Sunday, October 16, 2005

Go For The Jugular

Go For The Jugular
A fascinating observation by the redoubtable Joel Spolsky on how tough competitors get into certain businesses in order to take away their enemies' ability to compete.

Spolsky's point is that low-cost players like Dell and JetBlue can respond to attacks from competitors like IBM, HP, and Delta by going after their cash cows. In Dell's case, by entering the server market, it was able to trigger a price war that prevented IBM and HP from using the profits they made on servers to offset selling PCs as loss leaders.

Similarly, Spolsky believes that JetBlue's entrance into the lucrative Boston/New York shuttle market represents a direct attack on one of the main sources of profits for Delta and USAirways. (I can testify to this, having spent all too much money and time flying on those shuttles. Many of us kept an extra shuttle ticket of each type on hand for last-minute trips.)

This strategy is a more subtle and refined version of the famous Microsoft cashectomy. Can your business benefit by finding a way to destroy your competitors' margins?

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