Knowing industry competition

It’s surprising to see big companies fail simply by misunderstanding the nature of competition in their own industry.  I do not mean misunderstanding their competitors — that is more common, and more understandable.  But to misunderstand the nature of competition itself, the terrain on which the battle is fought, never ceases to amaze.

Contemplate the decline of Network Solutions (hereafter NS), which was the #1 Internet domain name registrar in 2000, but now a fraction the size of GoDaddy (hereafter GD), which has registered 5x more names.

NS was a pain to use, but not unusable.  Support was bad, but not terrible.  GD beat them somewhat on these fronts, but they are not the reason for the lopsided outcome.

The battlefield was simply price. Domain name registration is a nearly pure commodity, and GD took over simply by charging less.

It didn’t have to end this way.  NS was much bigger, and hence presumably had at least a small cost advantage a decade ago.  If NS had simply charged a penny less than GD, there would be no GD.  That option no longer works, because GD now has huge scale and presumably the lowest costs.  Inexplicably, NS never reacted.

At the time, I recall reading that NS treated the business as a cash cow.  Rightly so:  domain registration is a good business for a sustainably low-cost producer, as with any commodity business.  But you have to connect the dots tactically, watch the competition, etc.

GoDaddy management, though undoubtedly sharp, really owes its biggest thanks to the mistakes of Network Solutions (which still charges triple vs GD).  If NS had done the right thing, no amount of brilliance at GD would have worked.

Another business facing this same situation is the Corporation Service Company, which most people have never heard of.  Venerable CSC provides “registered agent” services in Delaware.  Tons of corporations form in Delaware, because it has a huge stack of corporate case law, making lawsuits cheaper for both sides to resolve.  But to form there, you need a “registered agent” there.  CSC is the gorilla of that business.

But till recently, they were not a nimble gorilla.  As the world moved online, cheap one-person shops arose to provide the same service.  I saved 70% by changing to one of these.

Unlike Network Solutions, CSC got wise, simply phoned all their lost customers, matched the low offer, and got all their business back.  This is not brilliant — it’s simply doing the obvious, which NS didn’t.

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