For some time now, I've been observing that one of the central principles of strategy — that industries are a fundamental building block for strategic analysis — is being challenged. It's been interesting to watch computer companies go after the entertainment business, Internet time-wasters competing with televised time-wasters, and games played on social media sites scooping up revenue that traditional game companies might at one point have called their own.
The Wall Street Journal published a story which shows just how blurred traditional industry lines have become. In an article entitled "Cell Phones Are Eating the Family Budget" the Journal reporter profiled case after case of couples and families who give up spending on restaurants, entertainment, cars and even clothing in order to cover their burgeoning cell phone bills. In other words, funds that used to flow into local restaurants, clothing chains or other forms of entertainment are flowing instead into the top lines of mobile phone operators. The Journal offers some numbers:
The trend has been a boon for companies like Verizon Wireless and AT&T Inc. U.S. wireless carriers brought in $22 billion in revenue selling services such as mobile email and Web browsing in 2007, according to analysts at UBS AG. By 2011, data revenue had jumped to $59 billion. By 2017, UBS expects carriers to be pulling in an additional $50 billion a year
So let me get this straight — by 2017, the analysts over at UBS are anticipating that more than $100 billion of consumers' disposable income will be heading into the pockets of carriers, and, by definition, not into the pockets of other things people used to spend their money on. Even today, before whatever new innovations will be unleashed by 2017, a family of four with two smartphones and two regular phones could be looking at over $300/month in bills. Now you have to add to that spending on Internet and Pay-TV to get a sense of what the average household is shelling out for connected services.
According to the NPD group, the cable bill for an average American household was $86 in 2011, and has been rising an average of 6% annually, while household incomes have remained flat or on the decline. As the report concludes, "NPD expects the average pay-TV bill to reach $123 by the year 2015 and $200 by 2020." Wow. Even at today's average prices, if you figure $300 for the mobile phone and $86 for cable TV and compare that to America's median household income of $45,800, after that household has paid their federal income taxes, spending on the phone and cable bill would eat up fully 13% of what's left over. All the rest of you industries — from autos to haircuts to packaged foods to clothing to you-name-it — you are all going to be dueling over what's left over.
Compare that, if you will, to the now-ancient world of the land-line. In that world, you only had one phone number, your monthly bill was pretty low unless you did exotic things like making long-distance calls, and the phone's major purpose was...talking.
The government data, which the Journal shared in the chart below, shows drops in a whole lot of categories, while cellular spending keeps rising, since the iPhone's introductory year in 2007:
So unlike many sectors of the economy where Moore's Law prevails, making things like data storage, data communication and even clothing less and less expensive, those phone bills are only going up.
This story raises a real challenge to conventional strategy analysis, in which a key activity is often looking at traditional competitors, assessing their intentions and moves and figuring out key trends that are going to be meaningful within the confines of an industry. In cases like this one, the traditional competitors are important, sure, but you can actually think of all the traditional competitors in the same boat, as the very category in which you compete loses ground.
To consider competition like this, you need to think more broadly about what I call "oblique" competitors. These are competitors who may not be in your industry, may not be targeting the same problems you target, and may not even intend to compete with you at all. To understand them, you have to redefine what you are competing for. In this case, it's share of family budget. To do a competitive analysis in this situation, you'd need to get into the heads of potential customers and try to understand the tradeoffs they are making and why. Until you get in the habit of doing that, the risk of being collateral damage of someone else's successful strategy is all too real.