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September 26, 2002
Competition Is Good

Brett Thomas has a post talking about the recent WSJ article stating that Starbucks moving in is more often than not a positive effect on local coffee shops. I certainly agree as Starbucks trained me to like good coffee and now I frequent my neighborhood coffee roastery. Mmmm.... I digress. Brett then goes on to talk about how competition has improved the book selling business from his experience with Waldenbooks where he worked in the 80's and Barnes and Noble now.

Interestingly, I was having a similar discussion with my barber. He told me that he used to run a video rental business in San Carlos before Blockbuster came in. He tried to compete, but got his head handed to him. As I think about these examples, one thing pops into my head that separates them. In order they increase in capital intensiveness. Stocking a coffee roastery has an initial startup cost, but once going can be sustained without a large and ongoing capital expense. Books are a little more capital intensive, but they turn over in a different way than videos. Videos are very capital intensive in that they have a very high demand for new releases that quickly tails off. Blockbuster had the capital to heavily buy new releases and thus was able to really use capital advantage to lever their local competitors.

Posted by hoffmang | September 26, 2002 10:32 AM


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