The Challenge of Being a One Trick Pony
The most successful companies in the technology market are often those who are able to develop broad portfolios of products and ideally create ecosystems around their products. By contrast, there are other companies which are heavily reliant on a single product. When the product is highly differentiated, that may be the basis of a decent business over time. But one of the most challenging places to be as a business is a “one trick pony”, especially when the single product or service is relatively undifferentiated.
GoPro, Fitbit, and Dropbox as One Trick Ponies
There are lots of companies we could choose to illustrate this point, but let’s focus on three: GoPro, Fitbit, and Dropbox. The single “trick” for each of these companies is:
- GoPro: making “capture devices”
- Fitbit: making “connected health and fitness devices”
- Dropbox: providing cloud storage services.
Conceiving of a Broader Mission
However, none of these companies describes itself in this way. Rather, each has a broader mission statement:
- GoPro’s S-1 filing contains the following couplet: ““Versatile capture devices are what we make and sell. Enabling engaging content is what we do””
- Fitbit’s S-1 filing contains this mission statement: “Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals.”
- Dropbox has in the past described its mission as follows: “The mission of Dropbox is to simplify life for people around the world. Dropbox lets people bring their docs, photos and videos everywhere and share them easily. “
The challenge is each of these companies essentially monetizes solely through its single trick. As GoPro puts it, “To date, we have generated substantially all of our revenue from the sale of our cameras and accessories,” and Fitbit uses very similar language in its SEC filings to talk about how its device sales dominate its business, with other sources making up less than 1% of revenue at the time of its IPO. Meanwhile, Dropbox has essentially no business model other than paid cloud storage. So, even though each of these companies has a broader “mission”, their business models reveal the extent to which they’re really still one trick ponies at their core. GoPro intends to grow its content revenues meaningfully going forward but, as of its most recent filings, revenue from these efforts is still minimal.
The Danger of Commoditization
For each of these three companies, there’s a significant danger of commoditization, requiring a constant effort to improve their differentiation and stave off that threat. Dropbox provides the ultimate commoditized service in the form of cloud storage and attempts to differentiate through the quality of its syncing service and its apps. However, it’s also attempted to differentiate by acquiring or building new apps to act as front ends for new cloud services, notably Carousel for photos and Mailbox for email, both of which it killed off this week. As such, Dropbox’s most high-profile attempts to develop additional “tricks” have both failed, leaving it back where it started. At this point, its differentiation focus seems to be partly on providing tighter integration with third parties, notably Microsoft’s Office applications, and on Dropbox Paper, a collaboration product.
For GoPro, the very real danger is the combination of smartphones and cheap imitations of its capture devices undermine its core market. Its response to this threat is twofold: playing up the advantages of more capable smartphones as controllers for its cameras and doubling down on its branding, retail relationships, and its content strategy as differentiators against more direct competitors. GoPro’s finances actually look really sound, but the market seems to be concerned that this competitive moat is inadequate.
Fitbit, meanwhile, faces new threats from both above and below its current market position. As Ben Bajarin outlined in a piece for Insiders this week, Apple is encroaching on its territory at the high end with the Apple Watch, while Xiaomi and others are capturing the low-end of the fitness device market. Here too, investors seem concerned that Fitbit’s differentiation may be inadequate to protect it against commoditization and an invasion of cheaper Chinese imitators, even though its current financials also look pretty healthy. Though Fitbit’s online and app-based dashboards are far more advanced, they generate very little revenue and it’s not clear that every potential fitness device buyer really sees the value in those.
The Threat of Ecosystems
I started by talking about the power of ecosystems, and it’s some of these very ecosystems that provide some of the greatest threat to these one trick ponies. Apple in particular poses a fairly direct threat to all three companies in different ways, while many others compete with one or more of them. It’s going to be increasingly tough for these companies and others like them to survive and thrive in the face of competition from larger, broader-based competitors. Though focus can be a powerful thing, a singular focus on a relatively undifferentiated product continues to be a poor basis for building a long-term, sustainable business.