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Undermining barriers to entry

Undermining Barriers to Entry

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Definition & Summary: Identifying a major barrier to entry in a market and reducing or removing it to encourage more competition . This is used offensively when the barrier favors an incumbent (often a competitor), and by knocking it down, you enable more players (including yourself) to compete.

Detailed Explanation: Barriers to entry can be high cost, proprietary technology, distribution lock-in, etc. By undermining them -- e.g., via open-sourcing tech (removing proprietary advantage), offering a low-cost alternative, or finding a workaround to regulations -- you open the floodgates of competition. Why do this? If you're a challenger, reducing the incumbent's moat (barrier) levels the field. Also, a company might do this to stimulate a new ecosystem (like enabling startups to join -- similar to market enablement, but specifically targeting a barrier). Key principle: target the one thing that keeps newcomers out and neutralize it .

Real-World Examples:

  • Historical: Netflix and content delivery -- early on, streaming video required huge bandwidth and server infrastructure (a barrier to entry for others). Netflix undermined that barrier by pioneering efficient content delivery networks and embracing cloud (AWS). By solving the streaming delivery problem (even open sourcing some tools), they lowered that technical barrier. This inadvertently enabled more streaming entrants later (since cloud/CDNs became accessible to all), but Netflix bet on being far ahead in other areas. They knew the real fight would be content, not distribution tech, so they commoditized distribution as a barrier.

  • Tech: Mozilla and Internet Explorer -- In late 90s, web browsers had an entry barrier of needing a robust rendering engine to display pages (Netscape and IE had them). The Mozilla project open-sourced Netscape's engine (Gecko), effectively undermining that technical barrier. As a result, multiple browsers (Firefox, later Chrome using WebKit which was another open engine) could enter using these open engines. It destroyed IE's advantage of a proprietary engine because now anyone could base a product on Gecko/WebKit.

  • Hypothetical: A fintech startup finds that a barrier to entering banking is compliance/legal know-how. It builds an AI-driven compliance platform and open sources a basic version or lobbies for simpler compliance frameworks for fintechs. By doing so, it undermines the regulatory barrier that big banks hide behind. This allows more fintechs (including itself) to launch products without massive legal teams, thereby eroding the banks' protected position.

When to Use / When to Avoid:

  • Use when: You're a challenger or new entrant facing a tough barrier that's protecting incumbents. If you have a means to break that barrier (technologically, legally, via partnership), doing so opens the market and erodes incumbents' advantage. It's also strategically used by a big player in one domain to attack another domain's leader -- e.g., Google open-sourced Android to undermine Apple's closed ecosystem barrier. Use if you can survive the more competitive market you create -- often you plan to win on some other factor once the old barrier is gone (like service or scale).

  • Avoid when: If the barrier currently protects you. Obviously an incumbent wouldn't use this on themselves (unless they foresee the barrier falling anyway and want to control how it falls). Also avoid if removing the barrier doesn't directly help you compete (you might free the market and not capture any of it -- essentially doing others a favor). Ensure that by lowering it, you have a strategy to capture share (e.g., first mover advantage in the new open field).

Common Pitfalls:

  • Cannibalization without capture: You lower a barrier, lots of competition floods in, and you're just one among many. If you didn't have another edge, you may not come out on top, effectively hurting an incumbent but not necessarily benefiting yourself enough.

  • Timing misfire: If you try to break a barrier too early, customers might not be ready or the substitute might not fully replace the old method (like open tech not mature yet). Could lead to wasted effort or partial success that incumbents then counter.

  • Unintended consequences: More competition may drive down prices/profits industry-wide. You need to be prepared to thrive in a more commoditized environment (maybe with cost leadership or new revenue models).

Related Strategies: Open Approaches (classic way to undermine proprietary barriers by making tech open), Market Enablement (similar concept of encouraging competition, though undermining barriers is a more aggressive subset), Fool's Mate (if a barrier is a constraint protecting an opponent, breaking it is akin to a quick mate).

Further Reading & References:

  • Wardley, S. -- "Identifying a barrier to entry and reducing it to encourage competition." . Suggests this as a standard attacking move to open up a market.

  • Case: Android vs iPhone -- numerous analyses on how Android's openness forced Apple to adjust and how it undermined the barrier of needing a proprietary mobile OS to compete in smartphones.

  • Business Strategy: "Judo strategy" (book by Yoffie) -- one concept is using an opponent's strengths against them. Undermining barriers to entry is like using the incumbent's reliance on a barrier (strength) to topple them by removing that crutch.