In fact, the heart of capitalism derives from competition between companies for the same consumer or business dollar–and the resulting market share. Of course, competition benefits consumers, but it also benefits businesses–by forcing them to become more efficient and innovative in order to stand out from their business rivals.
Which is why it caught my eye when it was revealed this week that Apple Inc. reported 92 percent of total operating profits from the world’s top eight smartphone makers, during the first quarter of this year.
Take a moment and let that sink in: Apple’s ‘iPhone’ generated more than 9 out of every 10 dollars of profit in the lucrative smartphone industry during the first quarter of the year. That’s a truly astonishing accomplishment, and one that is almost without precedent in the business world.
Similarly, an Apple rival in the technology sector is also establishing eye-catching dominance in its field; Google Inc. has become the dominant force in many tech-based sectors, including its overwhelming 67.6 percent market share of the search engine world. Google also has a dominant presence in the online advertising, browser, email and video markets (it purchased Youtube in its infancy several years ago).
Now, don’t get me wrong. As CEO of Sackett National Holdings–a company that greatly values innovative technology–I applaud Apple and Google’s impressive ability to produce high quality tech products and services that are much in demand. These are two American companies that have achieved worldwide success in large part by offering their customers quality products—which have, to a large extent, also transformed the way the world communicates and conducts business. No small feat.
However, as someone whose rapidly growing entrepreneurial business has to—and chooses to—compete against many other large, national companies, I am also well-versed in the important role competition plays in spurring our company towards success.
Whether it’s providing state-of-the-art software solutions to our clients in the financial services sector, automotive, employment screening or retail energy industries, we at SNH recognize that complacency is unacceptable; our customers have choices, and we can’t—and would not—ever assume that they will remain our clients unless we can offer them innovative, quality products and services.
And that is my concern when I read about a company such as Apple attaining 92 percent of the quarterly operating profits for the smartphone industry, or Google’s complete domination of varied online businesses.
The level of innovation that Steve Jobs and his team showed by creating the iPhone was born out of competition, and an entrepreneurial desire to think outside the proverbial ‘box’; Google also became a dominant player in the world’s tech sector through innovation born of entrepreneurial competition.
But when any one company grows so large as to dwarf its competitors—and, as a result, its competition—will that dominance result in less innovation? There are legitimate reasons to believe so.
Innovation is, by its very nature, born out of a company’s need to delineate itself from its competition; to be able to say to clients—and potential clients—‘we can offer you a superior product or service, and do so at a competitive pricing level.’
All businesses–even companies that produce desirable products and services such as Apple and Google–that no longer have to be concerned about fierce competition, rarely remain hubs of innovation.
If it’s true that ‘necessity is the mother of invention’, then it’s equally true that competition is likely invention’s father. And frankly, any company that no longer feels the need to worry about its competition is more likely to become an ‘orphanage’, than a parent, to new inventions.
For all its perceived flaws, capitalism encourages competition, and that, in turn, encourages businesses to take risks; and few, if any, great innovations were ever achieved without some degree of risk.
Still, perhaps it is just the natural evolution of business that successful start-up companies often grow to become dominant players in their industries. Certainly, when we first founded our company more than 20 years ago, we hoped that it would grow to become a national presence, and compete directly with established industry leaders; the fact that we have been able to reach that point is due, in no small part, to our corporate commitment to taking calculated risks, which include innovative technology.
Some critics of Apple and Google say that as those two companies have grown into international corporate giants dominating the tech sector, their capacity for innovation has diminished; although they both no doubt employ smart, innovative people, the tech giants have become so big that they are more concerned with protecting—rather than growing—their market share.
As it always does, Time will tell whether or not Apple and Google’s most innovative days are behind them.
But even if they are, you can rest assured that somewhere out there is a ‘hungry’ entrepreneur working on a new, innovative product, which will ultimately result in greater competition for the Apples and Googles of this world.