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Finance: What is Cannibalization? 14 Views
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Description:
Cannibalization in the market refers to when a company has a new service or product that competes with its own previous offerings more than with its competitors, and unless introduced by design, it is usually a negatively impacting event to the company’s revenues and market share.
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- Finance / Finance Definitions
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- Finance / Personal Finance
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Transcript
- 00:00
finance a la shmoop -what is cannibalization ? pass me some more leg.
- 00:09
yeah the real Paleo diet. so yeah cannibalization in the business [leg and foot on a plate]
- 00:13
world isn't all that different from this. you'll hear the catchphrase you'd better
- 00:17
cannibalize your own business before someone else does. well what does that
- 00:22
mean? well the newspaper industry had a great gig for about 250 years. its profit
Full Transcript
- 00:28
Center was the help-wanted slash classified ad pages. in a major Metro
- 00:34
like Los Angeles they'd sell one page for 80 grand. that's ink on paper and had
- 00:40
a whole bunch of help-wanted ads on it and that page would cost them about 10 [classified page shown]
- 00:44
grand to produce. 70 grand in profit for a big page like that LA. yeah great great
- 00:49
work. if you can get it well then came along the commercial
- 00:52
Internet in the mid-1990s. instead of cannibalizing itself and building or
- 00:57
buying its own classifieds business albeit at lower margin it more or less
- 01:02
hid like a scared ostrich from the much more competitive and lower profit margin
- 01:08
world of the internet. cannibalizing for the industry would have meant that yes
- 01:12
they put out Help Wanted sections at vastly lower prices like the equivalent
- 01:16
of a page that instead of charging advertisers in LA 80 grand charging them [business models listed]
- 01:21
12 grand or less on a page that cost them maybe 5 grand to put out. and why
- 01:25
did it cost less? like not 10 grand but just 5 ? well a web server is way cheaper
- 01:31
to run then killing and pressing a bunch of dead trees, printing them with union
- 01:36
labor, delivering them and so on. so less revenues less profits but still
- 01:41
a relevant player in the help-wanted category. so what happened? well
- 01:45
Craigslist happened. and so did monster.com and indeed and Glassdoor and
- 01:50
a bunch of other specialty market players like dice in technology. while [glassdoor website pictured]
- 01:54
the newspaper industry acted like the local monopoly it was for 250 years and
- 02:00
instead of cannibalizing itself and living with lower profit margins, but
- 02:05
still living well it ignored the new threat of the internet and well it
- 02:09
starved to death. and now it's the internet company
- 02:12
tasting the sweet flavor of victory and the newspaper companies have well turned
- 02:17
into the modern-day Donner Party, sadly. [Donner party defined]
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