There’s one big difference between branding on the Internet and branding in the real world.
In the real world, there is always room for a number two brand.
There’s a reason why number two brands can lead a healthy life on the outernet. They serve a need, not just for the consumer, but also for the trade.
Would a supermarket just stock Coca-Cola and not a second brand? No. The second brand gives the supermarket some leverage against the leader. “If Coca-Cola won’t participate in our weekly promotion, we’ll ask Pepsi-Cola.”
The unspoken implication of every request made by the trade is, if you turn this deal down, we’ll offer it to your competitor. The number two brand fills a real need for the trade.
Would airline terminal management sign an exclusive deal with Hertz, the leading car rental brand? Not if they wanted to have some leverage on the number of cars available for rent, the hours of service, the pricing, and so forth.
Say there’s a McDonald’s on the corner of a highly desirable fast-food site. The real-estate developer across the street can’t sell the site to Mickey D, so he or she turns to Burger King.
The airline terminal, the supermarket, the drugstore, the mall operator, even the real-estate developer—all come between the customer and the brand. These middlemen, or the trade if you will, have a strong need for number two brands, even if the number two brand is essentially the same. It’s not a product need. It’s a leverage need.
You find a similar need in the industrial field; most companies insist on “a second source of supply.” What if their primary supplier is out on strike? If a company didn’t have a second source of supply for a particular part, it might have to shut down its production line.
“Nothing comes between me and my Calvins,” Brooke Shields once said. On the Internet nothing comes between the customer and the brand. There are no middlemen, no trade, no real estate developers, no need for leverage against the leader. It’s what Bill Gates calls “friction-free capitalism.”
As a result, the Internet is more like a football game or a political contest. It’s the Law of Singularity. Second place is no place.
Or as a Nike television commercial once said about the Olympics, “you don’t win silver, you lose gold.” On the Internet, there are no silver or bronze medals.
On the Internet, monopolies will rule. There is no room on the Internet for number-two brands. The Internet will operate more like the computer software industry, in which every category tends to be dominated by a single brand.
Michael Mauboussin, chief investment strategist at Credit Suisse First Boston, found that Internet sites adhere to a mathematical valuation system so rigid, it resembles patterns found in nature. The pattern suggests that there may be fewer ultimate winners than many investors expect.
As some sites get bigger, Mr. Mauboussin argues, they attract more users, and the more users they attract, the richer and more useful they become, attracting more users. This produces a “winner-take-all” outcome: a handful of Websites with almost all the business, and the rest with next to nothing; i.e., the Law of Singularity.
One of the many advantages of friction-free retailing is that there is no one in between the customer and the manufacturer taking a cut of the transaction. The price you pay for the lack of friction, however, is the virtual disappearance of the second brand.
For many products, it’s the retailer that is responsible for the strength of the second brand. No retailer wants to be totally dependent on a single brand in each category. To do so would be to put the retailer at the mercy of the manufacturer. The second brand keeps the first brand honest.
For the most part, there seems to be a cordial relationship between manufacturers and retailers, but despite the surface friendliness, there are often deep disagreements about prices, payment terms, stocking fees, co-op advertising allowances, and return privileges. In the retail world, you don’t fight fire with fire. You fight fire with a second brand.
On the Web the situation is different. The real world is the second brand. When Amazon.com offers best-sellers at 40 percent off, the book buyer mentally compares the Amazon deal with the 30 percent off one can find at most brick-and-mortar bookstores.
When Barnesandnoble.com (now bn.com) says “me, too,” the prospect yawns. There just isn’t any reason to switch, unless Amazon.com suffers a breakdown in service or pricing.
There’s another reason why the Web puts the second brand under pressure. In the physical world, one brand’s success creates a trend in the opposite direction. This is especially true for a fashion-oriented brand.
“No one goes there anymore,” said Yogi Berra. “It’s getting too popular.” Not as many people wear Ralph Lauren anymore either; it was getting too popular. Now a lot of folks are into Tommy Hilfiger.
If it’s Tommy today, you can be sure that tomorrow it will be somebody totally different. That’s the power of the second-brand approach.
But the Web lacks the visibility of the physical world. If everyone bought their books from Amazon.com, how would you know? It’s this lack of visibility that mutes the backlash against a brand leader.
In reality, of course, there are many second brands on the Internet. Not only seconds, but thirds, fourths, fifths, and even sixths. In furniture for example, we have Behome.com, Decoratewithstyle.com, Dwr.com, Furniture.com, FurnitureFind.com, Furnitureonline.com, HomeDecorators.com, HomePortfolio.com, Housenet.com, Living.com, and many more that we don’t know about.
Does this mean that the furniture category is different from books? That the furniture category might have many brands, but that the book category will be dominated by one brand, presumably Amazon.com?
Not at all. It only means that there is no clear-cut furniture leader today. But tomorrow is another matter. In all likelihood, one furniture brand will get out in front of the pack and go on to dominate the category. What happened in books is likely to happen in furniture.
History sheds some light on this process. In 1910, there were 508 American automobile companies. Today there are just two: General Motors and Ford.
In 1985, there were almost a hundred companies making disk drives. Today, two companies, Quantum and Seagate, dominate the disk-drive market on a worldwide basis.
In 1990, there were some two hundred companies making personal computers. Today, two brands (Compaq and Dell) dominate the category.
In the real world, we call this process “the law of duality.” In the long run, two brands will dominate the category, putting the third brand under enormous pressure.
It doesn’t get any better for a brand buried in the pack. As time goes on, opportunities disappear. The leaders become more fixed in their positions. The longer a brand remains an also-ran, the less likely it is to catch up.
Substitute “singularity” for duality and you have a long-term picture of the Internet. Friction-free retailing has eliminated the function of the second brand.
Take books, for example. Will either Borders.com or bn.com overtake Amazon.com? Unlikely, unless Amazon.com makes a major mistake.
Will either Borders.com or bn.com close the gap with Amazon.com? That’s unlikely, too. What is far more likely to happen is that Amazon.com will increase its share of the online book market, putting severe pressure on both Borders.com and bn.com. The law of singularity at work.
But stay tuned. Amazon.com is in the process of making that major mistake that will open the door for its book competitors (see the Law of Vanity).
Is there any hope for a brand buried in second place? Of course there is. But the highest form of strategic thinking is to first look at your situation with a cold eye.
The impossible is impossible. If it’s going to be impossible to make progress head-on against an Amazon.com, then you must back off and try a different approach.
What might that approach be? If the laws of branding are immutable (and we think they are), then you must do exactly the same thing that Amazon.com did. You must be first in a new category.
You can always create an opportunity to be first in a new category by narrowing your focus and by appealing to a segment of the market. It’s as simple as that.
Instead of duplicating Amazon.com’s site, a better strategy for bn.com would have been to narrow the focus and specialize in a category of books. Business books, for example.
Which brings up the Law of Either/Or. If the Web was going to be a business for Borders and Barnes & Noble, then they would have needed different names on their Websites. With the same names, it is harder to create identities on the Web that are distinct and different from their identities in the physical world. Line extension strikes again.
Actually a number of Internet companies are trying to compete with Amazon.com by doing exactly as we have just suggested, by narrowing their focus.
In each of these categories, of course, there are a number of other Internet brands. So which brand will be the winner in each category? It won’t necessarily be the brand that was first in the marketplace. It won’t necessarily be the brand that was first to become profitable. The winner will be the first brand to establish a dominant position in the prospect’s mind. Then the Law of Singularity will take over and dampen the market shares of the runners-up. Nothing succeeds like success.
When building an Internet brand, you have to think category first and brand second. Customers are not primarily interested in companies, in brands, or even in Websites. They are primarily interested in categories. They are not primarily interested in buying a Volvo, for example. They buy a Volvo in order to get a safe car. Volvo is the leader in a mental category called “safe cars.”
What’s a Chevrolet? In truth, a Chevrolet is a large, small, cheap, expensive car or truck. One reason for the continuing decline of Chevrolet sales is the fact that General Motors has neglected to define the mental category that Chevrolet is supposed to occupy.
If you want to be the leader in a category, you first have to tell the prospect what the category is. Take a two-page advertisement from a recent issue of the Harvard Business Review. There were only fifteen words in the entire ad and here is every one of them.
The internet is a blank canvas.
You hold the brush.
intendchange.com
intendchange
image • build • reinvent
Will the reader of this Intendchange.com advertisement have any idea what the category is? We doubt it. Which might be one reason the Website folded in July 2000. It never hurts to tell the reader exactly where to file your brand name in the mind. Books, auctions, whatever.
“Earth’s biggest bookstore” not only stakes out a category for Amazon.com, but also makes a strong claim for leadership in the category. “Image, build, reinvent” does neither.
In summary, don’t get discouraged if you’re not the dominant brand in a category. Just channel your branding efforts in a different direction. Just narrow your focus.
You can always create a powerful brand by narrowing the focus on the leader. The Internet is an enormous medium. The opportunities to narrow the focus are astronomical.
In the real world, many narrowly focused brands have been extraordinarily successful in competing with market leaders.
Back in the early eighties, IBM was the most powerful company in the world. It made the most money and had the best reputation. IBM was also the first company to introduce a serious 16-bit office personal computer, the IBM PC. So is IBM the leader in PCs today? No, Dell Computer is.
Unlike IBM, Dell made only one product (personal computers) marketed to one segment (the business community) and sold through one distribution channel (direct to customers). Yet today Dell outsells all other competitors in personal computers. Less often yields much more.
What Dell did in personal computers, Sun Microsystems did in workstations. By focusing on UNIX workstations, Sun built a powerful brand and a profitable company. You don’t have to have a full line to be successful.
When the Web matures, of course, there will be opportunities for number-two brands. Until that day arrives, you need to be the leading brand in your category or look for an opportunity to narrow the focus in order to create a new category you can be the leader in.