Stop Flying Blind - A book by Michael Mace

6. How to collect competitive information

The three perspectives a company needs in order to map the future are competitive analysis, market research, and advanced technology analysis. This week continues our deep dive on competitive analysis done right, looking at sources of competitive information.

This is such a broad subject that some people have written entire books on it. The range of resources is astounding — everything from secret shopping services to aerial surveillance. I encourage you to get one of those resource books from the library if you want to see the full list, but I’m going to focus on the sources that have been most helpful to me.

Hands-on product testing. I cannot emphasize enough the importance of being an aggressive power user of the competition’s products. This probably isn’t practical in some industries (pharmaceuticals come to mind), but in most other product and service industries you should go out of your way to have hands-on time with your competition’s products. Most companies I’ve worked at have been shockingly bad at this — the employees rarely even touch a competitor’s product, let alone use it intensely. They are so wrapped up in their day to day jobs that they simply have no time for looking at other companies’ stuff.

You learn a lot from hands-on product work. First, you’ll spot the competition’s advantages and disadvantages. The disadvantages you tell to marketing, the advantages you show to engineering. Embarrass the product people a little, challenge them to do better (if they’re good engineers it won’t take much to get them cranked up).

You may also find some opportunity areas where your products could be much better than the competition’s, if only you made one or two simple changes. It’s very important to communicate this sort of low-hanging fruit to the product people aggressively. Don’t assume the opportunities will be self-evident; they don’t have the same background as you and so they may not get the same insights.

The other thing you learn from hands-on testing is insights into the competition’s thinking. As you work with the product, ask yourself what sort of user they’re targeting. Are they designing for themselves, or for a particular person? What assumptions are they making about the person’s background and skills? If it’s a consumer product, what does the packaging tell you about the company’s perception of itself and its customers?

For example, Microsoft designs most of its software products for power users of Microsoft Windows. Elements of the software’s look, and the way the user interface works, all reflect the assumption that the user’s already comfortable with Windows.

Generally this is a good assumption, since Microsoft has such dominant share in PC software. But it can become a handicap when dealing with other categories of product. Many of the design elements of Windows (designed for a large screen and a mouse) don’t work well on a cellphone (small screen and no mouse). Microsoft has struggled to adapt its software to this different hardware world.

Sometimes what you learn from hands-on testing isn’t easy to describe, it’s just a feeling for how the company thinks and what its personality is. But that impression will be immensely helpful as you try to interpret and predict the competitor’s actions in the future.

In some companies, I have tried to establish a lending library of competitive products, to get more people to try the competition. This has had mixed success. If people have enough time to really play with the competition’s products, they’re often doing it on their own already. Also, the lending library is a pain in the neck to maintain — people sometimes break products, and even if they don’t, you have to pester them to return things.

Go on some sales calls. I mentioned this previously as a way to win friends in the sales force, but it’s also a great way to gather information. For this you want to meet with a certain type of customer — someone who keeps track of the industry and likes to talk about it. Sales reps are usually very happy to put you in front of these customers because they have a lot of questions that a typical rep can’t answer.

In a meeting like this, you want to establish a two-way flow of information. You share your perspectives on where the industry’s going, and why your products are best. You ask your customer what they think of the market as a whole, and what they see your competitors doing. Sometimes, if a customer likes you, they’ll spill everything your competitor told them in a briefing the week before.

Take good notes — and keep in mind that anyone who tells you everything a competitor said might also tell others anything you say to them.

Trade show booths.
Although trade shows are less important for networking than they were a decade ago, they’re still a major sales tool for many companies. I’ve never worked at a company where it was easy to staff a trade show booth, and very often engineers and other non-marketing people are pressed into service. Those booth workers can be a gold mine of information.

You need to send to the trade show an employee who’s a good schmoozer and is also technically competent. You don’t want a salesperson here; you need someone who can have a peer-level geek-to-geek conversation. Make sure this person doesn’t get bogged down in booth duty in your company’s own booth; their role is to scout out everyone else. Have them go to the competitors’ booths and start asking technical questions. Pretty quickly they’ll end up talking to an engineer, and that’s when the information flows.

Engineers are, at the core, proud of both their accomplishments and their technical skills. They want to brag. Your employee should give them an opportunity to do that. Talk to them about how hard it is to develop a particular product, or how the rumor mill says the company will never finish the follow-on in time. Mention that skeptical posting that appeared on Slashdot last month. At some point you’ll hit the issue that gets them talking.

Sometimes it can be useful to get them talking about a company that you both compete with. For example, in the mobile business it’s always fun to compare notes with Nokia about Microsoft. Then you go talk to Microsoft about Nokia.

There’s no need to play games like hiding your identity when you make these visits. This technique works because people like to talk, not because you’ve tricked anybody. But the person asking the questions has to be technically competent, or they won’t be treated like a peer.

Financial analysts. Ever since the stock market collapsed, people in the financial community haven’t had the greatest reputation in the US. But I have found that they’re an extremely good source of information. The financial analysts who still have jobs are generally the brightest and best connected, and investments firms sometimes have significant amounts of money available for research, something that’s rare in many of the industry analysis firms.

The financial analysts are obviously great for giving you information on company financials, but they also generally do the most thorough analysis of industry statistics in general, and they’re great for information on company organization structure and the rise and fall of various managers.

In the mobile phone market, the industry analysis firms were never able to give me reliable, timely numbers on sales of various mobile phones, because the phone carriers didn’t want to report those numbers. I tried several different sources, at one point paying more than $50,000 for a numbers service that turned out to be riddled with errors. But then I ran into a financial firm that was able to quietly collect very good anecdotes on device sales numbers, and was glad to share them with me for free. I was never sure how they got the information, and they weren’t about to tell me, but it was very reliable.

Also, some of the best strategy reports I ever saw on the mobile phone business came not from a major industry analyst, but from an investment bank in the UK (Richard Windsor at Nomura, if you’re interested). And again, they were free.

There’s a hidden price attached to these reports, though. Usually the people who share them with you will be hoping to get from you some information that they can share with their clients. You need to work very carefully with your company’s lawyers to make sure you’re not sharing any information that will involve you in insider trading. The general rule is that any information you give the analysts must also be available to other investors, but I’m not a lawyer and you should talk with yours rather than trusting my summary. The laws on insider trading in the US have become much stricter lately, and you don’t want to mess with them.

Friends in the industry are also a great way to get information. I’m sure this isn’t true of all industries, but Silicon Valley is a pretty tight-knit community. Companies have a history of growing up fast and then imploding, scattering laid off employees all over the place. After a decade or so in high tech, you find yourself with former co-workers at most of the major firms.

If you’re in a competitive analysis role, it’s especially important to keep in touch with these contacts. Trade e-mails and instant messages, or buy them breakfast or coffee every now and then to gossip about the industry. Very often important company changes like layoffs and new initiatives are floated in the rumor mill long before they show up in an official announcement, and you’ll also pick up a lot of information on personnel changes that would never be formally announced.

There’s a downside to all this networking, though. An active network of people tends to form shared assumptions about what’s likely to happen, or which companies are hot. This thinking is often picked up by consultants and played back to the companies, reinforcing it into a groupthink consensus that has surprising strength.

For example, in the late 1990s excitement about the Internet transformed into a Silicon Valley consensus that the most strategic thing in the world is to control a web portal (a portal is basically a website that attracts a lot of people). Huge amounts of money were poured into any venture that promised to assemble an audience online, and other businesses were starved or de-emphasized in the pursuit of the portal.

Knowing about that consensus was extremely important to a competitive analyst, because it swayed the behavior of many companies. But it’s very important not to let the consensus worm its way into your own thinking. In the case of the web portal, the consensus was wrong — a web portal is useless unless you have a good way to make money from it, and many businesses other than portals are also very nice. If you bought into the assumption about portals, you might have given your company bad advice, or overestimated the strength of competitors.

You should always be on the lookout for consensus, and you should always question it. In my experience, the stronger the consensus is, the more likely it will be wrong in at least some respects. When people talk about what’s going to happen, or what’s hot, ask yourself why they think that. Do they have first-hand information on the situation, or are they just repeating what they heard from others? What assumptions are they making? Do you agree with those assumptions? Have you tested them yourself? What happens to the consensus if any of the assumptions are wrong?

If you agree with all the assumptions, then maybe the consensus is right. But if you disagree with any of them, you may have identified an important blind spot for the competition.

One of the most important checks for an industry consensus is market research. Because research is expensive, and hard to do on new technologies, high tech companies often default to designing products for themselves. An industry consensus can decide that something’s a good product just because people in the industry think it’s cool, without reference to any real human beings. This is one reason why I’m a strong advocate of combining competitive and customer information.

Here’s an example of how the consensus can get out of hand when it’s not tested properly on customers. In the mobile phone industry, for years many companies assumed that if they could put the Internet on mobile phones, people would use them to browse information. Billions of dollars were invested in creating high-speed data networks, building phones with browsers, and marketing them to users.

Eventually enough companies were investing that the others piled on out of fear of being left behind. The companies started chasing one-another rather than any actual customer.

The problem was, when the browser phones finally got into the hands of customers, almost no one wanted to use them. People said they liked the idea of mobile browsing, but when they said that they were assuming you could re-create the whole PC experience on a phone, and you can’t. The network’s too slow compared to a home or work PC; the screen’s too small, so you can’t easily view a conventional web page; and there’s no mouse, so you can’t easily click on links.

It’s possible that in time most of these barriers will be overcome, but they have pushed back the use of mobile browsing by many years, meaning the companies that invested early have wasted a lot of capital that could have gone into more profitable pursuits.

How could they have avoided this? It’s important to research more than just an idea. Of course people said they’d like to browse on a mobile device, but the actual implementation had lots of drawbacks. To make things even harder for the phone companies, not all of the drawbacks were obvious unless you dug into them. For example, data rates on the phone networks looked fairly good on paper, until you started to load up the network with the congestion of real users. And the limits of battery life meant you couldn’t keep a connection open at all times, the way you do with a PC that’s wired into the wall. So some mobile browsers had long startup times compared to making a phone call.

If a phone company had done a customer test of an actual browser phone, with real-world network conditions, I think many of these problems would have surfaced. But that would have required a lot of time and investment, and there was a huge sense of urgency in the industry at the time.

Create a feedback council. Many companies have an official customer feedback council that they use to test product plans and sales messages. This is most often used by companies that sell enterprise products. They’ll gather about fifteen of their favorite corporate buyers and fly them someplace for the weekend. One day is devoted to golf, and the other is filled with presentations of product plans and feedback from the buyers.

It can be good for you to participate in meetings like this; you’re likely to pick up competitive tidbits from the attendees. But I think it’s also good to establish an informal council of your own. This should consist of about a dozen enthusiastic and articulate users of your company’s products. Get them onto a shared e-mail address, and run competitive issues past them on a regular basis. Test out your messages, and ask them what they think of competitive announcements.

To make this work, you have to create a two-way flow of information — you’ll need to preview your company’s plans, and be willing to give candid answers to pointed questions. Their reward for participating is that they get a chance to influence the company, and get some inside scoop. If you just feed them the party line from the PR team, they won’t feel rewarded and they’ll stop participating.

That means the group needs to be under a formal or informal nondisclosure agreement. Even with an NDA, some information could leak, but in my experience the leaks are very few because people don’t want to be tossed off the list. If the group dynamic works well, it will function like an early warning system, alerting you to issues that are starting to perk in the user community long before you’d normally hear them.

Weblogs are rising rapidly as a useful source of information, at least in high tech. Most weblogs are online diaries with personal information; they are not useful sources of competitive information, unless you want to know about the sex lives the more exhibitionist employees at a competitor.

The more useful weblogs are focused on commentary about your industry. Many are team-written, like the editorial section in a newspaper, posting an interesting mix of news and comments. Some of the more professional weblogs are almost like online magazines, and many allow readers to post information, so you get a mixture of rumors and comment.

Whenever there are leaks or rumors about the competition, they’ll tend to show up first on these sites. Once a weblog’s established, people start sending rumors to it, and the weblogs that want to drive traffic to themselves repost information that has appeared elsewhere. A good weblog turns into a headline-clipping service for your entire industry.

Keep in mind, though, that these websites are not usually run by professional journalists, no matter how flashy the graphics look. Websites don’t generally do the same fact-checking as a newspaper, and most of them don’t even make any pretense of being unbiased. So you need to be a more careful reader than you would normally. As long as you keep that in mind, it’s very worthwhile to search out the best weblogs in your industry and read them daily.

In he mobile device industry, one of the most useful weblogs is called engadget.com. It generally has the first leaked pictures of new products coming from the competition. A good tech site that’s more like a publication is theregister.com, a UK-based tech news and commentary site with an acerbic edge. [Sorry for what must read like an elementary explanation for my online readers, but keep in mind that this will ultimately be a printed book, and I can't count on all my readers being as tech-savvy as you are.]

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Information sources that need special handling

There’s no such thing as having too much data, so all information sources can be valuable. But I’ve found that some require more effort to yield useful information, or don’t necessarily give a good reward for the time and money you put into them.

Online discussion forums.
There’s a blurry line between weblogs and discussion forums, but to me the distinction is that a weblog has one or more well-identified authors, people whose biases are on the record and whose reputations depend on maintaining a certain level of credibility. In contrast, online bulletin boards and other discussion sites are open to postings from anyone. Most of the people who post use pseudonyms, and it’s impossible to verify their information or know what agenda they’re pursuing. This means it’s very hard to judge the reliability of the information you find there.

I saw one case in which a series of very negative comments about a company were posted to an online forum. The messages were posted under a number of different names, but the website owner eventually found that all of them came from a single web server — located at a major competitor of the company in question. Even when the postings are legitimate, I’ve found that a surprising number of them are written by people who are quite young — high school or younger (think about it, who has the most time available to hang out online?). There’s nothing wrong with young people posting online, and in fact I’ve been very impressed with their thinking and writing skills. But unless your target customers are 14-year-old technophiles, you can’t use them to guide your business.

Even if you’re dealing with genuine customers, and they’re old enough to drive, it’s very difficult to use the online bulletin boards as a stand-in for normal customer feedback. Many different kinds of people read online forums, but the people who post to them actively are a different breed. They’re generally enthusiasts who don’t think like the average customer.

For example, while I was at Palm, online reviews and polls about handhelds consistently gave some of the lowest ratings to Palm’s best-selling products. Why? Online enthusiasts are much more interested in advanced features than the average person, and are much more willing to pay extra for them. I used to shake my head in wonder when people posted passionate essays praising high-end products that I knew were selling horribly in the real world.

Another drawback to the online forums is that it has become popular to post false reports, to see how many people can be fooled. An embarrassing case happened just recently, when pictures of a radically different mobile phone were posted online. The pictures were copied and forwarded to people all over my company, including the CEO. They made quite a stir. But no one thought to check the date when the photos were posted. It was April Fool’s Day.

All of these problems mean that you need to read an online discussion forum very skeptically. Ask yourself if a shocking new report really sounds plausible, and look for ways to confirm it. Also, you should always read the online commentary that people post in response to any new rumor. Although people on the web often have biases, as a group they are very good at snooping out inconsistencies in a story. For example, the people on the discussion boards figured out that April Fool’s Day hoax within an hour, and so I was able to send around a message alerting people that the report was false.

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Next week: Deliverables.

2 Responses to “6. How to collect competitive information”

  1. npascoal said on August 16th, 2009 at 1:54 pm

    Dear Mr. Mace,

    This is a very interesting section and gives us a good overview of some options on how to collect competitive information.

    As I can see most of the examples in this chapter are from the telecommunication industry, in which I worked. Because of that I would suggest that the competitors front line sales team might be a good source of information. How do you see it?

    Thank you.

  2. Sandip said on September 20th, 2009 at 9:01 am

    how to analysis competitors strategy?

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