Any ambitious company should want to do everything it can to create and win a market category.
Over the years at Category Design Advisors, we’ve often been asked why we say that with such certainty. One counterpoint we often hear is: “If it’s a huge market category, there’s room for lots of winners.”
Well, yeah, but that depends on how you define “winners.”
Because most categories have a single clear winner. And that winner walks away with most of the economics – market share, profit share, valuation – of that category. The rest fight for relative scraps. In our book Play Bigger, we dug through some research about categories and presented the overall conclusion that category winners typically take about 76% of their category’s economics. But if that seems a little vague, at CDA we looked into a few specific and updated examples about some well-known category winners that have endured for years, if not decades.
I’ll start with an old category that we wrote about in Play Bigger: the minivan category. In 1983, Chrysler created the category when it introduced the first minivans, the Dodge Caravan and Plymouth Voyager. As we say in the book, Chrysler did an amazing job of category design, selling us on the category of minivan, not just on its two branded models. The company established itself in people’s minds as the category leader, and certainly won the dominant design – every competing minivan that has come after Chrysler’s has looked pretty much like Chrysler’s.
Now it’s 40 years later, and this is the power of category dominance: In the US, Chrysler consistently maintains a 50% to 60% share of the minivan market, despite competition from Toyota, Honda and others. Once a company embeds itself in our biases as the category leader, it’s hard to unseat it, even if a competitor makes a product that is arguably better – even four decades later.
Google is another example of winning a category – internet search – and embedding itself in our biases. In reality, there is nothing preventing any of us from using a different search engine. Google isn’t like Facebook, LinkedIn or Twitter, where you’re glued there because your connections are there. Other search companies argue that they produce better results or do a better job protecting your privacy. The vast majority of us don’t care. We just use Google.
So, 25 years after Google was founded, its global search market share stands at 92%. Second-place Bing scrapes along at 3%. And what’s the only threat to Google? The potential emergence of a completely different category of search based on ChatGPT-style AI.
How about B2B technology? In doing our book, we admired and learned from Salesforce’s mission to create the then-new market category of “cloud CRM” – at a time when most big companies dismissed cloud computing as too risky and untested. Salesforce’s goal was to displace the old “on-premise CRM” category (big, expensive software that the buyer had to painfully maintain) with the new cloud CRM category (which let people use the software without installing or maintaining it).
In a space crowded with hefty competitors such as Adobe, Microsoft, SAP and Hubspot, Salesforce holds onto 31% of market share. While that’s not at a Google level, it is a dominant position. The rest of the market is divided into tiny slivers among an enormous number of competitors.
Apple’s iPhone is a fascinating example of category dominance. Certainly Apple established the dominant design of the smartphone category once it introduced the iPhone in 2007. Lots of different smartphone designs existed before that from the likes of Blackberry, Handspring, Nokia and Motorola. Since the iPhone, there’s really only been one design — pretty much every competing phone made today looks and acts like the iPhone. Apple is the clear category winner.
Now, you may point out that the iPhone’s absolute market share isn’t that impressive. Samsung sells almost as many phones as Apple. Android phones in total sell more. But dig deeper, and all those other phone makers are barely making a profit. If you look at Apple’s share of total smartphone profits, one analyst figures that Apple takes 85% of the whole category’s profits. A few years ago, another analyst had put that number in the mid-90% range. One typical advantage of category dominance is pricing power.
One more example: In a previous article, I wrote about how White Claw became the dominant design in the category of hard seltzer after it was introduced in 2016. The category didn’t exist until then. In a flash, giant competitors such as AB InBev (maker of Budweiser) leapt into the category to take on the comparably tiny maker of White Claw, Mark Anthony Group. But it hardly mattered. White Claw has about 45% of the US market in the category. Bud Light Seltzer has 10%.
Every company, of course, can’t be a category winner, and the public usually wants every category to have competitors and choices. There are many, many very good businesses built on being a distant second or third in someone else’s category.
Yet as Chrysler, Apple, Salesforce and others show, the path to outsized enduring success runs through category dominance. While there are no guaranteed ways to win a category, there are ways to improve a company’s odds of winning a category — and that’s what the process of category design is all about. That’s why category design should factor into the strategy of any company that wants to shoot for the sky.