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What Is the Effect of Competition?

Posted on 27 May 2014 by Andrei

Today’s post has one purpose and one purpose only: making you think about the question in the title. To elaborate, let’s assume you live in country A and are running the only company in that country which sells cotton shirts. We’ll also over-simplify by leaving aspects such as globalization aside for a moment, assume that importing is impossible and call your business Company 1.

Being the only game in town is a dream come true for any business owner but what if Company 2 with the exact same business model all of a sudden appears? At that point, both companies are offering the same product at the same price.

To stand out (absence innovation, of course), you’d need to lower your price.

As a response, Company 2 would lower its price as well and things would go on and on in a “race to the bottom” manner until the point of minimum profitability is reached. All of this again, absence innovation, so assuming that none of you is able to improve the product.

If Company 3, Company 4 and so on would also be in the picture, the process would be accelerated.

In such a scenario, who is the main beneficiary?

Consumers, because they can take advantage of prices which are lower and lower.

Who is on the losing end?

Your company, for example.

What if the same thing were to happen when it comes to new gTLDs?

Let’s say you are offering plumbing services in Chicago.

What would the best possible domain for you be?

ChicagoPlumbing.com.

Sure, you could also “settle” for the dot net for example, but it would be perceived as just that, settling for a “so-so” option.

What if a few years from now, new gTLDs go mainstream and people actually adopt them?

Wouldn’t Chicago.Plumbing be a great domain in that case?

In think so.

Or Plumbing.Chicago?

Yep.

Right now, there would be a lot of confusion involved but a few (perhaps several) years later, the confusion factor might go down dramatically and domains such as Chicago.Plumbing or Plumbing.Chicago would represent genuinely good alternatives.

Would you be affected as the owner of ChicagoPlumbing.com?

In my opinion yes, you would.

Would ChicagoPlumbing.com still be the best option?

I think so but the fact that other meaningful options are available (such as moving one of the words on the left of the dot as opposed to settling for a dot net or adding an extra word in dot com) would most likely put some pressure of the profitability of your business model.

Now of course, there are several variables involved such as whether or not new gTLDs will be adopted by the public, we don’t have such answers yet.

But in my opinion, this much is certain: should this happen, there would without a doubt be pressure on most domaining-related business models.

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