The Google Case Study – Differentiation in a Commodity Market
The Google Case Study – Differentiation in a Commodity Market
Posted on September 8, 2011
How can a business solve the dilemma to differentiate, while also leveraging maximum economies of scale in a commodity market? This case study of Google doesn’t focus on specific innovations, but instead looks at how and where Google chooses to innovate. We will explain what defines strategic value chain elements for Google, Google’s two strategies of dominating or commoditizing these elements, and how this approach affects product and service innovation as well as partnerships and strategic positioning. In our analysis we share lessons-learned of how and where telecoms can copy Google’s approach, what does not work and why, and how telecoms can leverage similar strategic approaches in their markets through orthogonal business models
A commodity, by definition, is a good without qualitative differentiation. It is fungible, meaning that it doesn’t matter anymore who produces the product. Its individual units are capable of mutual substitution. Most markets are near-commodity markets: price, brand, or quality still play a small role in customer decisions, and products are not completely fungible. Whether a product is a commodity or not is defined by markets, not by companies. In effect, one can influence markets in order to make products or services commodities. Why would you want to do that? Every company will try as hard as it can to protect its strategic value chain elements. There are two strategic options to do that, generally referred to as “rising above the playing field” and “leveling the playing field”:
● Dominate: If you want to rise above a commodity level, effectively becoming non-fungible, you need to differentiate yourself through either one of customer relationship management, product innovation, or infrastructure management: The first two will help you compete on brand and product, the later one on cost and price.
● Commoditize: You bring everyone else
Posted on September 8, 2011
How can a business solve the dilemma to differentiate, while also leveraging maximum economies of scale in a commodity market? This case study of Google doesn’t focus on specific innovations, but instead looks at how and where Google chooses to innovate. We will explain what defines strategic value chain elements for Google, Google’s two strategies of dominating or commoditizing these elements, and how this approach affects product and service innovation as well as partnerships and strategic positioning. In our analysis we share lessons-learned of how and where telecoms can copy Google’s approach, what does not work and why, and how telecoms can leverage similar strategic approaches in their markets through orthogonal business models
A commodity, by definition, is a good without qualitative differentiation. It is fungible, meaning that it doesn’t matter anymore who produces the product. Its individual units are capable of mutual substitution. Most markets are near-commodity markets: price, brand, or quality still play a small role in customer decisions, and products are not completely fungible. Whether a product is a commodity or not is defined by markets, not by companies. In effect, one can influence markets in order to make products or services commodities. Why would you want to do that? Every company will try as hard as it can to protect its strategic value chain elements. There are two strategic options to do that, generally referred to as “rising above the playing field” and “leveling the playing field”:
● Dominate: If you want to rise above a commodity level, effectively becoming non-fungible, you need to differentiate yourself through either one of customer relationship management, product innovation, or infrastructure management: The first two will help you compete on brand and product, the later one on cost and price.
● Commoditize: You bring everyone else