Microsoft’s $8.5 billion purchase of Skype is one of the Redmond giant’s boldest plays to create new markets in its 36-year history. The deal, Microsoft’s largest ever, is hard to justify on purely financial grounds – the company is paying 32 times operating earnings (EBITDA). Moreover, it may not have been worth the price to snatch the prize from Google, which already competes in this field with Google Voice. The upside lies in new markets that this combination can capture. What do lessons from successful market creators suggest about the blue-sky potential?
If American companies are to grow their way out of the doldrums, they will need to show some of the imagination of upstarts. Consider Zipcar, whose recent IPO valued the 11-year old company at over $1 billion. The company came from nowhere into a rental car business dominated by giants such as Hertz and Avis, creating a new market of by-the-hour rentals. Meanwhile, the incumbents focused on battling each other at longstanding airport locations. As the giants continue to duke it out, Zipcar has captured 80% of the industry it created. Ironically, Zipcar repeated a story that happened once before in the rental car industry. Hertz is the leader at the airport, but Enterprise Rent-A-Car grew to become more than double Hertz's size through concentrating on neighborhood-based locations, where the giants did not compete.
Read the rest of my post at Harvard Business Review.
This post was written by Steve Wunker. Click for more of New Markets' thinking about innovation capabilities.
Why do some great ideas languish in obscurity, while others take hold fast? Eight factors explain the difference in speed of market penetration. See how they work in this short video released today by our publisher, McGraw-Hill.
The video is adapted from the chapter titled "Assessing What Doesn't Exist" in Capturing New Markets: How Smart Companies Create Opportunities Others Don't.
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