Finance: What is Cannibalization?

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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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]