A Fiery New Competitor

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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Dan Dzombak has always wanted to play with a flamethrower. His musings and articles he finds interesting can be found on twitter @dandzombak.

Google is a Motley Fool Inside Value choice. Google is a Motley Fool Rule Breakers recommendation. Blackboard is a Motley Fool Stock Advisor pick. Blackboard is a Motley Fool Hidden Gems pick. The Fool owns shares of Altria Group and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool disclosure policy believes a video of a flamethrower has never before been in a Motley Fool article.

Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2011, at 3:10 PM, moochman wrote:

    Your facts on Blackboard are totally false and misleading. Blackboard does not have over 8,000 Learn licenses in use. It has over 8,000 licenses of all their products, such as alertnow, transact, elluminate, approximately half of which do not run "courses." And the "thousands of dollars" a month is such a loose characterization of their business.

    Please do your homework before posting your article.

  • Report this Comment On February 02, 2011, at 6:11 PM, BrendanMcCormick wrote:

    Your statement about Altria's position on a potential ban on cigarettes with menthol is inaccurate. Altria and Philip Morris USA believe that the science- and evidence-based information would not support a recommendation to ban menthol or otherwise impose additional restrictions that would deprive adult smokers of menthol cigarettes. Company representatives have shared this position in written and verbal presentations before an FDA advisory committee and reiterated this view in public remarks this week. Detailed information about our position is available at

    Brendan McCormick

    VP, Communications

    Altria Client Services

  • Report this Comment On February 02, 2011, at 6:56 PM, southernbeachguy wrote:

    It is nice to see that most writers now see that Sirus is in a league of their own. Being a techie person I have used Sirus for 8 years and been a Sharholder for 3. I have tried Pandora, but I have found that the subscription rate is better to pay than trying to use a product that fades, buffers frequently and now cost 400% more in Cell Internet usage than a sirus subscription. Pandora is good if you sit in your home or office, but no competition with Sirus while out for a drive. If you try Sirus for a week, you'll be hooked, plus I have done better with their stock than any that I have purchased in 25 years of trading. Go Sirus.

  • Report this Comment On February 02, 2011, at 7:29 PM, CapnWOT wrote:

    I'm pretty sure Google does NOT have an LMS or compete directly with BBBB.

    Also, I don't think the Instructor CEO /made/ a flamethrower or /remade/ a tank. Maybe 'owns' and 'restored'?

    Where's the copy editor??

  • Report this Comment On July 09, 2012, at 6:12 PM, JRCapitalist wrote:

    @CapnWOT: Google's open source cloud LMS product is CloudCourse. It came out roughly in May, 2010.

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