The Dip

Where does hypercompetition come from?

The candidates for president have already raised more than a hundred million dollars. After only three months. Every single one of the top five candidates demolished the record set eight years ago.

The reason is simple: once a market gets understood, the desire to be the winner in a winner takes all event encourages people to up the ante.

Imagine playing poker with a bunch of kids. If you give each kid $200 in fake chips and play no-limit, they start betting with $1 or maybe $5 bets. Pretty soon, though, one of the kids will figure out that if he bets all his money, he can make an impact, and perhaps eliminate the other players. Without the risk of losing real money, he instantly goes to 11 on the impact meter. Everyone else follows suit. Hypercompetitiveness.

During the first dot com boom, it became clear after a year or two that the company that could lose the most money the fastest (while attracting some metric… traffic, customers, whatever) would be deemed the winner by Wall Street. Hence the rapid success of, the debacle of and the insanely high price paid for bluemountainarts. It’s not rational, but it’s true.

As the internet makes it easier for people to keep score of market share, bestseller lists and more, the benefits to being seen as #1 continue to increase. Which means that this trend to being hypercompetitive, whether or not its rational, is going to get more and more common.

The long term hasn’t gone away. Not at all. Winning in the long run is far more important. At the same time, it’s essential to note that many markets have set up short-term screens that make it impossible to survive in the long run if you’re not seen as a possible market leader (the best in the world) early on.