Google vs You

David and Goliath pretty much own the underdog franchise. People can’t get enough of the small shepherd taking down a gargantuan warrior with only a slingshot.

It satisfies our innate itch for the little guy to overcome impossible odds.

But as Malcolm Gladwell points out, the myth is somewhat misunderstood. Goliath was certainly a giant for the time at 6ft’9 and David was just a small boy.

But David’s slingshot was far from a weakness.

Modern ballistic analysis of David’s ‘slingshot’ puts the stopping power of his weapon at roughly the same as a 45MM handgun. Goliath’s gold-platted armour made him immobile with his spear only for close-quarter combat.

The underdog was Goliath.

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The parallels between Big Tech and startups are somewhat similar. What if Google copies our product? It’s a question that torments every founder and investor.

To be fair, Big Tech is a lot bigger than Goliath for your startup, by a factor of roughly 100,000x (assuming $10M Seed Valuation). Using height, it’s the same as if Goliath was 690,000 ft tall and David was just 5ft.

Thankfully, size is not the only variable in who will win a market and there are many scenarios where Big Tech is the underdog.

Most of the discussion online about this debate lacks nuance and falls into one of two camps:

Option 1: No one can win

VC: Sorry we can’t fund any technology companies because Google, Amazon & Microsoft are the greatest technology companies in the world and will compete you out of existence.

Option 2: Apathy to reality

Founder: We are building an app that allows you to poke people on Facebook. Facebook would never compete with us; they already removed the feature and we know an Exec who told us they wouldn’t build it again.

In both camps, people overlook the truth: there are different situations where either David or Goliath come out victorious.

When David wins…

Startups win against Big Tech all the time. TikTok was started in late 2016, and since then it has mercilessly stolen market share from Facebook and crushed their attempts at copying — lol Lasso nice try.

Here are some signs David wins:

Product is 10x Better

The most and least obvious ingredient is an amazing product that delights consumers. It’s the least obvious because for investors and founders, the signals of which VC invested, how much money has been raised, and PR campaigns are used as proxies for how likely a company is to win a market.

Consumers don’t care if you are backed by Sequoia, they care if you can solve their problem better than anyone else.

A small talented team of engineers with agile development cycles, a strong customer feedback loop and a product visionary will win more fights than not.

Counter Positioning

Remember Kodak? Me neither. Counter positioning is when a business adopts a new, superior business model that incumbents cannot mimic due to the anticipated cannibalisation of their existing business.

It’s a structural advantage and boy is it powerful.

The best example is the triumph of Uber over the taxi industry. Taxi companies own their fleet of cars, a considerable capital expense, which means they have to charge consumers high prices.

Uber’s business model of using drivers as subcontractors means they could charge consumers way less. Initially, Uber won because of counter positioning.

An exploitable fact is that Google makes the majority of its revenue from advertising. Say a startup comes along and offers ad-free search, assuming they can match the power of the incumbent’s platform, Google cannot compete without giving up its main source of income.

It rarely applies but when it does, startups rarely lose.

Tech Stack Advantage

Visa is a monopoly business. It makes $24 billion in revenue by taking a 2–3% clip of international payments.

But payment businesses built with different tech stacks can win. Terra is a new blockchain payment rail that is being used in South Korea for e-commerce payments. It takes only a 1% clip.

Incumbents are routinely disrupted, as new technology paradigms — from cloud computing to blockchain — allow startups to leverage powerful technology against the old guard of companies.

However, Big Tech is pretty good at keeping on top of new technology. But there are always windows of opportunity, for example, the improvement of audio and video technology gave birth to both Clubhouse and Tik Tok.

Tech stack advantage can come from new programming languages, hardware, access to privileged datasets or anything in between.

When Goliath Wins

API Dependent

Potentially, the most fatal is when a core part of your startup’s product relies on APIs from Big Tech.

It’s drinking from Big Tech’s tap that can be turned off as soon as they feel have had your fair share to drink.

Big Tech releases their own APIs and documentation for their services so developers can easily write applications that use them. For example, developers can integrate a map into their applications by using Google Maps API and paying Google to use it.

But just as they giveth, they taketh. In 2018, Facebook switched off a slew of APIs that allowed developers to pull data from its users. Many promising startups died that relied on the Graph API as a core part of their product.

API companies beware.

Distribution Dependent

Artists should be weary of Spotfiy just as startups should be of platforms.

More commonly known as platform risk, it is a real threat if you rely on Big Tech as the main distribution channel for your product. Not only are you beholden to their take rate, but they can actively remove your product or even worse, replicate it.

Amazon has done precisely that. Allbirds acquired a cult following by creating wool shoes made in an environmentally responsible manner and selling on Amazon. Amazon copied the best-selling product almost identically and sold it online for nearly half the price.

We view this as a genuine risk if the company is deeply embedded into Big Tech’s ecosystem and has no other distribution channels.

Microevolutions

Any product which deals in incremental improvement is at risk. Being a little better than what exists today is dangerous. We call these microevolution products. These are the types of features that an army of Google product managers and engineers can achieve in a short space of time.

What’s an example? Something like a startup creating a version control cloud editor for documents. In basic English, a Google Docs inspired product with great version control. While it may be useful for specific use cases, and may even find its niche, it faces a problem.

If customers love it and it grows really quickly, Google will take notice. They have a free product that is used by over 1 billion users, they then roll out improved version control.

Game over.

As always, if you are building a company and want to reach out — please DM me at sean.stuart@aura.co