Costs of Competition
Detailing out the costs of competition along with where competition is mostly useful or wasteful
Organisations have areas of competition which are beneficial and areas that produce wasted efforts.
Areas to consider
- Contributors - Knowledge and skills
- Design - Design ideas, style guides, wireframes, final designs, logo and brand assets
- Product - Product ideas and planning, user research, user experience flows, experience feedback analysis
- Innovation - Novel product, protocol design or implementation approaches
- Application - Information about organisation and product, implementation of different services
- Recruitment - Finding potential contributors and onboarding contributors
- Finances - Payments to contributors, infrastructure and taxes
- Marketing - Adoption efforts, marketing planning, recording data on product and marketing efforts, analysis of any analytics data
- Legal - Abiding to regulations across relevant countries for paying contributors, product implications and for any organisation income streams
Beneficial areas for competition
- Design - Design ideas benefit from competition as they help produce different visual approaches from different people to find a better approach to move towards execution.
- Product - Product ideas benefit from competition to help see different perspectives of how people may interact with the product.
- Innovation - Ideas and approaches to innovation such as a DEX comparing and analysing multiple options for how to implement their order book or automatic market maker functionality is a high benefit area for competition of thought. Another example could be innovations on governance approaches for how to incentivise and engage relevant participants to governance decisions.
- Application - The implementation of innovations and ideas that came from competition can benefit multiple approaches to arrive at a better final executed outcome.
Non beneficial areas for competition
- Contributors - It is beneficial for contributors to collaboratively propose, analyse and come to consensus on the best ideas and approaches towards a given problem based upon the shared skills and knowledge of each person involved. Separated contributors in different competing organisations prevents the sharing of skills and knowledge between contributors that can help with optimising the execution. Contributors working in smaller silos reduces the competition of ideas and thought between what could have been a diverse range of contributors with different skills and knowledge. Analysis and reflections coming after execution for these separate teams increases the amount of duplicated efforts and reduces shared learnings.
- Design - There is a high amount of wasteful repeated effort in competing to make multiple copies of style guides, wireframes, final designs, logos and brand assets.
- Product - There is a high amount of wasteful repeated effort in competition around product planning, user research, user experience flows and experience feedback analysis.
- Innovation - Executing on innovation can be time consuming, duplicated wasted efforts can occur when innovation is similar between teams.
- Application - Many parts of an application are informational and utility based. This information and details are required but increase duplicated efforts that don't add value to the end user.
- Recruitment - Competing organisations have less resources to compete in attracting talent. Recruitment is highly time consuming but also highly important. Multiple smaller competing teams makes recruitment more resource expensive and wasteful due to duplicated efforts and higher competition.
- Finances - Any organisation will need to deal with how money flows in and out of the organisation. Competing in this area has no clear benefit as it produces wasted duplicated efforts between multiple organisations. Each would have manage their finances separately.
- Marketing - Another expensive area for duplicated efforts is marketing. If there are competing products then each product is more likely to spend an increased amount resources on marketing to achieve more adoption due to the increased difficulty caused by competition.
- Legal - There is little benefit for competing organisations with a similar product each to pay for similar legal services that are needed to run the organisation. Duplicated efforts involve repeated advice, privacy policies, terms of services, employment contracts where applicable and any paperwork around payments or paying contributors.
- Ideas - For areas around design, product, innovation, the application created and marketing there is a strong benefit from having a diverse set of contributors present competing ideas to test and reach consensus on finding preferred or optimal solutions.
- Execution - Once ideas are agreed upon an organisation will then execute against that plan. This is where design, product, innovation, the application created and marketing benefit from having a collaborative environment over competing. Many of the execution tasks at this stage are repeated efforts and duplicating them across multiple teams wastes a large amount of resources and effort.
- Innovation - Innovation is often a key area that marks the difference between competing products and can often lead to which competing team may achieve the most adoption. There will be more benefit and lesson learnt from competing innovations that are distinctly different over similar forms of innovation that are implemented multiple times by different teams. Clearly defining what differences an innovation has other another solution approach will help to determine where it is most beneficial to apply more competition rather than repeated execution of similar innovations.
The Cardano ecosystem has seen a large number of competing DEX products emerge that will help people swap tokens from one to another. There are a number of drawbacks and some benefits to this competition.
Drawbacks of competition
- Duplicated efforts - Each DEX will make duplicated effort on the execution of design, product, marketing, legal and application areas that add little overall benefit as explained previously. The differences in the protocol created and anything to do with the core DEX functionality create the largest main benefit where competition is valuable to find the best approach for this service.
- Wasted resources - Each DEX must spend a moderate to significant amount of time or financial resources to help generate adoption for their DEX over others. More collaboration between fewer DEX applications would have meant fewer resources would be needed to be used in marketing. These resources could instead be focussed on improving the innovation or product quality.
- DEX failures - Due to competition there will be a number of the DEX applications that fail due to not being able to attract enough users and liquidity. This wastes the resources invested to create those products. This could also lead to loss of funds to people who have invested in these ecosystems.
- Closed source code - Due to the high reward of executing and making a successful DEX product there is decreased incentive for a competing DEX to open source their code in the early stages. This reduces the chance and speed of the ecosystem benefiting from valuable collaboration and feedback across teams.
- Lack of collaboration - Collaborating with other DEX teams can decrease the advantage one team may have over another. Less collaboration reduces ecosystem knowledge sharing. Each teams knowledge does not easily move to other teams within the ecosystem when there is high competition and less collaboration.
Benefits of competition
- Innovation diversity - Coming to consensus on the best approach for implementing new innovation for a DEX application would be difficult. The market provides little to no existing data to prove which innovation approach will be optimal. By having competing DEX applications each team and the market can come to quicker conclusions on how to innovate on those technical innovations.
- Preventing single point of failure - Each DEX being operated by different teams helps to reduce the possibility of a single point of failure in the wider DeFi ecosystem for Cardano.
- Very high resource cost - The aggregate amount of duplicated efforts and wasted resources make competition very expensive. The competition can also lead to loss of capital for those who use or invest in products which end up failing.
- Large execution reward - There is a large financial reward for implementing a leading DEX product due to the economics of the token created for the governing that DEX application. A large financial reward produces a higher incentive for multiple teams to form and compete. Competition in this specific market is a predictable outcome when considering the incentives involved.
The Catalyst ecosystem has some differences to other markets such as DEX markets. Like other technical products Catalyst benefits from competition around the ideas and innovation to find the best solutions and from collaboration around the areas of execution.
Differences with DEX competition
- No large execution reward - The Catalyst project looks to help with the governance of the Cardano treasury. This ecosystem is unlike the DEX market as it does not in the short term require a separate token to manage the ecosystem. At the moment ADA is currently the most suited for usage to vote and govern the usage of the Cardano treasury. In the future this could change if a good reason to move away from this approach is found.
- Funding source - All Catalyst focussed services share the same funding source from the treasury funds. This results in high competition if services are competing with one another from the same source. DEX products due to their potential for high reward attract multiple funding sources for them to develop their products.
- Competition - Catalyst benefits from competition on the ideas around the product including the design, experience and any innovations on governance. Competition would in most cases be most effective on the same product using AB tests to determine the better solution. In cases where the approach is significantly different the most efficient form of competition would be to use the existing product and make the required changes for the new innovation and host this change separately to test its effectiveness.
- Collaboration - Collaboration is beneficial for most parts of the ecosystem especially around design (style guide, design assets), product (user flows and overall experience, experience analysis) and static parts of the application (information, repeatedly used functionality components).
- Economic - Catalyst can be executed to a higher standard if funding resources are allocated effectively. Higher collaboration and less separated organisations for similar competing services will help with reducing the costs for marketing efforts and the duplicated costs incurred around legal and recruitment efforts and the execution of similar products.
- High cost of unnecessary competition - There were many areas detailed above showing the high cost of competition due to duplicated efforts around the design, product, application, marketing and legal ares of an organisation when they have competing systems.
- Competition of ideas and innovation - For innovative products such as Catalyst to thrive it will require an environment that helps to encourage and promote competition of ideas and innovation approaches. Achieving this will help the ecosystem find the most optimum solutions to continuously evolve and improve. When exploring new ideas and innovations the decision to execute should be supported by a clear hypothesis and testing approach so that it can be confirmed whether any given solution is actually an improved approach to use in the ecosystem.
- Collaboration favoured over competition - Collaboration should be preferred as it drastically can improve the effectiveness of funding allocation for improving the Catalyst ecosystem and prevents duplicating efforts that waste limited resources. Competition can be effectively applied with more precision to the areas that most benefit from competing solutions such as around ideas, innovations, design and product decisions.