The digital business industry is well known for its uncertainty. In a rapidly changing environment, no one can be certain what will be the next technological breakthrough, or which company will establish a dominant platform. It’s impossible to gauge which company will rise up to become the next Google, or even to tell what will happen to Google itself in the coming years. With so much uncertainty, it is necessary to add some element of control into this dynamic environment. Using a strategy will provide your digital business with the ability to find its own direction in a chaotic environment. In order to determine your own strategy, it is beneficial to understand some commonly employed strategies in the world of digital businesses.
The strategy of market leadership can be a costly strategy, but one that can involve huge rewards. Market leaders must invest large amounts of money into technological research in order to develop market leading technology. An example of a digital business that uses this strategy is Google. Google is the market leader in the search engine industry due to its technological innovation (a proprietary search algorithm), furthermore, Google continues to invest large amounts of money into the development of other projects with the intention of developing other market leading technologies. The key to success with this strategy is being the first to hit the market with a new innovation and profiting from this advantage over other firms.
Using the strategy of following the market, a company can ride the coattails of the market leaders and compete on the basis of cost leadership. The objective is to spend a minimal amount of money on research and development, but instead to allow the market leader to innovate. As soon as the market leader launches a new product, the followers will work at duplicating the product and will attempt to offer it at a price below the level at which the leader can manufacture it. This makes the follower a cost leader, and can allow it to gain many customers at the expense of the market leader.
The niche strategy, for a digital business, is a combination of the leader and follower strategies. A niche strategy can involve taking an innovation from the market leader, and then tweaking it to fit the needs of a particular market niche. This allows a firm to avoid substantial research and development costs that are associated with market leadership, but to still demand the high price margins of a market leader by being the market leader in a particular segment.