A practical guide to competitor intelligence
The Business of Shareware
Eugene Mallay
Copyright 1996
All Rights Reserved
Dear Shareware Author:The following is a sample chapter from The Business of Shareware, my advanced-level book on effective product strategy for shareware professionals.
This sample chapter may be freely distributed for non-commercial purposes so long as it is unaltered. If you have any questions about your usage of this document, please contact me at emallay@interlog.com. For more information about this book, please visit my WWW site at: http://www.interlog.com/~emallay/ or inquire by any of the methods listed at the bottom of this document.
This chapter has been slightly modified from the actual chapter. Links to other chapters have been removed and minor formatting changes have been made.
Enjoy the book.
Eugene Mallay
June 22, 1996
Contents:
How many competitors do you have?
Based on a recent survey, almost 80% of shareware authors believe they have two or less serious competitors. Over 35% believe they have no real competitors. Less than 15% recognize shelfware products as being competitors. Only slightly over 5% give any consideration at all to the many non-software alternatives available to users.
This suggests that most shareware authors have a less than ideal understanding of their competitive environment. The number of businesses in any industry that have no competitors can be counted on a single hand.
To understand your competition you need to perform a detailed competitor analysis. Competitor analysis is the gathering, organizing, and interpreting of information about existing and potential competitors.
Here are ten good reasons for studying the competition:
Competitive analysis is an on-going process that should be an integral part of your overall strategic planning. Throughout the process, constantly ask yourself such questions as: "How can I minimize this competitor's strengths?", "How can I maximize this competitor's weaknesses?", "What could this competitor do to hurt me in the marketplace?", and "If I was this competitor, what would I do?". The answers to these questions will serve as the basis for your competitive tactics and marketing strategy.
You need to view the products of your competitors from the perspective of your competitors. You'll be surprised at how differently the world seems from someone else's point of view.
Effective competitor analysis provides you with powerful tools for your overall competitive strategy. You can't succeed if you approach the marketplace wearing blinders. You need to know who your competitors are, what they're doing, and how they'll respond to your actions.
Competitor analysis isn't easy and it isn't fun. It's hard work. It's also dangerously easy to put off or brush aside. After all, you could be spending the time developing the next great "killer" application...
But wouldn't it be a shame for your killer application to die in obscurity, buried in the marketplace by an inferior but better marketed product?
Couldn't happen, you say?
Okay, maybe the world really will beat a path to your door if you build a better mousetrap. And quality always sells, doesn't it? Besides, shareware is try-before-you-buy, so the best product will win, right?
Don't believe it. Smart marketing of an inferior product will outsell poor marketing of a superior product nine times out of ten. There are thousands of examples of superior products being demolished in the marketplace by inferior products. Just ask the OS/2 product manager at IBM!
You can't market effectively if you don't know what's going on. Competitor analysis, along with user analysis, is the foundation for almost everything a successful publisher does. You can't create an effective product strategy out of thin air. It must be based on solid competitor and market information.
Before you write a single line of code for your next product you should have a thorough understanding of the marketplace.
It may not be fun, but it works.
To understand the competition you need to be able to identify them. There are three types of competitors - direct, indirect, and potential.
For example, if you publish a high-end time management application your direct competitors are other high-end time management applications. It doesn't matter if they're shareware, shelfware, or freeware.
Indirect competitors for your time management software include everything from paper-based scheduling systems to users believing they don't even need a time management system. Low-end time management applications are also indirect competitors. User apathy/disinterest is itself a significant competitor. You're competing against any alternative your prospective users have, not just against other software publishers.
Potential competitors are not merely abstract possibilities that have no immediate effect on the current marketplace. That a new competitor might appear, if taken seriously by users, can have significant implications for existing competitors. Users might hold off or otherwise change their purchase habits in anticipation of, or to be ready for, the competitor. Many, many users, for example, make purchase decisions based largely on what a certain publisher in Redmond, Washington might do.
Keep in mind that potential competitors don't necessarily represent an actual product. Potential competitors can also be environmental changes, such as a shift in the marketplace to a new operating system.
You need to look carefully to identify all of your competitors, not just the obvious direct ones. For many product categories indirect competitors are far more troublesome than are direct competitors. Your marketing strategy must take into account all of them.
A competitor analysis provides you with details about your competitors' product strategies. This information is essential to the formulation of your own strategy.
Your competitor analysis should answer the following questions:
Most of this information will be difficult to obtain. Your competitors, obviously, aren't going to openly provide it. Instead, you're going to have to acquire it through careful examination of their public actions and statements. Study telltale cues. Examine their documentation, advertising (if any), product descriptions, public commentary, and competitive actions. Talk to users as well - both yours and theirs.
Make sure all the information you gather is relevant and usable. Don't fall into the trap of collecting information just for the sake of collecting it. The information should be precise enough to be of use, but not so precise that the 'big picture' is lost. Concentrate on the trends, not the level of detail. Being able to calculate your market share to the 5th decimal point isn't as important as being able to recognize the trend reflected in the data.
Keep your focus on the market as a whole and not just on a few key competitors. One of the major benefits of market analysis is the ability to spot new rivals and developing trends early on. For example, if a lot of minor competitors are suddenly dropping out of the market, there's probably something going on that you should be aware of - a contracting user base, a change in technology, or some other sweeping change. The earlier you recognize such changes, the better you'll be able to adapt.
Every publisher and every product has priorities, though in the shareware business these are often informal and unstated. Being able to identify the priorities of your competitors can often provide you with insights into how to competitively position yourself against them.
Common priorities include:
Many shareware publishers lack formal priorities. What priorities they do have are usually simple, vague goals like "Make money". Even so, knowing these vague priorities can often be a competitive advantage.
Gathering information on your competitors is a difficult but not impossible process. The details of market research are beyond the scope of this book but the following are some basic techniques you can use:
Make it a point to cultivate a relationship with your reference librarians. They're a valuable and often under-used resource.
For computer-related publications, try Computer-Select. This CD-ROM contains the full text of a wide range of computer publications. It is fully searchable and updated regularly. There are other CD-ROM's covering mainstream and scientific media. Check these too, since smart publishers focus a lot of their attention away from the computer press.
This section lists some of the information you might want to gather about your competition.
Identify the name and title of each person. Try to learn everything you can about their background, such as their education, industry experience, marital status, hobbies, habits, etc. Knowledge can be your most important competitive advantage -- don't underestimate the importance of understanding the people who run your competitors. The tactics you use against a competitor will be influenced by the personalities, characteristics, and tendencies of these people.
One way to obtain all this information is to simply call and ask. Surprisingly, most won't even ask why you are interested. If you get executives that like to talk about their products, business plans, and so forth -and many smaller publishers are quite willing to tell you all their plans- well, let them talk! Show interest -you are interested, after all. By the end of the conversation some publishers will have told you everything except how much money they have in their bank account. Some will even tell you that!
This information can provide some indication of the commitment and general business skills of the competitor. A competitor that has been around six or seven years, especially in the shareware business, is obviously doing something right and deserves close attention.
Larger publishers (shelfware and shareware) will have traditional corporate objectives that are quantifiable and specific. For example, a larger company's objectives might be to control 12.5% of the target market by the end of the year, along with revenues of at least US$750,000 and profitability of at least 8.0%.
Knowing the objectives of your competitors is a powerful weapon. By understanding their objectives you can create competitive tactics that directly attack their reason for being in business. The quickest way to marginalize a competitor is to focus specifically on what matters to them most.
The release schedule also provides an indication of the publisher's turn-around time. A slow turn-around time may be due to thinly spread resources (such as trying to carry too many products at once) or to a lack of long-term interest in the product. Hobbyist authors, for example, are notorious for constantly updating a product early in its life, but with much less frequency as they get bored and move on to other pet projects.
Take note of new product releases (even those that aren't competing with you) as well as updates to existing products (those that are and aren't competing with you). New product releases often give you some indication of the long-term direction of the company. Likewise, if some products in a competitor's product line are being updated more aggressively than others, that tells you something about their priorities and their strategy.
For shelfware competitors, ignore the listed price entirely and call local dealers to determine the street price. Try to get acquaintances in other cities and countries to check the price in their areas, too, in case the price varies depending upon location.
Publishers that primarily sell directly to the end user, usually by direct mail, can be pinned down with a phone call. Of course, don't identify yourself as a competitor. Just ask for pricing information and details regarding any available discount offers. Most publishers will send the information without further thought.
What are their policies or tendencies regarding pricing? For example, will they always try to match your price? Are they trying to be 'the low cost alternative'? Is their price consistent with the image they're trying to convey?
Are their prices higher or lower than comparable products? Why have they chosen their particular pricing strategy? How flexible are their prices? What are their terms of sale (money back guarantees, delayed invoicing, etc.)?
How much does the competitor spend on promotion relative to other competitors? How effective is its promotion? How flexible is it? Is the competitor willing and able to increase promotional expenditures if faced by a serious competitive threat?
The reputation of the competitor greatly affects your marketing since your message has to be compatible with the perception already held by users. If you wish for your marketing to change the perception of users, you must first address the existing perception and slowly start moving the user towards the desired perception. Trying to instantly portray your product (or a competitor's product) in a way that significantly contradicts existing perceptions will only result in your message being ignored or mocked.
How well does the product match up to its target market? Most products do not reflect the way the publisher is trying to portray them. Recognizing this, you can highlight it, directly or indirectly, in your own marketing campaign.
This issue is covered in detail in Chapter 11, Positioning Analysis.
For clues about a competitor's sales volume, examine their public comments (especially any interviews they've given), commentary by industry analysts, and their level of marketing activity (any sustained marketing effort must be generating enough sales to finance the effort). Keep in mind that you are interested in all competitors, not just other shareware publishers. Gathering sales information for shelfware firms is often easier than it is for shareware publishers since industry analysts track and publish far more data about shelfware firms than they do about shareware firms.
Not all shareware publishers rely exclusively upon shareware for their distribution (and financially successful shareware publishers almost never rely upon it exclusively). Likewise, shelfware publishers target different parts of the retail channel - not all are concentrating on getting their product into Egghead. Many publishers rely upon direct mail as their only distribution channel.
How effectively is the competitor using its distribution channels? Many shareware authors, for example, upload programs to the major Internet FTP sites but don't take any actions to tell users the program is there - they simply wait for the user to 'discover' it. If the author distributes through retail stores, how wide a range of outlets carry the program? Is it prominent on the shelves or buried beneath a dozen other applications? Does the competitor have packaging and point-of-sale displays that are eye-catching and effective?
Understanding the channel used by a competitor is important since each channel has its advantages and weaknesses. Knowing the channel can tell you a lot about the problems and opportunities faced by the publisher. This in turn can provide you with insights into how actions on your part will affect them, and how they will likely react.
Identifying a product's differentiation is trickier than it might first seem. The hard part is eliminating your own bias and viewing the product from the perspective of the publisher. What might look like a liability to you could be seen as a key element of differentiation to them. Using WordPerfect as an example again, they were famous for many years for the quality and scope of their customer support. When calling for help you weren't asked if you were a legal user. No registration number was required. No charge was levied. And you weren't restricted to 90 days of support. However, the cost of providing this support was astronomical. For most companies, this cost would be an unacceptable disadvantage. For WordPerfect, it was their primary form of differentiation (with printer drivers almost as important). They weren't just known for good support. They were famous for it.
Use your knowledge of the competitor's target market as a guide in identifying their differentiation. By understanding their differentiation you can better recognize their strategic objectives and tactical plans. This means you are more likely to anticipate their actions in a given situation.
Differentiation is covered in detail in Chapter 12, Differentiating Your Products.
Some areas you might want to examine to determine competitive advantages and disadvantages include:
Sustainable advantages are those which you or other firms would have difficulty in duplicating. It is sustainable advantages that represent a publisher's long-term strength. These are an off-shoot of your differentiation.
You can gather this information through several sources:
Understanding how the market perceives the various products can assist you when positioning your own products.
What complementary products are being sold by each competitor? How do they support each other (what cross-selling tactics have been used)? How effective are their complementary products? Is the publisher overly reliant on one particular product driving sales for the entire product line (leaving them vulnerable to a concerted attack on the primary product)?
Complementary products are discussed in detail in Chapter 7, Maximizing Total Revenue.
While most products go through each of these stages, the time spent in each stage and the results achieved during it vary from product to product. A successful product might have a short introduction stage, a long growth stage, an even longer maturity stage, and a modest decline. An unsuccessful product might have a long introduction stage, a brief growth stage, almost no maturity, and a rapid decline. However, some successful products, especially in markets with a large number of indirect and potential competitors, may have other life cycles, such as a very long introduction stages, a short but exhilarating growth stage, a long maturity stage, followed by a very rapid decline stage.
By identifying the current life cycle stage of a competing product you can judge the competitive factors it will face. This can provide you with competitive tactics to address the possible threat posed by that product. Along with differentiation and positioning, an understanding of the implications of the product life cycle is critical to the long-term viability of your shareware business.
The product life cycle is discussed in more detail in Chapter 17, The Product Life Cycle.
Common support methods include:
You need to understand these alliances to know how to market against them. If your competitor has an inside track for getting a message to your potential users, you need to find a way to counter that message, either by creating your own inside track, or by inhibiting the competitor's inside track.
Alliances are discussed in Chapter 14, Strategic Alliances.
Typical warning signs include:
As discussed in Chapter 9, Identifying Competitive Opportunities, these expenses could as easily be advantages as disadvantages. The question is: Are these expenses serving a productive purpose or are they wasted overhead?
A publisher burdened by high overhead is vulnerable to a wide range of competitive tactics. Against such a publisher, you could offer heavily discounted competitive upgrades (thus stealing much of their critical upgrade revenue) or similar promotional activities. In order to finance a high overhead the publisher must generate a larger level of sales. Anything you do to inhibit the publisher's sales makes the overhead increasingly troublesome.
The following checklist gives an example of what such a chart would look like:
Don't allow this kind of checklist to draw you into feature wars. While feature wars may be necessary and effective in the marketing of a shelfware product, they are not necessary in the shareware industry. A feature war is necessary only when you need to convince the user that your product is comprehensive. With a shareware product, you only need to persuade the user to take a look on their own. They can verify for themselves whether the product is comprehensive.
Remember, your initial marketing objective is to get the user to try the product. A shelfware publisher's initial objective is to get the user to purchase the product. Since your objectives are different, your strategies will also be different.
Product is the application itself, along with any complementary products and services that are available. If the application is a time management program and the competitor also has special utilities and a time management 'tips' book available at added cost, all should be lumped together as the 'product'. The only exception to this is if you believe that the utilities and book are legitimate products on their own. If they are intended to leverage off of the primary product, they should be treated as one product with a variable price.
Place is how a product gets into the hands of users. How is it sold? Typical methods are:
You can have more than one "place" for a given product. For example, you could distribute by direct mail as well as by shareware.
Promotion is those activities by the competitor designed to draw attention to the product. This includes advertising, publicity, contests, etc.
Price is the amount charged for the product and any discounts, special offers, guarantees, and so on offered.
While all of these issues are mentioned individually elsewhere in this chapter, they also need to be considered as a mix. How does the product's design and characteristics match with its price? Is the promotion appropriate for the distribution? Asking these kinds of questions will often reveal inconsistencies in the competitor's activities that can provide you with tactical opportunities. For shareware publishers, the most common inconsistency is having a product designed and positioned as shelfware but marketed as shareware. Over 90% of shareware products fail to even remotely address the nature of shareware in their design.
While it is important to track and analyze a wide range of information, don't get caught in the trap of collecting information just for the sake of collecting it. Each item tracked should have a specific, clearly defined role. If you can't offer a detailed, unequivocal explanation for why you are tracking an item, you probably don't need to track it. Don't become a pack-rat for information. Collect what you need and nothing more.
Competitor profiles are concise descriptions of each of your competitors. Keep each profile to one to three pages in length, outlining in them most of the topics covered in this handbook. Place the emphasis on what distinguishes the competitor from others.
The purpose of competitor profiles is to provide a good summary of each competitor for day to day reference when making tactical decisions. When you need to quickly determine what makes that competitor 'special' it should only take a casual glance over the profile. Don't try to maintain all the profiles in your head. You'll miss an essential point just when you need it most.
While you need a printed version of your profile, the essential information should all be held in a 'competition database'. This database organizes all the information you've gathered about your competitors, breaking it down into as much detail as possible. This allows you to perform complex searches through all of your data looking for interesting trends and anomalies.
Whenever possible, structure the information so that it is represented numerically. A little advance thought when designing the database and when gathering your information can make this easy.
For example, you might record information on the reputation of each of your competitors by ranking them as "Excellent", "Good", "Average", "Poor", or "Terrible". Your database might track this as '5' for "Excellent" to '1' for "Terrible". A second field in the database might contain notes or keywords relating to the reputation.
Set boundary flags throughout your database to automatically warn you of unusual results. While boundary flags help you catch errors, their main purpose is to recognize interesting patterns or correlations.
Keep your database up to date. Competitor analysis isn't something you do once a year. It's an on-going process requiring your constant attention. Purge outdated information regularly and always question the assumptions used in gathering the data.
Spending hours upon hours analyzing your competition isn't anybody's idea of a good time. However, it is an essential task. A thorough understanding of your competition provides you with important competitive advantages. You need the information if you are to have a usable product strategy.
It's easy to put off competitor analysis and you'll find yourself tempted to do just that. Don't give in to the temptation. What you learn from the analysis is simply too valuable.
I cannot be lukewarm about this book. It is simply the best book ever written to help shareware authors. I wish I had 500 copies of the book - one to give to every puzzled shareware author who asks me what he should do next.Eugene... Where were you when I needed you? For 12 long years I stumbled through the shareware / software publishing wilderness without help. If only you or your book had been available to me, I might have avoided most of my biggest mistakes.
Heck, I know I would have made a lot more money than I did.
This book is easily worth 10 or 20 times its price!
This book is like drinking pure knowledge from a fire hose. There is no fluff here. Read it all. Every line. Carefully apply it all to yourself. Mallay presents all sides of most issues. The practical experience to be gleaned from this book could be literally worth millions of dollars to you.
The next time I am asked to give a talk or a presentation on the subject of shareware marketing, this book will be at the podium with me.
Jim Knopf
knopf@halcyon.com
http://www.halcyon.com/knopf/jimJim Knopf -aka Jim Button- invented the shareware concept back in 1982 with his top-selling program PC-File. He's one of the great success stories in shareware. If you haven't done so already, visit The Father of Shareware WWW Page - it's a great site! And be sure to read his story of how it all began.
Here's what you will learn from The Business of Shareware:
That's my commitment to you.
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