Build a business, not a feature

Are you afraid a competitor could quickly replicate your web application?  If you’re not, you should be.  For better or for worse, intellectual property rights appear to not mean much on the web.  And as a web application provider, you’re offering is up there for everyone to see.

Recently, Google launched two products that may have immediately put competitors out of business.  Its “to do” list list is a direct threat to Remember the Milk and its Latitude product is a direct threat to Loopt.  Whether fair or not, Google, Facebook, Amazon, Apple and Microsoft have virtually free distribution through their “installed base” of search, social, ecommerce, music, and browser/os users.  And those firms have the technology talent to copy many web application’s features.  So, how can you build a business that is not a feature big firms can replicate and distribute?

1) Target a profitable niche: Most big companies only look at big markets.  They need to increase the value of a multi billion dollar business.  Only Amazon seems to go after tiny markets, given its decentralized operating structure.

2) Create switching costs with users: If a user has to invest time to learn your application, and placed data in your application in a proprietary format (think: photoshop and their file system), then a user is likely to remain with your service even if someone releases the same features.  But be careful.  Data in a proprietary format that exists elsewhere (e.g., my friendgraph is known by Facebook and Google/gmail) or data with a high decay rate (e.g.,  last week’s “to do” list)  does not create a switching cost.  Sharing sensitive data, like financial information pushed to, could reduce the likelihood of switching, as users tend to stick with partners with whom they trust with their important data.

3) Build supplier and distributor partnerships: Unlike features, businesses have suppliers and distributors.  If you’ve negotiated exclusive partnerships with a low cost or unique supplier or distribution partner, then you have an unfair advantage that can’t be replicated.

What else do you think differentiates a business from a feature?

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  • Phil Michaelson

    one more: enter a field where IP matters (e.g., CleanTech, Semiconductors, Pharma)