It’s great to see a smart startup taking on an incumbent … particularly when they change the rules of the game, make life better for consumers, and have every chance of building a valuable business at the same time.
This scene is playing out right now, with the recent launch of Business Spectator – a business news site that presents a formidable challenge to AFR.com (the online version of the Australian Financial Review).
What’s so smart about the Business Spectator model? Put simply, it shakes up the status quo in four important ways
- It offers valuable content to consumers for free, thanks to major advertisers, when the alternative has been a costly subscription (see my recent post “the magic of free” for more on this)
- It combines syndicated content (hand-selected) with editorials from its own brand-name commentators to create a unique yet cost-effective product
- It has a simple, attractive interface that helps users to access content quickly
- It is a web pure-play, so is not worried about cannibalising print sales
By contrast, its main competitor AFR.com (owned by media giant Fairfax) is limited by:
- An expensive subscription-based model ($25 to $150 per month for online access and even the top category restricts how many articles you can read)
- An apparent reluctance to grow AFR.com at the expense of its newspaper business
- Its insistence on being a “one-of-a-kind rich internet application” with fancy flash animation (which took 25+ seconds to load the first article on an ADSL connection)
By failing to grasp the implications of the internet, AFR.com has stuck to a business model that tries to extract too much value from consumers without delivering a competitive product. This left it vulnerable to a smart startup like Business Spectator.
The irony is that this has happened before to the major newspapers. SEEK initiated a similar shakeup of another cosy newspaper-held business – employment classifieds. SEEK recognised that the incumbents would be slow to respond, and attacked this lucrative business with a lower-cost model that delivered major savings and new benefits to users. While the incumbents eventually responded, SEEK is still twice as popular as its nearest competitor in the online jobs market and has a market capitalisation of over $2.6 billion.
The lesson here is that startups shouldn’t be afraid of tackling a major incumbent, provided there is an opportunity to change the rules of the game to their advantage. This strategy works particularly well when incumbents have a lucrative business that isn’t delivering as much value to consumers as it should, and for various reasons will be slow to respond.
Disclosure: I recently completed a small consulting job with Business Spectator, helping them with pre-launch testing and user experience issues. However, this blog entry is done of my own free will and is not paid for in any way – I just reckon they’ve got a great business model that illustrates some useful points for other entrepreneurs.