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Dharmesh Shah writes (Why) You Shouldn’t Compete With 37Signals: Marketing. They are relentless marketers (in the 5-Ps sense), and excellent promoters:
Here’s why I think you don’t want to compete with 37signals: It’s not about the fact that creating simple, usable software is really, really hard (which it is). It’s not because they have really bright people (which they do). It’s because the company is a marketing machine. 37signals squeeze more marketing value out of every dollar they don’t spend than any company I’ve ever known. They’re getting an immense amount of return on an investment they’re not making. That’s why it’s really, really hard to compete with them. This kind of marketing magic is hard to replicate. I’d argue that for many software startups, the difference between success and failure is now no longer just a matter of “the better product” (if indeed, that was ever the case), but better marketing.
What their marketing savvy buys them is a lower customer acquisition cost than other startups. This is why VC-backed companies are going to have a tough time going head-to-head with these guys. If you have the money, you can “buy” customers and market-share (to a degree), but you can’t buy a low customer acquisition cost. The only way to get there is to really buy a lot of “scale” (and that is very hard to do and often a dangerous strategy). What I find particularly intriguing about the strategy at 37signals is that they’re able to get this kind of marketing and PR value despite not having a “network externality” or “network effect”. In most cases where you hear about efficient marketing and customer acquisition, there’s usually some value to customers/users “passing the word around” and getting their friends/colleagues/family to also be customers. This is what causes the “viral” spread. 37Signals doesn’t really have this. Just because you use Basecamp doesn’t mean that I’m going to be any more likely to use Basecamp.
An excellent set of points, and I encourage my readers to peruse in full to get some more insights about alternatives to the “popular” theories on marketing software nowadays.
(Eventually I will get to accuse Dharmesh of doing something horrible like this or this, but so far, he denies me the funny by churning out the level-headed winners…)