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Commodity

Even if you don't think you do, you already know plenty about commodities. Want us to prove it? No problem.

What makes oil produced in Saudi Arabia different from oil exported from Nigeria? It's the same thing that makes the corn you ate at last summer¿s barbecue different from the corn used to produce ethanol. Stumped? Well, don't feel bad, it's a trick question. The answer? Absolutely nothing. Corn is corn no matter where it comes from -- just as wheat is wheat and natural gas is -- right! -- natural gas. (Though the quality may differ, the make-up is uniform.)

So, in less elaborate terms, corn and oil (and all other commodities) are homogenous goods that can be processed, resold and more often than not, used as an input to the production of other goods or services. These goods are traded on a commodity exchange, thus setting the price-per-barrel (or other metric unit) used to value them.

Now pay attention, here's a question that indeed does have an answer: What is the difference between a commodity and a stock? While a stock can tank and become worthless, a commodity cannot have its value be wiped to zero. One other difference: Most commodities are traded in futures, meaning traders buy and sell where they think the price of a product will be at a certain point in the future. Stocks trade based on the value of the underlying company at that point in time.

Home / Personal Finance / On Topic / Gadgets

Redefining Winning in a Crowded Tech Field

 
Matt Egan
FOXBusiness
 

The huge gap between rich and poor in the highly-competitive tech world often forces the underdogs to redefine what "winning" truly means. 

That's because most tech competitions more closely resemble David versus Goliath than a match of two equals. 

Consider the huge advantages Microsoft's (MSFT) Internet Explorer has over Firefox, which is run by Mozilla, an open source nonprofit. And there have been countless companies that have tried and failed to dethrone Apple’s (AAPL) iPod, Microsoft’s Office software and eBay’s (EBAY) online auction site. 

These examples illustrate how the nature of the tech world tends to widen the gap between first and second place, while making coming from behind that much tougher.

“If you reach a certain level of dominance there’s almost no way you can get passed from behind,” said Rob Enderle, lead analyst and founder of the Enderle Group.

Even so, many underdogs are able to claim victory without completely shrinking the gap between themselves and the market leader. These companies can point to success in niche markets, superior profitability or the ability to force the frontrunners to react to their mere presence.

The distance between first and second place is often driven by the principle that the value and usefulness of a product grows exponentially by the number of people using it.

“When you are the first person on earth with a fax machine, it’s worth zero,” noted Dan Olsen, a high-tech products management consultant. Conversely, eBay’s auction site grows in value as more people view it, as more viewers increase the number of potential buyers and sellers.

While it’s not impossible for the underdogs in these businesses to unseat the market leader, it’s far from easy. They usually can’t win by traditional means of scraping away little by little at market share; they need to completely redefine the market and redefine the product.

Enderle likened it to when Ford (F) introduced the Model T, eventually replacing the transportation leader of the time -- the horse and buggy. It’s not that Ford offered a slightly better product or a cheaper price; Ford fundamentally altered the playing field.

On a smaller scale, high-tech companies have sought to reshape the landscape to take out the market leaders. To play to Intel's (INTC) perceived weakness in graphics, Advanced Micro Devices (AMD) acquired graphics company ATI for $5.4 billion in 2006.

It’s not clear if it will work, and AMD has been saddled with plenty of costs from the acquisition. Moreover, AMD lost market share in the first quarter of 2008 to Intel, which has almost 79% of the market. But it's an example of how a smaller company is trying to alter the landscape. 

Underdogs often must redefine victory. Instead of just aiming to take down the market leader, the heavy underdogs can shift the focus to profitability. Apple isn’t close to Hewlett-Packard (HPQ) or Dell (DELL) in the PC market, but it is admired for being more profitable. And while its iPhones and iPods get all the glory, Mac's computer sales have been a big part of their stellar earnings growth. 

“Firms often focus excessively on market share and not enough on profitability,” said Enderle.

Another strategy that high-tech companies turn to is narrowing their product to cater to a specific sector of the market. This shrinks their potential customers at first but also makes their product more appealing to a new slice of the population.

“There’s room for specialists in a world where there’s a dominant generalist,” said Roger Kay, president of Endpoint Technologies. “After a while, the core gets to be small because the niches are being carved off. Eventually, the core becomes empty.”

A prime model for a company building from a niche market is Facebook, which today has more than 80 million users but started as a social networking site solely for college students. Similarly, LinkedIn focuses on keeping business professionals in touch rather than the mass-market appeal of News Corp.’s (NWS) MySpace, the social networking leader. (News Corp. is the parent of FOX Business.)

“I think market share has become less relevant of a measure in today’s economy,” said Art Weinstein, a business and marketing professor at Nova Southeastern University. He said the focus has changed to customer retention and increasing the amount of business per customer.

Another example of a successful underdog that’s still well behind in market share is the Web browser Firefox. Initially appealing to only the most Web-savvy users, Firefox has grown in popularity and taken away market share from Microsoft. In fact, Firefox’s latest version set a Guinness World record with more than 8 million downloads in just 24 hours.

Firefox is credited with being the first Web browser with tabs and programs to block ads, features now standard on browsers, including Microsoft's Internet Explorer. Through its presence as a viable mainstream option, Firefox has forced Microsoft to keep its browser up-to-date -- allowing Firefox to declare a form of victory on its opponent.

 

 

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