Nov 05 2007

Non-price competition in the market for… WIKIS!! Wetpaint makes a move to gain market share

Wetpaint, the free online wiki service, has stepped up its use of non-price competition in an attempt to increase its market share in the wiki market. In addition to releasing several Mac vs. PC parody videos meant to showcase the user-friendly, customizability of Wetpaint’s wikis vs. its rivals, the company also announced this morning that it would be offering ad-free wikis to educators!

As a user of Wetpaint since early this year, the distracting presence of advertisements bothered me; the decision to provide educators with ad-free wikis is huge, and makes Wetpaint even more attractive as a platform for hosting online learning communities for teachers of all grade levels.

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You may be thinking, “Huh? There’s a market for wikis?” Well sure there is. Just because something’s free for us consumers does not mean it’s not a profit oriented business. Wetpaint and its rivals compete for consumers in an oligopolistic market in which competition is not based on price (since its products are essentially free), rather on product differentiation based on features and communicated through advertising and public relations.

Only a handful of firms offer consumers the service that Wetpaint does, free websites that can be collaborated on and built by individual users (see our Econ wiki, Welker’s Wikinomics). Wetpaint and its competitors earn their revenue by selling advertising space to marketers eager to place their ads on free wikis built by the community of users attracted to the wiki companies for their various features. But how does a company like Wetpaint attract new customers when its product (and that of its rivals) is essentially free! Clearly it can’t just lower its price, as firms in other oligopolistic markets do when they wish to increase their market share. This is where non-price competition comes in.

As we have learned, purely competitive markets are characterized by a large number of identical firms providing a standardized product. In other words, as a consumer you could care less whether you get your product from one firm or another, it’s all the same to you! A firm in an imperfectly competitive market, however, does not produce a homogeneous product, and therefore often times engages in non-price competition such as marketing, advertising, and PR in order to promote its own product’s attributes and to draw more customers away from its rivals.

In the oligopolistic market for free user-created wikis, in which only four or five firms compete, differentiation and non-price competition are crucial to gain market share, thus a greater share of advertisers dollars. The more users are attracted to Wetpaint’s wiki service, the more advertisers will be willing to pay Wetpaint to embed their ads onto its wikis. Therefore, it is important for Wetpaint to market itself as something special, better than “other wikis”, more user friendly, more customizable, basically the “cool” wiki on the block! And that’s just what these ads are meant to do!

By differentiating its product based on the ease of use, customizability, multiple “widgets” to make their product more entertaining and engaging, and now ad-free service to educators, Wetpaint is attempting to attract new consumers to its service. Whether Wetpaint draws new consumers into the Wiki market or attracts away customers from its rivals, the company’s unique attempts at product differentiation and non-price competition should succeed in increasing its market share, thus its attractiveness to advertisers, thus its revenue and profits.

The future looks bright for Wetpaint, not to mention for the thousands of teachers out there who now have access to a free, adless online landscape for creating unique learning experiences for their students to engage in.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

6 responses so far

6 Responses to “Non-price competition in the market for… WIKIS!! Wetpaint makes a move to gain market share”

  1. Michael Dailyon 08 Nov 2007 at 9:01 pm

    Yeah, the whole concept of non-price competition is pretty cool. I mean instead of firms and businesses focusing on getting as much money out of us as they can, they try to help us. Although that in turn will give them money, they are actually caring about us first, or at least pretending, either way we benefit. In the wiki example the services are free, so consumers already benefit greatly, but even after that benefits are given. And now that this is the "cool wiki on the block" consumer and supplier happiness is mutual. For non-price competition in a monopoly, consumers might not benefit as much but still they use methods such as public relations advertising to inform the consumer of the perks of their service. And since there is always at least some lesser substitute for a product in a monopoly, the firm with the monopoly will want to make sure consumers still want to by their product; therefore, they have to give consumers at least some benefits. That is why non-price competition is so cool-it really just benefits us.

  2. Helenon 11 Nov 2007 at 12:42 am

    I must point out it is quite ironic that Wetpaint is REDUCING the amount of advertisements in order to INCREASE the revenue generated from advertisements. But I guess this is like the price elasticity of demand. If demand is elastic, total revenue would increase even if price decreases. So in this case, it would be like if Wetpaint's campaign were successful, a decrease on one end would mean an increase on the other end.

    Because pure competition is a theory, and therefore doesn't exist in the real world, that should explain why there are so many advertisements everywhere we go. Every industry should have some form of non-price competition since in reality no firms are identical, which means that their product will differ in some way. Like we talked about in class, even apples and bananas have stickers on them that instantly transform them from homogeneous to differentiated products even though the two brands might have been grown in the same state.

  3. ElaineLungon 17 Nov 2007 at 2:25 am

    I love Wetpaint. Where else can I find a user-friendly community for fellow zombie enthusiasts interactive econ study guide on the web? I do agree with Helen though; it is rather ironic, and amusing I suppose, that Wetpaint is hoping to increase revenue by taking away some advertisements.

    I guess it could also be due to the network effect — Metcalfe's law? — that says the more users a network has, the more users it attracts. If Wetpaint reduces advertising for educators, it'll attract more educators, to be sure. But these new educators will also attract other users because so many of them will be on Wetpaint, and if you're already on Wetpaint and have an account, it's easy to hop from wiki to wiki, as opposed to having to go to a completely different site to find pages on other topics.

  4. jenniferchoion 18 Nov 2007 at 10:49 pm

    I think Wetpaint is really smart to have thought about ad-free use for teachers and instructors on Wiki. It is also interesting that Wetpaint can only focus on how to help the Wiki users, which will naturally attract more users, and earn money because as there comes more users other companies will pay Wetpaint to put their ads on the Wiki site.

    In the same way, non-price competition is really important for now-existing companies because building their brand image is important so that firms will attract more users/customers. Advertisement, I think, is the most essential part of non-price competition; through advertisement, a firm can show how their products are more desirable and superior to substitue goods that other firms produce.

  5. howardlinon 20 Nov 2007 at 2:50 am

    thinking about helen's point, i think its very interesting how wet paint might decrease it's number of ads, have them limited to only under five companies (for example), so they can then let companies bid for it, raise the price for companies post ads.

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