Some businesses go for years without being significantly challenged by a competitor. In some cases, it's because their niche is so small that it is not worth other companies' time. Hopefully, though, it's because the company has a moat, competitive advantages so strong that new entrants think twice before challenging the business.
A great example is Sirius XM (Nasdaq: SIRI ) with its 20 million subscribers, installed receiver base, and satellite fleet. It would cost a fortune and involve many large risks for anyone to really challenge Sirius XM on the national level.
Another example is Altria (NYSE: MO ) , whose brands built up over decades give it a 50% market share in the United States. Interestingly, Altria's moat may soon expand, as it is funding groups working to ban cigarettes with menthol, the defining ingredient in the cigarettes of one of its largest competitors, Lorillard (NYSE: LO ) . Passage of legislation could be a death stroke for Lorillard.
Every so often, though, a competitor comes along to challenge what seems like an impregnable moat. For example, some investors worry that the increasingly omnipresent Pandora will have an effect on Sirius. However, Sirius’ scale and paying subscriber base should be more than enough to keep Pandora largely irrelevant to Sirius.
In a different case, Blackboard (Nasdaq: BBBB ) , a purveyor of learning management systems (LMS) for universities and corporations, has a new competitor, Instructure. Blackboard dominates the space with more than 8,000 licensees paying thousands a month to run their courses over Blackboard's systems. The company has for years competed against the open-source Moodle and an offering from Google (NYSE: GOOG ) , but its business has not been greatly affected.
However, Instructure could be a real threat. It was started by Josh Coates, formerly of Mozy and EMC. According to TechCrunch, Instructive raised $1.5 million in 2010, with Coates contributing half. After only a year, the company is working with 26 educational institutions, some which used to be Blackboard clients. Instructure's LMS is called Canvas and is cloud-based, but universities can also download an open-source version of the product for free and pay extra for tech support.
Instructure introduces itself in a remake of Apple's iconic 1984 Superbowl commercial, except this time the model is carrying a flamethrower instead of a sledge hammer. Interestingly, Instructure CEO Coates made the flamethrower (he's also remade a WW2 M18 Hellcat Tank Destroyer). It's well worth the watch, the last 10 seconds are spectacular:
We'll have to wait and see if Instructure can make a dent in Blackboard's business. Blackboard has a huge installed base with hundreds of courses loaded at each institution, a dominant sales force, and a large lead protecting it. Instructure may have only 26 clients today, but that's the same number Blackboard had after its first year of operations. This will certainly be one to watch.
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