The Importance of Dominating a Crowded Market

Contributed content / By Alex Smith / 19 December 2019

Those who dominate within their market do something that others don’t: they narrow their market share to strengthen their profit. Becoming the most valued provider in your portion of the market lets you leave the competition and establish a micro-monopoly. 

Wouldn’t it be great if your business had a monopoly?

Just imagine, no need to spend big on marketing, charge a price people are prepared to pay, unquestioning loyalty from your customers, no fear of another company becoming competition. 

In short, it would be business with most of the headaches removed.  Sadly, outside of perhaps Google and the train lines, that isn’t the reality for the vast majority of businesses. Most of us have to deal with the pressures and costs of competition, and we accept this as simply a fact of business life.

But what if I told you that the benefits of a monopoly are available to almost any business, regardless of the category it’s in, or the intensity of its competition? It doesn’t sound plausible, but it’s easier than you think. It simply comes down to the scale of your thinking.

What It Means to Be a Monopoly and Why It’s Important

A true, classic, monopoly exists in an industry of one and is the only meaningful player in its market. For example, if there were only one car brand, then we could safely say they have a monopoly on cars.  

However, monopolies can also exist on a lower, more granular, level than this by being the only meaningful player in a portion of the market. 

 For example, imagine if Ferrari was the only sports car brand.  Depending on how you draw the lines of the category they would still have “competitors” in the shape of all the other car brands, but they would have no competitors for their specific part of the market, meaning that they would still accrue all the benefits of the classic monopoly.

For a real-world example of this, look no further than the iPhone.  On paper, the iPhone exists in an extremely competitive market: smartphones. However, in reality, they don’t actually have much competition. Why? Because that market is generally split between iPhone and non-iPhone users.

Just like how iPhone users can stick to iPhones and not consider other options, the same can happen for non-iPhone users. This is because the iPhone – such as Ferrari in the hypothetical example above – provides a very specific “sub-value” in the market which it owns completely (something akin to the “luxury” phone brand). 

The result of this in terms of numbers is that the iPhone has quite a small market share, but their profit share massively outweighs others included in the graph. 

Apple Claims 92% of Global Smartphone Profits Graph
Source

This vast difference between market share and profit share is a result of the sub-value iPhone provides in its market. For example, HTC and Huawei are far more interchangeable, and therefore competitive, than HTC and Apple.

Understand the Difference: Micro-Monopoly Strategy vs. Market Differentiation

You might think that this sounds simply like a differentiation strategy, but it’s not the same. Differentiation is something businesses use to compete more aggressively with each other over the same part of the market, e.g. by adding a feature the other one doesn’t have.  

What we’re talking about is deliberately avoiding participation in any part of the market that is already well served. You aren’t trying to compete better with the other brands in the market, you’re trying to avoid competing at all.

This means allowing your competitors to have what is theirs and voluntarily limiting your potential market share. The more market share you try to gain, the less monopolistic you will be, as you will have to start catering to multiple sub-categories.  

Your goal should only be to have 100% of your market, even if that is a small fraction of the overall market, just as Apple demonstrated.

You can take a deeper look at this idea of deliberately not competing in order to enjoy monopoly effects by watching this talk I did on the subject with TEDx:

Alex Smith Ted Talk Building Monopoly
Source

In the video, you’ll learn more about why refusing to compete can actually benefit your business and start helping you monopolize within your market.  

How to Become a “Micro-Monopoly”

Hopefully, now that we’re looking at markets on a more granular level, that any business can become a monopoly, or “micro-monopoly,” simply by dominating a clearly defined market within its wider space.

So how do you become a micro-monopoly?

1. Divide Your Market

The first step is to divide your market up. Look at your industry on a more granular level, like we did with the Apple example. How would you draw the dividing lines of the sub-categories within it? Doing this will allow you to better identify your place and opportunities to monopolize your presence. 

2. Identify Who is in Your Sub-Category

The next question is to ask how well are those sub-categories catered for? Are they already brilliantly served by your competitors? Or are there some which are inadequately served? Or, even better, are there some that nobody is serving at all? Is there a glaring hole there?  

3. Find the Best Option for Your Business

Your job at this point is simply to identify the path of least resistance and make that your own.

Dominating Your Sector in the Market Ends Competition

The idea is simple. Monopoly benefits don’t accrue to the business that is the “best” —what could “best” even mean when value changes across every market? Benefits accrue to the business that doesn’t look to be the “best”; they accrue to the business that refuses to compete.
 

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