Bystander Businesses

2 minutes

As large platforms consolidate attention online, they are incentivized to launch new products that feed on that growing attention. Sometimes these products are a hit, and grow into their own standalone offerings that serve a unique customer need. However, most of the time they limp along, surviving on the residual traffic that is diverted their way by the core business.

I call both of these types of businesses—the hits and the mediocre—bystander businesses.

A bystander business is one that has no real distribution strategy to start. It’s sole vehicle for growth is the large amount of traffic spun off its way, from the larger and more successful business. Facebook Marketplace is one example of this. In the early days, you might not have headed to Facebook to sell your couch, but since your attention was already there, it was easy for Facebook to divert you to their Marketplace.

Another example is Google Shopping. Few people start their shopping journey on Google Shopping, but simply pass through as Google launches searchers into the Shopping experience based on their queries. Google Shopping isn’t a real destination, its just “selling bottled water at the stadium gates”. The fact that they sunset their mobile app this month seems to confirm this.

Why is it important to identify bystander businesses? Because the rules they play by are fundamentally different from most of their competitors. First, they don’t need to to be self-sustaining—they can feed off of the core businesses, and thus the economics don’t need to reflect product-market fit. Second, they can have incredibly long time horizons for finding success. It really depends on the level of patience in the organization. Finally, they may not even be in a market that is sustainable as a standalone business. Their existence may, instead of pointing to a secret that only Google knows, actually just reflect an excess of cash, talent, and traffic.

Copying a bystander business could be one of the worst moves you could make. But there are some slim glimmers of opportunity. Bystander businesses have far less optionality in terms of modifying the fundamentals of their business. There may be ways to compete that are hard for incumbent bystander businesses to replicate. However, if the incumbents sole goal is to commoditize the product space, then startups should be worried.