Attacking Dominant Market Share
In my previous strategy post, I talked about something I called Quantum Hidden Barriers to Entry and why businesses that had those are great businesses. This post was misinterpreted in some circles as "you can get so far ahead of your competition that they can't catch up" and a number of folks wrote to me saying that no competitor can defeat hard work, passion, innovation, etc. This is simply not the case, otherwise there would be seven compelling competitors to Digg and AdSense right now, and there aren't. Instead of re-explaining what I mean by quantum hidden barriers to entry, I'll instead talk about how I think you compete against companies with lots of hidden barriers to entry. It's quite simple - you don't attack them by trying to compete with them head on, you don't meet force with force. You attack them by either changing the rules of the game that's being played or even better, you pull out the Aikido bag of tricks and use your competitor's strength against them.
By way of real world example, look at the way Jason Calacanis decided to compete against Digg when he relaunched Netscape as a community news site. Instead of simply trying to do what Digg was doing with more passion and harder work (always a bad idea to assume you're smarter or more passionate or harder working than the competition!), he started with an assumption that Digg was the dominant player in the market. He then wrote a very public and widely discussed blog post in which he laid out a case that Digg's community had become so big that it was too big, and no community of that size could create quality. Then in a later post he noted that the community was so powerful, that nefarious beings from the spammy underworld would surely start trying to game the system by paying the top diggers to digg stories, etc. (this is the 1-2 Aikido....redirecting your competitor's strength and energy, attempting to make that strength a weakness). Jason then hypothesized that the better way to build community powered news was to pay the top voters because you have to pay to get quality and direct payment will dramatically reduce or remove their incentive to take money from spammers since it would put the direct payment contract at risk.
It makes no difference whether you think Jason's challenges to Digg were accurate. I would further caution against measuring the success or failure of this particular attempt as validating or invalidating the strategy. Note only that Jason's means of competing meant not having to address some of the hidden barriers to entry around community news systems that have been erected in Digg's wake because he changed some of the rules by which he was going to play the game when he launched with paid contributors.
There are lots of ways to compete against an entrenched competitor with strong market share, but force against force is generally not the most fun approach.
In another post soon, I'll explain how I think you should consider competition when you're in a new market without entrenched players.