Why BigCo Announcing a Product in Your Space is Actually A Good Thing!
What do you do when AWS says they just announced a product that competes with your core product
I was chatting with a friend recently about Elastic and the question was asked, “hey what about AWS Elasticsearch?” It’s one of the most common refrains across startups, venture capital, and public market investing. I posted a brief tweet thread above about this topic. But in this post, I hope can explain why I actually get pretty excited when a massive company launches a new product in a small startup’s category.
The core reason I think its actually a good thing, is because the it validates the 1) need for the startup’s product, 2) the size of the market, 3) the timing of the pull from the market and 4) now gives the startup a foothold in some companies to sell against vs complete greenfield customer education. Those 4 things are all highly exciting signals!
1 - Validates the need for the startup’s product
One of my favorite idioms is “be competitor aware and customer obsessed” by Jeff Bezos. So when AWS launches a product that your startup has been working on for awhile, you can bet that it’s likely because they are hearing about customer demand for that product. Otherwise, there really isn’t a good reason for them to waste their time based on all the other things they could be doing. If you’re worried that AWS is copying you, all I can say is don’t flatter yourself. AWS is at $71B run rate revenue growing 40% YoY. Your startup’s $20M, $50M, even $200M ARR business does not make much of a dent in their growth.
2 - The size of the market is bigger than you even thought
Given the size of AWS’ business, you can bet that they only focus on products that they believe (with their vast amount of usage and customer data) can drive the needle for growth of their platform and therefore revenue in the future. If a business that is close to doing $100B in revenue one day cares about your product area, then likely that means the market is a whole heckuva lot bigger than you originally thought. In which case, even if AWS does take some of your business, the TAM (total addressable market) is likely so much bigger that there’s plenty of room for multiple players.
3 - Market pull for your product is NOW
Whenever you build a startup or launch a new product, the team is always wondering what customer demand will look like. A fairly recent example is container security. While usage of containers in enterprises was growing quite quickly a few years ago, there are tons of failed startups or startups that didn’t achieve the initial outcomes they hoped for as they were simply too early. Now, container security is paramount in most enterprises and many startups in this space are thriving.
When AWS, Microsoft, Google, or whomever decides to put out a product, likely the timing for the demand of that product is fairly immediate. Again, they are listening to customers and delivering value quickly. Therefore, if customers are asking for NoSQL databases, you can bet that they will launch that soon. You can also bet that they are not launching that to wait 3 years for revenue but expect to see traction quickly. That bodes highly well for your startup.
4 - A large product to sell against
See above from Javier, CRO of Starburst and former VP of Worldwide Cloud Sales at MongoDB. If anyone had to deal with a large competitor moving into their space, it was Mongo. In January 2019, AWS announced DocumentDB which was a competitor to Mongo. Here’s what’s happened since then
Since the AWS announcement Mongo went from $250M in TTM (Trailing Twelve Months) revenue to $778M TTM rev as of the last quarter.
Here's a screenshot from Mongo’s Website comparing Mongo’s product to DocumentDB. You now have a large company’s product that is helping evangelize the market and convince customers of the pain point to position against! Use it to your advantage.
Conclusion
A lot is made of product announcements from large companies that will “crush smaller companies”. AWS Redshift/Google BigQuery/Azure Synapse has not crushed Snowflake. AWS Elasticsearch has not crushed Elastic. Github Codespaces has actually helped Gitpod recently as more developers learn about the benefits of cloud developer environments and do their own research, and so on and so forth.
Remember, your startup’s sole focus is to ship the best product is this space, delight end users, and all distribution is built around achieving this mission. You have a whole org pushing forward towards getting your product out there into customer hands. The big companies have a much smaller team with almost no reps solely pitching your product as the core beachhead into a customer. The focus of the big companies is much more on the platform and digital transformation of which your product is one SKU that they bundle for the customer’s convenience. However, as these customers start to leverage the specific product for various use cases, they usually realize limitations and start to look at if it makes sense to transition to another product solely focused on this space. As Javier said, the best companies are prepared for this moment. This is why best of breed startups can and do continue to win and thrive against large incumbents.