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(Un)fair Advantage

Anyone who's worked with venture capitalists knows that they have a language of their own -- and for the most part it's quite fun. Terms like "burn rate", "first-mover advantage", "monetization" and "defensibility" never get old. But I've noticed that many VCs I respect are using the term "unfair advantage" to simply describe an advantage. Jeremy Liew describes having the best news coverage as an "unfair advantage". Susan Wu calls having a community and leveraging network effects an (outdated) "unfair advantage".

Isn't having great news coverage and a community of happy users about as fair of advantage as you can have? If the Wall Street Journal fired all of its reporters and started running AP business stories, it'd quickly see how fair its advantage is as its subscribers canceled their subscriptions. The case for a company like Facebook having an unfair advantage might seem to be stronger. You could build a social network with more and cooler features, and not beat Facebook because your network isn't as large. You might complain Facebook's advantage over you is "unfair", but the value of a social network is in its network. If Facebook stopped delivering excellent value to its users through the right combination of features and network connections, its "unfair advantage" would be about as fair as Friendster's unfair advantage was.

This is not to say that there's no such thing as an unfair advantage. Deals with the government that grant exclusivity, such as with cable and phone companies, offer a clear unfair advantage. Locking up physical space for years, such as large airline carriers do with airports, can offer an unfair advantage (though a lot of good its done the large carriers). Making a deal with a vendor or union that prevents them from working with a competitor might also be an unfair advantage. Many are arguing now that software patents are unfair advantages.

Let's just not call having a superior product or service an unfair advantage. After all, why can't you just beat the competition fair and square?

Posted by Greg Galant on May 8, 2007 | Permalink | Comments (3) | TrackBack (0)

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You're totally missing the point of the phrase, which may have been coined by 1960's auto racing legend Mark Donohue and is the title of his autobiography. The unfair advantage is all about using your intelligence and ingenuity to beat your competitors while pushing the the rules to the limit. Donohue was trained as an engineer and he (and his boss, Roger Penske) thought of many innovative ways to do things better and faster than everyone else. Usually the things they did weren't even covered by the rules yet so they weren't cheating or doing anything unethical. They were merely using innovation to do something no one had thought of before, and winning races as a result. When someone would copy them, they'd think of something else to get ahead. That's what the unfair advantage is all about.

Posted by: Andy at May 10, 2007 2:59 PM

Andy, you're missing the point of the discussion. It's about semantics, not competitive advantage.

Greg is making the point that VCs are using the trendy "unfair advantage" to describe something that in reality is completely fair, and violates no rules or ethics. Facebook building a great product and large userbase isn't unfair. They might be smarter than everyone else, but that isn't unfair.

Being innovative isn't unfair either. Ingenuity isn't a crime. The real thesis is that "unfair advantage" has replaced "advantage" simply because it's a fun phrase to say.

Posted by: Adam at May 22, 2007 10:14 AM

Agreed regarding you missing the point. An unfair advantage is having some piece of technology, or perhaps even a relationship that no one else can replicate easily. Suggesting that more features would be an unfair advantage isn't the point.

Posted by: Wil Schroter at May 22, 2007 1:45 PM