DR. Dre, the sonic architect of gangsta rap, is surrounded by a gaggle of slack-jawed journalists and micro-skirted cocktail waitresses. It’s not quite 5 in the afternoon, and already the scene is a testosterone fantasy of swaggering grooves and flowing vodka. Dr. Dre, however, is here on business.
Born Andre Young, he was a founding member of N.W.A. and honed the sound of Snoop Dogg, Eminem and 50 Cent. But now what began as a sideline has turned into multimillion-dollar business. Mr. Young is the pitchman for the hot new sound in — headphones. On this October day, he is headlining a media party in the Chelsea neighborhood of Manhattan for his creations, Beats by Dr. Dre. To the surprise of almost everyone, except him and his partners, Beats have redefined the lowly headphone, as well as how much people are willing to pay for a pair of them. A typical pair of Beats sell for about $300 — nearly 10 times the price of ear buds that come with iPods. And, despite these lean economic times, they are selling surprisingly fast.
I’ve always been interested in market-defining products; ones that are late entrants to an already highly-penetrated market, and yet still manage to change these market dynamics to come out on top. Beats by Dre is such an example, as are products like Red Bull energy drink and Apple’s iPod. When Beats was created in 2008, the portable music player industry was already mature. When Red Bull entered the US market in 1997, the energy drink market was in perfect competition with a number of undifferentiated products at the same low price point.
Perhaps a lot of it has to do with branding to differentiate itself from the other players. Dre used his connections with the music industry to feature his headphones in music videos, movies, and high-profile events. Red Bull aggressively sponsored all kinds of extreme sports events, and to this day, continues to brand cutting-edge and underground events such as Red Bull BC One and Red Bull Creation.
However, the argument can also be made that the conditions of a highly-commoditized market are ripe for disruption. First, it helps that a market already exists and is highly penetrated; consumers don’t need to be educated on the product’s value proposition. Second, it definitely helps to better understand the challenges and pitfalls that competitors have previously faced. Third, of course, comes down to understanding the competitors. To see examples of other late entrants who are dominating markets, please see this Quora discussion.
There are convincing reasons why Marathon winners are rarely runners that have led most of the race. Perhaps the same dynamics apply to consumer goods as well.
(Unnecessary disclosure: I am a recent owner of a pair of Beats by Dre. The first generation Heartbeats by Lady Gaga ear buds, to be exact.)