Have you ever wondered why Apple and Microsoft have such a big market share difference even though they started at about the same time? How about why Apple’s Intel-based Macs are picking up speed in the last several years? Would you be surprised to know that the outcome of the battle was determined by both competitors and allies?

Steve Wozniak, one of the two founders of Apple, revealed an interesting insight in a brief interview with BBC. According to Wozniak, at a time when computers were too expensive to afford, by anyone but corporations, Steve Wozniak and Steve Jobs focused on building and selling a package of proprietary hardware and software that people could buy. Bill Gates, on the other end, attempted to build just the software, based on the Intel hardware platform. Macs began to sell very well, and at 3k a pop, they turned profitable really fast, while Gates was selling only software, at much lower rates and with less buyers. So how did the situation get flipped …

Anxious groups of entrepreneurial companies began attempts to enter the mass-computer manufacturing market. Individual components were getting cheaper, Gates’ software was bundled with Intel chipsets, and Apple’s Mac platform was not really open to modification by outsiders. Apple’s proprietary hardware and software dependency sealed them away from the big chunk of the market shaped by hardware distribution. Microsoft’s portability to distributor hardware platforms, on the other end, made Gates’ Operating System a dominant software player on the hardware market, which eventually determined their massive market share.

What is the moral of the story?

In any new market, including Web 2.0, there are opportunities in developing new platforms and in developing of supporting elements to existing platforms, there are potential competitors and allies.

As a new entrant into a market, you have a unique opportunity to pick your playing ground, and that decision will determine the future of your business more than anything else, so pick carefully.

When it comes to Platforms – competition is generally stiff, so unless you are entering the market at the same time as your competitors, prepare for a David vs. Goliath battle.

If you are aiming at supporting elements to existing platforms, your market and performance will depend heavily on the platform, so pick very carefully. Observe their competition. Since the platform will be your mother ship, you want to make sure they will be floating for a while.

Naturally, watch out for your competitors, but never ever base your strategic direction on competitor actions. Instead, focus on being different and more valuable. The moment you start playing on your competitor’s turf, you are playing by their rules, and you risk loosing the game.

Allies are companies who service a different industry but base their business on your company offering. Allies are the hardware companies using Microsoft as their software vendor in the example above. In the social networking world those are the small businesses building apps for platforms like Facebook and MySpace. They are the advertisers buying advertising space on your blog, and the people who link to you to build up their own business. Unless they clash with your brand or offering, allies are your best friends in business. Gaining market share is tough. And your Allies are your biggest market boosters. They grow your market as you grow theirs, and essentially validate the meaning of the word synergy (where the sum is greater than the value of its separate parts). Feed your allies, help them, support them in every way possible, and open the door for more - they are your best bet at growing faster than your competitors. According to Greg McAdoo , at Sequoia Capital, partnerships are also one of the most valuable factors in valuation before a Venture Capital investment.

In an nutshell, no matter who drives the boat in a new venture, engineers or business people, someone should be watching the surrounding waters at all times.

Posted by: Diana Zink on Thursday, 26th Jun, 2008