Richard Miniter skewers the sacred cow of market share and debunks the conventional wisdom that corporate profits rise as you grab more territory in the marketplace.Market share is the fool's gold of modern business. In reality, companies that maximize market share end up minimizing profits, while their smarter rivals earn higher returns. Three times out of four, on average, the most profitable firm is not the one with the largest slice of the market. Yet the myth of market share continues to hobble and kill great companies, while smaller competitors dig out real profits. Executives, entrepreneurs, investors, and regulators will learn why megamergers often fail, brand extensions wither, and stocks tumble. The Myth of Market Share also reveals a positive and proven strategy for transforming a company into a profit leader.
Miniter, a former editor for The Wall Street Journal Europe, relishes in debunking the popular dot-com era myth that market share trumps old-fashioned profits. The author sees belief in market share as an unholy cult, and attacks the idea with his own religious zeal. His point: industry-dominating companies don't always have desirable rates of return for investors. In fact, massive size can often mean lousy performance. Savvy investors, of course, have long known about how unwieldy corporate giants can be. But it's a valid point, and this new addition to Crown's Business Briefings series certainly hammers away at it. For flavor, Miniter tosses in a variety of disastrous case studies (e.g., Chrysler, Boeing), and even reaches back to the Robber Barons for some historical heft. The hard-won lesson, in every case, is that size doesn't matter. (Oct. 22) Copyright 2003 Cahners Business Information. -- PUBLISHERS WEEKLY.
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October 31, 2002
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Excerpt from The Myth of Market Share by Richard Miniter
The young tycoon-to-be leaned closer to tell me his secret. It was 1998 and he had asked me to join him in the library of a private club in Washington, D.C., to tell me about his business plan. His Alexandria, Virginia-based software firm was about to take off, he said. Then he told me his secret: "Build market share."
Market share? That's right. Once the company became the largest seller in its category, it would be able to charge a fortune for its services. It is not like the old economy, he assured me. "But market share is key. Everything depends on that."
At the time, thousands of conversations like that were going on all over the world. Now, most of those dot-coms have become dot-bombs. They burned up their venture capital and faded away like shooting stars. Many observers have clucked their tongues and chalked up the whole dot-com boom to "irrational exuberance" or youthful hubris. Pride goeth before the fall and all that.
But managers, investors, and entrepreneurs have overlooked a more important lesson. Many so-called old economy companies are pursuing the same market-share strategies. They have actual earnings, so they are not about to disappear anytime soon. But they are hobbling themselves with an outmoded strategy that didn't work for the robber barons and definitely won't work in today's hyperlinked, globalized economy. Now, more than ever, corporations need a sensible strategy for sustainable profits -- not a faddish formula from consultants.
This conversation got me thinking. As a longtime contributor to the Wall Street Journal's "Manager's Journal" column and, later, as the Wall Street Journal Europe's editor of its weekly "Business Europe" column, it was my job to stay a step ahead of business trends. So I began to investigate the connection between market share and profits.