I have been asked on two separate occasions recently whether the social gaming wars were over; if it was impossible for a new entrant to compete. I answered intuitively that it was far from over, there were still many opportunities ranging from social mobile to targeting underserved niches. Unfortunately, I did not have any data to back up my proposition, and as I rely on analytics to drive decisions, that absence troubled me. I also understand that my intuition is not always going to be right, so finding data on this topic became crucial.
In the most recent issue of the MIT Sloan Management Review (Summer 2011), I found the evidence. They reported that 3.8 years is the average length of time before a switch in market share leadership in high-tech markets (that they studied). Out of 19 markets studied, market leadership ranged from 2 to 5.5 years and in 10 of the 19 markets there were multiple switches in market share. In the article, titled ”How Quality Drives the Rise and Fall of High-Tech Products,” the data clearly shows that product quality drives these changes in market leadership. Out of 34 total changes in leadership, 18 percent were driven by changes in quality leadership that year and 50 percent were related to a switch in quality leadership in prior years (another 20 percent was companies who always had superior products gaining leadership). Thus, 88 percent of all changes in market share leadership in high-tech companies was driven by a superior offering from the “underdog.”
The authors of the study also pointed out two key reasons that once-invulnerable companies lose their leadership position. The first is that in high-tech industries new products and technologies constantly flood the market, upsetting the status quo. Secondly, consumers of high-tech products often rely on experts or informed consumers who have reviewed the products. These two factors offset the network effects that come with market leadership.
This research confirmed my (and many others) hunch that the social game ecosystem can still change dramatically. Obviously, there will always be exceptions to the rule, but the data clearly shows it is premature and inaccurate to assume that the social gaming ecosystem cannot change dramatically.
It also points to the need to focus more on product quality than first mover advantage, as the latter does not create the long-term advantage many believed. Most importantly, there is still a lot of profit (and fun) left in the social gaming industry.