Cuil and Business Models: Complement, Replace or Create?

Cuil went live Monday. The new search engine promises dramatically better search results:

Rather than rely on superficial popularity metrics, Cuil searches for and ranks pages based on their content and relevance. When we find a page with your keywords, we stay on that page and analyze the rest of its content, its concepts, their inter-relationships and the page’s coherency.

Cuil went live with an incredibly high level of publicity. Alas, the promise of the company’s press release has not been met initially:

• Why I’m Cool to Cuil
• Cuil, Convince Me, Please
• The New Cuil Search Engine Sucks
• More can be found on here

So Cuil has its work cut out.  And Cuil is running into the classic 9x problem anyway. As Harvard professor John Gourville explains it, new products need to be nine times better than the product they replace. Two parts to that nine times rationale:

1. Risk aversion: the market will overvalue the incumbent product, with all its warts and limitations, because the benefits are certain and entrenched
2. Uncertainty: the described benefits of the new product may not be realized

Three Philosophies to Building Products

I lack any build-your-own-company experience, so my observations are those of an outsider looking in. From what I see, companies build products that do one of the following:

Each product strategy entails its own risks and rewards.

Complement Strategy

In the Complement strategy, companies plug into an installed based and existing ecosystem. They see an opportunity to improve the functionality of the existing product.

The nice thing with the Complement Strategy is that there is a defined market. The incumbent provider has done the hard work of creating it. And the way customers use the incumbent product is well-known, so creating an experience consistent with that makes the new company’s job easier.

The Complement Strategy company ties its fortunes to the incumbent’s installed base and future product roadmap.  A nice exit strategy is to be acquired by the incumbent. There is the risk that the incumbent company will just add the feature on their own to their product.

One good example was Summize. Summize built a very nice search application in support of Twitter. Summize didn’t ask you to use it for micro-blogging. It worked on top of Twitter, making up for a limitation in twitter: search.

9 times better impact: Companies that pursue the Complement Strategy buys themselves a much easier time of it. The issue of risk aversion is put to bed because customers are not asked to give up their existing products.

Replace Strategy

The company that pursues the Replace Strategy aims to dislodge the incumbent. This is a tough thing to do. Customers know what they value in the existing product. They know how to work around the limitations of the products. They built their own processes around the product.

That’s going to be tough to disrupt. But the rewards are terrific. Typically, the incumbent has a large market size. The customers’ use cases are well-developed, and the shortcomings of the existing product are easy to identify.

Still, it takes ripping out a lot of entrenched processes and mindset to replace.

The iPhone is a good example of a product successfully employing the Replace Strategy. Not that it has actually replaced the bast majority of existing mobile phones yet. But it has gotten vital traction in the mobile market and is carving out its share.

9 times better impact. This strategy is the one that runs hardest into the issue of a product needing to be nine times better than what it replaces. Customers are going to overvalue what they have, and the completeness and reliability of the replacement product will be questioned.

Create Strategy

The Create Strategy is a storied one in the world of entrepreneurship. To create a whole new category of usage. Companies that pursue this are riding the visionary edge. Fun place to be.

The landscape is littered with companies that have tried this approach. That’s the big risk with this approach. It takes a lot of experimentation to find the new products that resonate with the market and really change people’s experience.

If a company hits on success in creating a new category, it will enjoy first mover advantages. These are important as Replace Strategy competitors inevitably crop up.

Twitter is an example of this. Twitter is the leader in the micro-blogging/social messaging movement. Other companies are trying to move into the space (Jaiku, Pownce, Plurk, Identi.ca), but Twitter continues to enjoy a dominant position.

9 times better impact. This strategy has an easier time relative to the nine times better requirement. The Create Strategy does have replacement aspects, but they’re often more time replacement issues. Using Twitter as an example, Twitterers were likely replacing some of their activity on email, instant messenger and social networks. But they really weren’t replacing those. Twitter stands on its own merits, not in comparison to other apps.

Diigo: A Hybrid Case

Diigo is a new bookmark and tagging service. Ultimately, Diigo would like to replace Del.icio.us as users’ go-to site for bookmarking (Replace Strategy). But Diigo is being sm,art about it. They have made it easy for sites bookmarked in Diigo to be exported over to Del.icio.us at the same time. So by bookmarking in Diigo, users are suimultaneous bookmarking in Del.icio.us. In this way, Diigo is also pursuing the Complement Strategy. This allows users to get comfortable with Diigo while not losing their existing investment in Del.icio.us.

Cuil: The Challenge of the Replace Strategy

Google Search has en established brand. It has a huge share of mind. People have Google Toolbars. Google Search is a popular add-on to the Firtefox browser. Google Search powers myriad corporate websites.

Louis Gray has a nice post describing the challenge start-ups face when they take on incumbents. Often they start out with dreams of becoming the next big thing, but may have to settle for niche market positions.

Cuil’s initial approach is one of being better than Google Search. Not carving out a particular niche. But based on the initial feedback, Cuil has not come anywhere near being nine times better than Google Search. Cuil is not trying to create a new category. It is not trying to complement existing search. It is firmly in the Replace Strategy mode. Here are its options:

• Completely replace Google Search: continue to compete against Google for more content that is searched and superior relevance.
• Replace Google Search for a niche segment: be better than Google at just one thing. But really be nine times better.

Might there be a hybrid strategy for Cuil? You get your Google search results, but get to see what Cuil found? Perhaps like dogpile.com. Not sure how that would work though. And it really doesn’t address the entrenched ecosystem that Google has.

Choose Your Strategy with Care

Dave Winer makes a nice point when it comes to competing against an incumbent like google:

Google is a thriving coral reef, and one doesn’t just show up one day with an idea and compete with an ecosystem.

I don’t know if the Replace Strategy or the Create Strategy is harder. Both have their challenges. It seems Complement Strategy is the easiest, but probably has the lowest market potential.

What do you think? Did I miss any other product market strategies?

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