Market share is often a vanity metric that doesn’t make a lot of sense anymore: Being among the top performers in a small category is mainly a valorization of your business concept rather than a real performance indicator.
Why? By disrupting business models, digital forces us to question even the idea of a “market,” and since market share is a relative measurement, if the common denominator on which it is based is wobbly (which it is in more than one sense), its value quickly loses meaning and it becomes highly questionable.
How did the idea of market share become such an unreliable indicator?
The development of e-commerce over the past 25 years, coupled with globalization, has multiplied the number of actors with a presence in the market and redefined business models, which has actually shaken the foundations of even the definition of a “market.” The situation becomes obvious when you look at digital giants and pioneers:
Clearly their business models are profoundly different, even though you could consider these companies as occasionally competing against each other.
We refer to them here as giants, though they’re sometimes viewed as oligopolists, so just imagine how a smaller player (operating in a more saturated competitive universe) might quickly become confused when trying to identify their market.
Furthermore, even the principle of differentiation (the unique value proposition) obviously pushes every competitor to offer different things (and thereby challenge the boundaries established by other players), thus questioning the definitions of a market, just as W. Chan Kim and Renée A. Mauborgne do in their book Blue Ocean Strategy.
By basing your conceptions solely on the type of product or service you’re selling, you’re at high risk of stumbling over the definitions of other players in the market from the get-go.
Many more traditional companies, rooted in a network of stores or on regional sales managers, talk about market share in terms of geographical boundaries. In this case, for e-commerce (or even just digital marketing), the limitation of the idea of market share is obvious: The digital universe is highly globalized.
Measuring your market solely in relation to a particular region omits the fact that some of a company’s most dangerous competitors are well established outside of that region. There was a reason why the Institut du Québec announced, following their 2015 assessment, that 74% of online purchases made by Quebecers were not placed with Quebec companies.
In a world where Google puts millions of supplier possibilities only a click’s distance away from every customer, identifying a complete list of competitors in a given region and calculating who has captured which slice of the pie has become practically impossible. At best, market share will be overestimated, since it will overlook many indirect competitors (foreign, more niche, those that are part of the long tail or with less visibility, etc.), and at worst, entire segments of the market will be forgotten. Either way, your conclusions will be a lot more optimistic than the reality, and that margin of error will make all past comparisons dangerous.
Another criticism of market share comes from the idea of “share.” Traditionally, market share was based on one of the following:
These definitions could make some indicators seem greater than they really are. In an increasingly digitized world, we are seeing intermediaries, aggregators, affiliates, and partnerships of all kinds multiply, dividing up the value chain more and more creatively.
The traditional idea of manufacturers being in competition in a “market of manufacturers” doesn’t hold anymore if they start selling directly to consumers, and the same is true for all other traditional roles in the value chain (importer, distributor, retailer, etc.): A market can no longer be defined by a prescribed role in the value chain.
For example, what would happen if:
Do these scenarios seem unrealistic? Consider the travel market, where carriers compete against travel agents, agencies, aggregators, Trip Advisor, AirBNB, Hotwire, and many others. Many writers have explored the idea of “owning the demand,” and models of online success are often based on this idea.
In this world of mixed business models, where manufacturers, wholesalers, distributors, resellers, aggregators, marketplaces, affiliates, etc. are all competing for the same sale, the share of profit is less and less proportional to the share of revenue, to the point where market share becomes a much less relevant indicator.
In fact, creating a solid, innovative business model increasingly relies on the search for attractive profits, which aren’t always associated with a share (volume) of a given market, but rather a position on the value chain.
In reality, market share is an elastic numerator placed over a fuzzy denominator: Is it really possible to measure a share of the market, especially in the increasingly digitized, globalized world of 2019’s innovative business models?
If we answered the previous question incorrectly, and this indicator is in fact measurable, will it really help you get ahead? Will being first (or second, or third) in a category in an extremely narrow or ill-defined niche enable you to make better business decisions in the final analysis?
By using such a relative indicator, many decision-makers put themselves in a defensive position, rather than a creative one, and lose sight of the fact that today’s challenge lies more in creating new opportunities that are invisible to the competition than in defending the measurement of some past statistic.
Adopting such a defensive position generates a surplus of negative reactions in a more reactionary race against competitors rather than for customers, leading you to forget what’s important. By defining yourself in relation to your competition (which is in constant evolution), decision makers that are led by market share are chasing a moving target and believe they are successful if there’s low competition, without considering their volume, profits, customers, future—a risky position.
In the words of Jeff Bezos, “Resist proxies.”
A seasoned manager knows that any worthy goal must have a few well-understood qualities: It should be specific, measurable, attainable, relevant, and time-limited.
However, if you think it through, market share as a performance indicator doesn’t seem to possess those basic criteria, since it is not specific enough (unclear share of an elastic market), hard to measure (subject to editorial decisions), probably not achievable (when you consider the complexity of the global market), often not very relevant (having a good share of the market is not a guarantee of either volume or profit), and hard to situate in time (because the denominator, based on the external market, will change).
For these reasons, and to arrive at constructive (and creative) considerations and discussions in order to become a competitive player of the future rather than just in the past or present, I always try to enlarge the discussion when I’m presented with market share as an end in itself. Companies have missions and reasons for existing that relate to society as a whole—their rank in relation to the competition plays no part in such considerations.
Today, rather than relying on indirect measurements like market share, managers that are establishing goals should first ask themselves: What indicators will allow me to know whether I’ve achieved my mission?