Direct competition is a linear way to look at the business world, and compare a company with other similar companies, in the same industry. An example is comparing Tesla with other car companies, or Netflix with other streaming services.
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Understanding direct competition
The direct competition looks at the business world in a linear way.
It works well to enable a business to understand what continuous improvements to bring in the marketplace, to create a service and product, which is incrementally better.
One example is to look at Netflix and analyze it from the perspective of the streaming service industry.
Thus, compare Netflix with other streaming services, which mostly serve the same kind of audience.
This sort of framework, to understand the marketplace, is useful to keep improving the core business model.
Direct competition case studies
In light of looking at the marketplace as a linear place, where companies compare themselves on a similar stage, where there is a defined audience, below are some examples.
Key takeaways
- The direct competition looks at the business world, in a linear way, thus mostly guessing competition based on clear overlaps in terms of defined customers.
- Direct competition analysis is useful to evaluate incremental improvements of products and services, for a given audience.
- Direct competitor analysis helps companies create a linear roadmap for continuous product improvements.
Drawbacks of using direct competition as a primary compass to analyze the business world
In a business world, which is tech-driven, in the long run, competition becomes non-linear.
In short, niches that seemed completely disjoined from a market, end up creating whole new industries which might absorb existing marketplaces.
Let’s look at two examples.
Netflix vs. TikTok
As explained in the Netflix business model, there are two ways to look at its competitors.
One way is to guess the current customer base overlapping. In the Netflix specific case, it means, assessing the behaviors of paying members across the globe, and whether they are switching to other streaming services, or perhaps keeping various streaming services accounts.
This is fine to assess what content other streaming platforms are producing, and it helps steer the content development efforts for the company.
However, there is another way to look at it.
If instead of looking into customers, and members, we guess, what’s Netflix’s core asset? Meaning, what’s the thing that makes the company keep a long-term competitive advantage?
Based on that, we can reassess competition, and perhaps looks into where attention is going, especially for younger generations, and we get this:
In short, the competitors’ map changes all of a sudden, and you start reassessing the long-term strategy of the company, by looking at where attention is currently moving.
Why is this important? Well, because you ask different questions. Rather than thinking about content, based on the previous thinking framework that Netflix had successfully rolled out in the prior decade.
You now look at it with a different eye and understand that Netflix, to thrive in this decade, has to change its content development framework, or at least, redefine it.
Tesla vs. Insurance Companies
Another interesting case is Tesla and its insurance business.
Now, if you look at Tesla, as just a car company, you think those are Tesla’s competitors:
Thus, if you were a legacy company like Geico, this is your competitors’ map:
Yet, if you understand non-linear competition, you also know that Tesla is coming for the insurance business, as it can be a segment to ramp up its car operations.
And if you take into account that Tesla’s target is to sell millions of cars across the world, then, if you are Geico, you might want to change your competitors’ map!
This is why assessing non-linear/indirect competition is critical.
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