Helmer argues that competition to acquire new customers can arbitrage away the anticipated value of their future switching costs.

Evidence 3 passages

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  All players can enjoy their benefits. IBM and Oracle are competitors to SAP and they also benefit from high customer retention rates and switching costs. As a market matures, the benefit of switching costs becomes transparent to all players, and they are able to calculate the value of an acquired customer. More often than not, this leads to enhanced competition to grab new customers, which arbitrages out the benefit for new customer acquisitions. So the major value contribution comes from capturing customers before such value-destroying pricing arbitrage transpires. Switching costs offer no benefit if no additional related sales are made to the customer. To assure that such additional sales take place, one tactic might be to develop more and more add-on products. This has been SAP's hack, as seen from the Wikipedia list of the company's offerings, located in the supplementary PDF, figure 4.3. Acquisitions significantly accelerate product line extensions too, serving as a sort of outsourced development. This too has been part of SAP's playbook, as proven by their ambitious acquisition program. The building of such product portfolios can serve to boost all three categories of switching costs. Not only does it extend the revenue coverage of the switching costs, financial, but it often increases their intensity by making the prospect of disentanglement more and more

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  Scale economies. To establish this advantage, Intel sees the required market share lead by the end of the explosive growth stage of the PC market. Once growth settles down, the stakes are well known and the volume leader can and will use their cost advantage to fend off competitors network economies the importance of the takeoff stage is even more pronounced with network economies network economies are often characterized by tipping point once the leader has achieved an edge in installed base most users will find it to their benefit to choose that leader for application software developers the choice of attractive microcomputer platforms was winnowed to only two choices with sufficient scale, Apple and PCs. Lacking in competitive applications, other platforms were doomed. Even for switching costs, takeoff is the critical stage. First off, switching costs are a source of power for those who get to the customer first, and a wealth of customer relationships are established in the takeoff. Secondly, in the takeoff period, customers are often struggling to find any supplier, so the price competition that will eventually arbitrage out the value of switching costs for new customers has yet to occur. The Power Progression, Takeoff So there we have it. All of Intel's sources of power were rooted in the takeoff period. Again, takeoff is this stage when differential customer acquisition can take place at favorable

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  As the business proposition involving the cornered resource develops during takeoff, the resource's value becomes more widely known, substantially reducing the probability that it will be materially underpriced, and it must be underpriced to qualify as a cornered resource. Cost of Gaining Share Of course, the whole notion of gaining share carries no meaning in the origination stage, as sales have not yet materialized. When the business takes off, there are many factors which determine which company can scale most rapidly. Channel position, product features, communication approaches, location, production constraints and so on. As a consequence, the price of share usually does not reflect its intrinsic Upon reaching the stability stage, the most effective modalities become better known and accessible to many players. There the customer's focus turns from, can I get it, to, what is the best deal. In this situation, each player grasps the value of share, and will game accordingly, usually arbitraging out its value. Hence, generally speaking, only in the takeoff stage can a player gain share on attractive terms. Otherwise it is too costly to be worthwhile. The power progression. The data. Frequency histogram of power type. So far I've relied upon theory, supported by anecdote, to develop the power progression. To provide some empirical validation, I turned to the research of my students,

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