In 2009, Brian Acton and Jan Koum founded WhatsApp to ride the wave of mobile apps kicked off by the launch of the iPhone. The original purpose of WhatsApp was to put a status notification next to your name, to let people know “what’s up”.

But the small team noticed three important things that would launch their fledgling mobile app into the stratosphere.

• First, they noticed that people were using it to communicate with each other. Not just to post their status.
• Second, the app could automatically access users’ contact lists. This would later require user permission but in the early days an app could pull contacts automatically.
• Third, in June 2009 Apple launched notifications that let messages be pushed to the users, instead of requiring them to open the app.

By 2014, WhatsApp had +400M users and was acquired by Facebook for $19B.

***

In 2014, Uber made a major play for the China market. CEO Travis Kalanick spent 1/5^th of his year in China. 400-500 staff were hired. And the company began subsidizing rides and giving bonuses to drivers. The company spent $40-50M per week, subsidizing the China business to the tune of $1B per year.

When asked what advantages Uber had in China, Travis said brand and tech. But the primary weapon was really money, which they could raise cheaply with their then stratospheric private “valuation”.

Local champions Didi Dache (backed by Tencent) and Kuaidi Dache (backed by Alibaba) responded by merging in February 2015, a few months after Uber showed up. And they began matching Uber’s spending dollar for dollar. Or RMB for RMB.

• In July 2015, Didi Kuaidi raised US$2 billion, bringing the company’s cash reserves to over US$3.5 billion.
• In June 2016, Uber announced they were raising a $1B for their China business.
• The next week, Kuaidi-Didi announced they were raising $1.5B.
• In June 2016, Didi closed a US$4.5 billion fundraising round.

Plus, Didi was also pummeling Uber in lots of other ways. For example, they had their engineers working as Uber drivers. And Uber would occasionally get blocked on WeChat (owned by Tencent), which was a brutal move in China.

Finally, in August 2016, Didi acquired Uber China and Uber left China.

***

I put these two stories all under the category of Tactics, also called “short-term moves”. And sometimes called “dynamic competition”. I usually just call it “do whatever works”.

Tactics = Do Whatever Works

Tactics is a grab bag of short-term moves between competitors. Between businesses and customers. It can be lots of experiments to find product-market-fit. It can be ongoing back-and-forth between competitors using money as a weapon. It can be economically irrational behavior, like Luckin spending on coffee growth in China. And it definitely includes dirty tricks.

When people talk about the speed of business increasing in a digital age. They are usually talking about tactics. It is just so much cheaper to develop and deploy with digital goods. You can change prices in real time. You can launch new products every day. You can launch +20 different versions of the same product.

In Asia, this is even more brutal. Chinese companies are the kings of short-term moves and tactics. When people talk about companies operating at “China speed”, they are usually talking about tactics. To survive as a company in China, you have to fight off hundreds of competitors and new entrants every month. You have to be incredibly fast. You have to incredibly responsive to market and competitor changes. And you have to be tough. If competition in the USA is soccer, competition in China is rugby. You are going to take elbows to the face.

When you look at Alibaba founder Jack Ma, Tencent founder Pony Ma and especially Meituan founder Wang Xing, you are looking at the last gladiators standing in an arena full of dead bodies. They are the best and toughest competitors. They beat off hundreds, if not thousands of competitors, They know every move. Every tactic. And they know every dirty trick.

Tactics are absolutely part of operating speed and excellence (the yellow part of my pyramid for “competition meets digital”). But I have put Tactics at the bottom. Yes, ongoing short-term moves are a crucial part of operational speed and excellence. But it is also where survival is hardest. And you can’t really win here. You have to be good at this. But you don’t want to live in the type of brutal, bloody melee. This is the image that comes to mind when I think of tactics.

Photo by Hasan Almasi on Unsplash

You want to move upwards and out of this never-ending back and forth of move and counter-move. You want to move upwards to where you can survive and maybe thrive long-term. That means moving from Tactics up to a Marathon. Companies need to commit to a long-term dimension of competition that will give them an operational advantage. I have outlined the most common digital dimensions of competition as SMILE (see the concept library).

Companies that don’t do this usually rise and fall quickly. Life is just too hard living in tactics at the bottom of the pyramid. And the rewards are small and transient.

Tactics are pretty specific to each business. But we do see some common tactics in digital. Things like virality, first-mover advantage, counter-positioning and growth hacking. These are important, especially in the early stages of companies.

You can see in the pyramid that I have listed some of the common tactics we see in digital. It is worth watching for these. People often assume companies with these tactics have a serious advantage. I always point out that any advantage you get from tactics is usually short-term.

T1: First Mover, Cyclicals and Short-Term Supply-Demand Imbalances

First mover can definitely be a powerful tactic. A company gets to a new sector, product or geography first and has a window of time to capture customers, build technology and maybe get to scale. The best way to beat the competition is just to avoid them. Getting there early than others does this, for a while.

A great example of this is the success of Carlsberg beer in China. It’s one of those great business stories that everyone should know.

Take a look at the below picture. It is of Carlsberg China circa 2002. This was after +15 years of doing business in Mainland China. They had some imports but were still a tiny China operation overall. And they were facing increasingly dominant SOE brewers like Tsingtao and Beijing Yanjing.

Around this time, management basically gave up on the China market and exited. Around 2000 (or so), they let go of the China staff, began selling facilities, closing offices and so on.

But in 2003-2004, they reversed their decision. Management suddenly re-entered China. And they did so in a very surprising way. They abandoned most all the major China markets and went deep into the West. They ignored Shanghai and Beijing and went deep in the wilderness of Yunnan, Xinjiang and Tibet. And nobody was in Western China in 2003.

From 2004-2006, Carlsberg went on a stunning brewery acquisition and deal binge spree in the West. They went first to Yunnan. Then to Tibet. Then to the other Western provinces. In just a few years, they had bought or JV’d with almost 20 breweries. By 2006, Carlsberg China looked like the below chart.

This is a good example of first mover, which I put under the category of temporary supply-demand imbalances. It’s great but it doesn’t last long. If a company is benefiting from first mover or another temporary supply-demand imbalance, I immediately start looking for how fast they are building out their moat.

You can also consider cyclical industries, like oil and gas, as types of temporary supply-demand imbalances. Demand increases and there aren’t enough refineries so prices go up. As prices go up, too many development projects get launched and we get oversupply. There are fairly regular gaps between supply and demand.

T2: Counter-Positioning

This is a term coined by Hamilton Helmer (7 Powers). It’s the strange phenomenon where a new product is launched against an incumbent, like Netflix against Blockbuster or digital cameras and Kodak. And it puts the incumbent in a strategic and organizational bind. A newcomer has a new, superior business model which the incumbent does not mimic because of anticipated damage to their existing business.

Kodak and Blockbuster obviously saw the threat of Sony and Netflix. But they delayed in responding. People didn’t want to lose their jobs. Management didn’t want to crater the income statement. And maybe they realized they couldn’t really win in this new business anyways. Kodak, with deep expertise in chemistry, was never going to beat Sony in hardware and software.

I consider counter-positioning a very clever tactic, but another type of temporary supply-demand imbalance. It can cause incumbents to fail to respond for an interesting mix of rational and irrational reasons. But it’s not a moat. And it doesn’t last that long.

T3: Virality and Other Growth Hacks

Virality and other types of growth hacking is a big category in digital. We see executives at tech companies whose only job is to identify growth hacks that let the company accelerate user acquisition, engagement and spending. And in an increasingly connected world with continually emerging technologies, these can be very powerful.

But they are usually short-term. WhatsApp accessing contact lists on smartphones without permission was an effective growth hack in the early days of smartphones. But it faded. Either the tactic disappears (permission is now required for contact list access) or, most commonly, everyone starts doing it and it loses it competitive power.

Virality is the mother of all growth hacks. Everyone talks about this. Although it often gets confused with network effects. You can find more about this in the concept library.

T4: Hyperscaling vs. Blitzscaling

We see this a lot in early stage companies going for network effects. And we also see it in digital start-ups that don’t really know what they’re doing.

Hyperscaling is spending aggressively for growth. Silicon Valley start-ups with access to too much capital do this all the time. They raise venture capital money and aggressively market their app to get traction. I keep hearing estimates about how 40-50% of all venture capital money ends up as ad dollars spent on Facebook and Google. I don’t know if this is true. This can be a combination of trying to beat a competitor and trying to open up a new market and get adoption.

LinkedIn founder Reed Hoffman coined (or at least made famous) the term blitzscaling, which is a sub-case of hyperscaling. And it’s pretty smart.

This is when you realize the risks of growing slowly and rationally are larger than the risks of not getting the market. It happens in businesses where there are strong network effects and whoever gets to critical mass first gets the entire market. So management decides to spend a huge amount of money acquiring customers and get to critical mass first. Even if it means wasting a lot of capital.

It’s basically like deciding to hit the nitro when drag racing street racing (see the Fast and Furious movies). If you timed it right it gets you over the finish line before the other cars. And you win everything. As there is no second or third place.

T5: Money Wars and Last Man Standing

If hyperscaling is mostly about going for growth and maybe opening up a market, money wars are mostly about killing your competitor. You use your financial resources to steal customers. You outspend competitors in terms of capacity and then drop your prices. For example, Uber vs. Didi in China was mostly a money war. They were discounting fares and subsidizing rides in order to steal both riders and drivers. But Uber vs. Didi in Brazil is mostly about spending to grow an underdeveloped mobility market.

We actually see Money Wars all the time in China / Asia.

T6: Irrational Competition

Let’s not kid ourselves. People are only somewhat rational, at best. We are emotional. And we are usually wrong, especially in the short-term.

Businesses often make economically irrational and/or stupid moves – and they can often get away with this for a significant period of time. In the long-term, the economics usually plays out in free and competitive markets. But we see a lot of crazy, irrational and simply wrong decisions in the short-term.

My favorite example of this is Luckin Coffee. The founders raised and spent a ridiculous amount of money opening thousands of coffee outlets across China. And they gave away free cups of coffee for two years. This was despite the fact that there was little consumer interest in coffee. Management said the fact that mainland Chinese consumers only drink 3-5 cups of coffee per year (versus 250-400 in the West and South Korea) was an opportunity. Which it could have been. Or maybe it was because Chinese consumers just don’t like coffee that much.

Starbucks, to its credit, only partly responded to this digital attacker. Within 12 months, they had partnered with Alibaba for multiple digital initiatives, created a new Starbucks digital division in China, launched a better mobile app and began offering on-demand delivery. Those were all good and long overdue moves.

But they did not respond with price subsidies, free coffee or a big expansion of their outlets.

There is a lot of irrational behavior. Especially when it is a new, sexy idea. Knowing when not to respond is important. Do I really need to talk about WeWork?

T7: Dirty Tricks

This is all over the business meets digital world. Screen scraping, fake reviews, incompatible code, hiring journalists to write exposes on your competitor, etc. We see this all over the developing and developed economies.

In 2020, Chinese TikTok became the #1 most downloaded mobile app in the USA. And the first serious competitor to Facebook in a decade. It was getting tons of engagement (45 minutes per day per user versus 20 minutes on Facebook). And in in the zero sum game of consumer attention on smartphones, TikTok’s rise was a threat to Facebook’s advertising revenue. And unlike Snap, Instagram and WhatsApp, Chinese TikTok could not be financially bullied or outspent.

In August 2020, US Senators Tom Cotton and Chuck Schumer started calling TikTok a national security threat. It quickly became a big story, with a threatened forced sale to Microsoft emerging months later.

Concidence?

There are certainly issues of technology, privacy and data security playing out between the US and China. But TikTok is mostly videos of people doing 10 second lip syncing and dancing in their bedrooms. It is very a long walk in terms of logic from short dancing videos to national security.

I thought the timing was highly suspicious. Facebook, Google and others are the single largest financial contributors to US politicians. Facebook also released Instagram Reels around this time, a blatant but terrible copy of TikTok.

It could all be a coincidence of course. But I have a suspicious mind.

***

Ok. That is just a short list of some of the common tactics we see in digital. There are certainly lots of others. And it varies industry by industry.

Tactics are the bottom of my competitive pyramid. You have to be good at this. It’s part of operational excellence. But you don’t want to live here. You want to move up the pyramid to where you can survive and maybe thrive long-term. That means moving up the pyramid from Tactics to Marathons.

That’s it for today. Cheers from Rio, Jeff

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.