyone”, or their step into robotics and AI through the acquisition of Boston Dynamics and their investment in numerous projects, such as Deep Dream. There is already some competition in driverless car market from Google and Apple. Tesla are exploring space travel and of course Alibaba is looking to dominate in the mobile finance sector with Alipay.

The leaders are extraordinary

Disruption and the rise of category kings is not a recent phenomenon.

“If I had asked people what they wanted, they would have said faster horses”.

Henry Ford – Automotive rebel

These innovators have created a shift in the way that we live, consume and pay for services and this landscape is ever-changing. Business models as we know them and the legacy of ‘kings’ will begin to falter.

“There is so much disruption at the moment, that to think the five big giants will always be ahead, is rather narrow minded”.

Kevin Sigliano – Partner, Good Rebels

We live in an era where strength is built on relevance and consumer personalisation and it is becoming much harder for larger organisations to both understand and deliver on this need for personalisation. Besides this, there is an explosion of new technology that is ripe for opportunity, such as virtual reality location based technologies, artificial intelligence and new methods of cognitive technology, that have yet to be used to their full potential.

The leading organisations of the next five to ten years will be extraordinary organisations.

In our next article, we’ll look at what these big players mean for us. The consumers. The workers.