Surviving Online During a Digital Market Consolidation

This is a direct response to a blog post by Glen Allsop on ViperChill titled “How 16 Companies are Dominating the World’s Google Search Results“.

You should definitely read that post first, but in case you just plain can’t, here’s a summary.

The Situation

So, 16 parent companies own many, if not most, of the content-based websites you probably read from. And they’re only expanding to fill even more verticals.

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(source: ViperChill)

 

Yikes, right?

These companies use their existing properties to quickly promote new properties in new verticals, giving them a huge advantage over niches that were previously fragmented.

For a real-world metaphorical example, take Wal-Mart. Wal-Mart is one of the biggest companies in the world and sells a huge variety of items. As far as I know, though, Wal-Mart doesn’t sell business formal clothing for cats.

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Wal-Mart could just start selling feline formal tomorrow. That was the original strategy of Internet expansion; About.com would simply make subdomains for health, for cooking, for finance, for dating, etc. However, as Glen quoted in his article, the CEO of About.com has stated, “No one wants advice on their 401k from the same people that give advice on how to bake a pie.

"You wanted a pie CHART? Wait, CFO doesn't mean Cooks Food Often?"

“You wanted a pie chart? Wait, CFO doesn’t mean Cooks Food Often?”

Wal-Mart would know that its business cat customers are discerning, and would probably not want to be seen in a Wal-Mart Cat Suit. So instead, the Wal-Mart corporation would start a new company that it owned and controlled, with a different brand presence tailored exclusively to this market. So along would come this new brand, maybe named Wear-Meow, backed by Wal-Mart’s gargantuan funding and resources.

If you were a local seller of formal cat clothing, you’d be in crisis mode.

The Internet, at least as seen through the lens of Google results, is being consolidated.

Market Consolidation

Market consolidation is what happens naturally over the lifetime of most any industry. For an easy overview, check out this eHow article.

A new industry will go through four distinct stages:

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  1. Opening. The industry is fragmented. It often begins with an innovative start-up, followed by fifty imitative start-ups, all jockeying for position. A lot of mistakes are made here.
  2. Scale. The fragmented companies have to grow, and grow fast. There are mergers, acquisitions, integrations, take-overs, and bankruptcies. It can get fierce.
  3. Focus. Emerging from the high-energy reactions of stage 2, the 5-10 companies left over will now work on differentiating themselves even more from each other. Companies will focus on core competencies, acquire late-to-the-game start-ups, and build up profits.
  4. Alliance. This is the final stage. The market has been dominated; all that’s left to do is play with the other big names, and expand into new areas.

You can read much more extensively about these on the Harvard Business Review article about market consolidation, which is where the above image is from.

Interestingly, this pattern applies to a huge variety of processes, not just industry markets – it can equally be adapted to fit everything from nation building to chemical reactions. A paleontologist friend of mine saw direct parallels here to invertebrate evolution. It seems to be the natural way of things.

But natural isn’t always good. Arsenic is natural, but you don’t see nutritionists adding it to their breakfast shakes. So what’s the verdict on consolidation?

Pros and Cons of Consolidation

(alt subheading: Prosolidation and Consolidation)

Well, it’s got ups and downs.

The Good Parts

  • Market consolidation is good for the consolidated business. Obviously, right? But it’s good for their employees, too. With reduced redundancy, they can be more coordinated, and share expertise, tactics, vendors, and staff. There are many benefits to a company when it goes down this route.
  • Those benefits are often passed on to the consumer. With lower operating costs, it can reduce prices, increase quality, improve customer service, and reach new markets. To you, that can mean getting more, better products for cheaper.
  • Market consolidation leads to standardization across an industry. This simplifies life immensely; remember when old computers had different-shaped plugs for mouse cords, keyboard cords, and everything else? Now we just have the standard USB.

So, listen, this isn’t necessarily a bad thing. There are a lot of really great upsides to markets getting amalgamated together. However…

The Bad Parts

  • Are you a small business that’s being left out? Things are going to get very tough for you.
  • Worse, if you’re a small business that doesn’t have strong differentiators, you won’t have any legs to stand on very soon. However, this is kinda your own fault – if you’re not doing anything special, what did you expect?
  • Standardization can also be a bad thing. Variety is the spice of life. And if spices are standardized into only tasting like one of four different varieties, you’re going to get hella bored.
  • On a deeper level, these groups are sources of information. Multiple sources of information are vital in getting accurate knowledge. If you only drink from one well, it doesn’t take much poison to do the job.
  • Even worse, these companies often present their sub-brands as deceptively different entities; it’s not usually clear that they’re owned by the same group. So it’s likely that you could even think you’re getting your information from five different sources, when really they all go back to the same point of origin.

These last points can actually be dangerous. Suppose a Neo-Nazi went undercover as a copywriter, and got promoted to content-overseer for the whole network of multiple brands.

In the first year, the bias would barely be noticeable.

In the second year, you’d still be pretty anti-Nazi, but some recent articles might have convinced your subconscious that maybe they’re not all totally wrong.

By the tenth year, you’re standing in a candlelit chamber chanting a blood oath to resurrect Hitler, and you never even realized it was happening.

danger-5-hitler

And on Christmas, too. (Danger 5)

But really.

Besides, while conglomeration is often a good thing, too much of anything will always backfire. Competition is vital for innovation. And since you’re probably one of the small fries, you’ve gotta look out for yourself, too.

So What Can A Small Business Do?

The good news is that folks have been dealing with this for a while and there are definite strategies to survive and thrive in the midst of merging behemoths.

The bad news is that those experiences are mostly happening in the physical world, not the digital one. The same tactics may not apply quite so evenly when they’re shifted to the very different mechanics of the Internet.

To draw from another very related article in the Harvard Business Review, the first thing you have to understand… is yourself.

Do some purrsonal reflection.

Do some purrsonal reflection.

Look at your business from every possible angle. Figure out every conceivable advantage you may have.

When juggernaut McDonald’s expanded into the Philippines, local fast-food company Jollibee probably wasn’t thrilled. But instead of selling out or giving up, they fought back. They knew their Philippino market far better than Ronald McDonald ever would, and they focused on creating menus to compete with McDonald’s prices while honing in on local tastes.

And it worked, even better than they expected. Now that Jollibee had these menus, it could take them to new locations they hadn’t been able to break into before. They knew how to counter McDonald’s at home, so why not elsewhere, too?

In a physical business world, this makes sense.

When you import your products, you might know Eddie down at the shipping dock and be able to get first priority and the best routes.

When you serve your burgers, you might know that Jamal likes his rare and Zeke likes a little extra onion.

Maybe you’re not this granular, but you probably know the ins and outs of your business so thoroughly it’ll take a long time for Wal-Mart to get to the same position, if it ever even can.

Unfortunately, this doesn’t translate to the Internet.

Barriers to entry online are by default pretty low. In an hour I can have a functional, good looking website; in a week or two I can have paid money for a lot of content. And if I’m Wal-Mart, I can throw on a footer link with rotating targeted anchor text pointing at my new site from a lot of authoritative domains, and hire an SEO guy who knows how to do the rest.

No matter if your target is traffic or sales or something else, it won’t take another company long to figure out how you’re doing it, and do it better. Especially if they have nigh-unlimited resources.

I’m Dying Here. Please!!

You do still have a few options.

But first, you have to realize that you won’t be able to turn this around. Industries and markets don’t just suddenly fragment on their own. Sometimes legal oversight, government regulation, or a huge shift in an industry paradigm will hit the reset button to an extent, but you can’t plan on this stuff.

Are you in a position to consolidate other companies yourself? This shouldn’t be attempted by anyone who isn’t sure, but consider fighting fire with fire. Look into mergers and acquisitions with other small businesses that can keep your position secure.

Of course, leave the acquired brands as they are; you’re not looking to point everything else at your website, you’re just looking to own enough of the competition to be able to better weather industry changes.

Alternatively, take your site and niche down even further. Focus on your strengths and make them your whole game. This is especially relevant if some of your strengths are things that your competitors can’t easily emulate. Maybe you have an informal writing style and the new corporate intruder is stuck writing in dry paragraphs. Maybe you’re some weirdo who puts cats all over his site.

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Another option – are you opposed to selling out?

No, this won’t apply to everyone, and you may be independent above all else. But if you’re flexible here, consider positioning yourself as a smart acquisition for the other company to make. You can take the things you do best and make a great case as to why you should be part of the consolidation, and not left out in the cold.

You can make this work a few ways. They can integrate you completely, they can use you in a supporting role, or they could just have loose control over you as you kept on doing your own thing.

In fact, this may be better for you than you think. You’ll be in a position to see how they do things, and you can learn from that. When you start your next business, you’ll be able to incorporate those improvements right away.

You also have the option of branching out into new, tangentially related verticals that aren’t undergoing consolidation, though you do have to realize it’s likely only a matter of time before it follows you there.

Crown Business has a good article going in more depth on some of these tactics, called How to Win in the Midst of an Industry Consolidation.

No matter what you do, though, do not just keep on like nothing’s changed. Sticking your head in the sand and trying to ignore changing realities just means you’ll be left behind even faster.

Conclusion

Market consolidation isn’t necessarily a bad thing – it’s just a change that you’ll have to get used to. If you accept it and try to work with it, you can win big. If you don’t, well, then you won’t.

Being in a fragmented industry from the start can be a great position that’s both profitable and powerful. But all good things must end. It’s how you change your business in this new world that will determine your success.

Big thanks to Glen at ViperChill for doing this great research. Thanks for reading Corporate Charm!




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