A neat innovation but one based on technology that

A neat innovation, but one based on technology that incumbents could easily copy. Once Yahoo! and Microsoft saw that
customers valued the increased capacity, they quickly increased their own mailbox size, holding on to customers who
might otherwise have fled to Google. Four years after Gmail was introduced, the service still had less than half the users
of each of its two biggest rivals.
Figure 2.5 E-mail Market Share in Millions of Users
Differentiation
Commodities are products or services that are nearly identically offered from multiple vendors. Consumers
buying commodities are highly price-focused since they have so many similar choices. In order to break the
commodity trap, many firms leverage technology to differentiate their goods and services. Dell gained attention
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from customers not only because of its low prices, but also because it was one of the first PC vendors to build
computers based on customer choice. Want a bigger hard drive? Don’t need the fast graphics card? Dell will
oblige.
Technology has allowed Lands’ End to take this concept to clothing. Now 40 percent of the firm’s chino and jeans
orders are for custom products, and consumers pay a price markup of one-third or more for the tailored duds. This
kind of tech-led differentiation creates and reinforces other assets. While rivals also offer custom products, Lands’
End has established a switching cost with its customers, since moving to rivals would require twenty minutes
to reenter measurements and preferences versus two minutes to reorder from LandsEnd.com. The firm’s reorder
rates are 40 to 60 percent on custom clothes, and Lands’ End also gains valuable information on more accurate
sizing—critical because current clothes sizes provided across the U.S. apparel industry comfortably fit only about
one-third of the population.
Data is not only a switching cost, it also plays a critical role in differentiation. Each time a visitor returns
to Amazon, the firm uses browsing records, purchase patterns, and product ratings to present a custom home
page featuring products that the firm hopes the visitor will like. Customers value the experience they receive at
Amazon so much that the firm received the highest score ever recorded on the University of Michigan’s American
Customer Satisfaction Index (ACSI). The score was not just the highest performance of any online firm, it was
the highest ranking that any service firm in any industry had ever received.
Capital One has also used data to differentiate its offerings. The firm mines data and runs experiments to
create risk models on potential customers. Because of this, the credit card firm aggressively pursued a set of
customers that other lenders considered too risky based on simplistic credit scoring. Technology determined that
these underserved customers not properly identified by conventional techniques were actually good bets. Finding
profitable new markets that others ignored allowed Capital One to grow its EPS (earnings per share) 20 percent a
year for seven years, a feat matched by less than 1 percent of public firms.