Comment by Silhouette | Hacker News Reader

Comment by Silhouette | Hacker News Reader

Parent Full thread

someone comes in and does it 10x better

That was the rule of thumb I heard quoted in Business Studies, too. I think the key point was that a customer base tends to have a lot of inertia. To overcome that, you need at least one element of your competing offer to be dramatically better, and for quantifiable things like a price, an order of magnitude is significant enough to achieve that (and by implication a factor of only say 2x or 3x wouldn't necessarily be enough to dislodge an established brand).

Clearly there's a lot more to market dynamics than that in practice. On the one hand, we have supermarkets competing over prices for commodity household products by the penny/cent. On the other hand, at least here in the UK, we have industries like mobile phones, personal banking and household utilities that are all notorious for having poor customer service yet also all have surprisingly low numbers of customers switching brand.

I'm not sure where on that scale a typical consumer Internet service would fall, but in all cases it seems highly unlikely that a service with an inherent element of lock-in (even if you can move your data, it's going to take time and effort to do it) has anything to fear from an occasional screw-up that affects a few customers. It's obviously undesirable, and hopefully none of us thinks it's OK to dismiss anything that damages any paying customer out of hand, but it's not some sort of doomsday scenario that is going to bring down a whole company overnight.

Good thing "better" is so scientifically quantifiable statements like "10x better" are meaningful, actionable statements, and not just feel-good rationalizations. I mean, what if it was 8.8X better? What if, as in the case of MovableType vs Wordress, it was just .8X better with a free price tag?

"someone comes in and does it 10x better"

"That was the rule of thumb I heard quoted in Business Studies, too."

I've never heard of the 10x better statement from any of my academic business studies. The only golden rule seems to be that you can't compete with an incumbent with "As Good". That is you can't create a soft drink as good as "Coke" and expect to do any serious damage. "As Good" is not compelling enough for most consumers to switch.

However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent. In the case of Dropbox, Google drive and other similar services, they are as "As Good" but they really don't offer anything different from one another. Note, I don't know what the paid plans are for all these services, but from the "FREE" users perspective, there really isn't anything separating them. And this is where Dropbox has the advantage since they were the first movers.

However, if you can make it "As Good" but cheaper, then you have a very good chance of unseating the incumbent.

I think the point of the story was that in many cases, you don't have a particularly good chance of unseating an incumbent with a similar level of product just because you're cheaper. Often you have to be much cheaper, or people who have already bought into the other brand are unlikely to move. There are a variety of reasons for this, from the practical cost (time and effort to migrate may not be trivial, depending on the nature of the service) to the psychological (brand loyalty 101: having chosen a brand, people want to believe they made the right choice, so they have a tendency to defend their decision to others and rationalize away any competing alternatives as inferior choices until the difference is wide enough that they can no longer bring themselves to believe it; see also: it's easier to retain existing customers than to attract new ones).

The thing with "As Good" and "X times better" is they are subjective terms. In the PC vs Mac debate, "As Good" can vary greatly from individual to individual, which means pricing is really a moot point. However, in the case of Dropbox, I really don't think "As Good" is all that subjective. And the reason for this is, its really a behind the scenes product. In this space, the only driving factors that I can think of are "Trust, Accessibility and Price".

Do I trust company X to safely store my files. Microsoft, Google and Apple can compete on this.

Can I access my files from X. Google is probably the only one right now that can compete with Dropbox.

And what does it cost. Since Dropbox's biggest user base is Free, you can't go lower than free. But if you are a paying customer, I can't see brand loyalty having any affect because I can't see such a bond forming. It's a behind the scenes solution and if done well, should be invisible.

If "As Good" can be commonly defined among a large user base and if you are "As Good", you can unseat an incumbent with price. And the price difference doesn't have to be too significant as academic studies have shown.

Coke is able to fend off cheap generic brands because no matter how low they go, they know they can't match them on taste. And that's due to decades of cleaver advertising to introduce that psychological barrier. So no generic brand can ever say they are "As Good" with people believing them.

For the space that Dropbox is competing in, I really don't see any other defining variables, other than "Trust, Access, and Price". And these are all pretty tangible points with the vaguely subjective one being "Trust". And it's the reason why they are in such a precarious situation that they are in.

Reply on news.ycombinator.com