Microsoft just bet $44.6 billion on the law of duality. For those not familiar with this law, it goes like this: In the long run, every market becomes a two-horse race.
At the moment, Google has a 54% share of the search-engine business. Yahoo! is at 20% and Microsoft is at 13%. If Microsoft succeeds, its share jumps to 33% and there are two horses running after the online advertising business.
What makes this bet tricky is the fact that Google has become a generic brand. That’s when a brand is used often in everyday language: “Google his name,” or “I’ll Google it.” The brand is both a noun and a verb at the same time. “Scotch-tape it.” Or “Xerox it.” When this happens, you can have an enormous advantage over the competition. While it drives lawyers crazy because of their fear of losing a trademark, it is the grand slam of marketing. Viagra is already a generic brand in the erectile dysfunction battle. Their share is 60%. Cialis is at 27%. Levitra is at 13%. The law of duality has already struck.
Early on, a new category is a ladder of many rungs. Gradually, the ladder becomes a two-rung affair.
In batteries, it’s Eveready and Duracell. In photographic film, it’s Kodak and Fuji. In mouthwash, it’s Listerine and Scope. In hamburgers, it’s McDonald’s. In sneakers, it’s Nike and Reebok. In toothpaste, Crest and Colgate.
When you take the long view of marketing, you find the battle usually winds up as a titanic struggle between two major players–usually the old, reliable brand and the upstart. A little history lesson is in order.
Back in 1969, there were three major brands of a certain product. The leader had about 60% of the market, the No. 2 brand had a 25% share, and the No. 3 brand had a 6% share. The rest of the market included either private label or minor brands. The law of duality suggests that these market shares are unstable. Furthermore, the law predicts that the leader will lose market share and No. 2 will gain.
Today, the leader dropped down to 44% of the market. The No. 2 brand has 31%, and No. 3 doesn’t make the charts. The products are Coca-Cola, Pepsi and Royal Crown, respectively, but the principles apply to brands everywhere.
Look what happened to Royal Crown cola. Back in 1969, the Royal Crown company revitalized its franchise system, 350 bottlers strong, and hired the former president of Rival Pet Foods and a veteran of both Coke and Pepsi. The company also retained Wells, Rich, Greene, a high-powered New York advertising agency. “We’re out to kill Coke and Pepsi,” declared Mary Wells Lawrence, the agency’s head, to the Royal Crown bottlers. “I hope you’ll excuse the word, but we’re really out for the jugular.” The only brand that got killed was Royal Crown. In a maturing industry, third place is a difficult position to be in.
Take the domestic automobile industry. In spite of heroic measures undertaken by Lee Iacocca and others, Chrysler is in trouble. In the long run, marketing is a two-horse race. Today the main horses are General Motors and Toyota –Ford has been pushed into third place.
Are these results preordained? Of course not. There are other laws of marketing that can also affect the results. Furthermore, your marketing programs can strongly influence your sales, provided they are in tune with the laws of marketing. When you’re a weak No. 3, like Royal Crown, you aren’t going to make much progress by going out and attacking the two strong leaders. What they could have done is carved out a profitable niche for themselves. (Early on, they could have focused on a diet cola.)
All this is obvious to successful marketers who concentrate on the top two rungs. Jack Welch, the legendary chairman and CEO of General Electric, said recently: “Only businesses that are No. 1 or No. 2 in their markets could win in the increasingly competitive global arena. Those that could not were fixed, closed, or sold.” It’s this kind and thinking that built companies like Procter & Gamble into the powerhouses they are. In 32 of its 44 product categories in the United States, P&G commands the No. 1 or No. 2 brands.
In a developing market, the No. 3 or No. 4 positions look attractive at the beginning. Sales are increasing. New, relatively unsophisticated customers are coming into the market. These customers don’t always know which brands are the leaders, so they pick ones that look interesting or attractive. Quite often, these turn out to be the No. 3 or No. 4 brands.
As time goes on, however, these customers get educated. They want the leading brand, based on the naïve assumption that the leading brand must be better.
The customer believes that marketing is a battle of products. It’s this kind of thinking that keeps the two brands on top: “They must be the best, they’re the leaders.”
But let’s get back to Microsoft’s big bet. Its first problem will be what to name its new horse. Yahoo!? MSN? My advice would be to keep the Yahoo! name and let the Microsoft brand stay as the big horse in the software race.
Next up is a search for that obvious attacking strategy against Google. That will not be easy, but at least they are set up to be that strong No. 2 to No. 1.
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