🚀 How to disrupt incumbents?

3 tactics to commoditize complements

🎯 Reduce pricing power

• Identify critical layers (e.g., hardware, OS, browser, device) customers need alongside the core product that competitors monetize but the product depends on (e.g. Netscape’s browser depended on server sales)

• Launch or acquire a competing product in that layer, and open-source, give away, or drastically underprice it (e.g. Microsoft gave Internet Explorer browser away for free)

• Integrate the free or low-cost complement with the core offering to boost adoption, create lock-in, and establish industry standards through bundling or open licensing (e.g. Google open-sourced Android and bundled with search to protect its ad business)

  

📋 Lower switching costs

• Open-source key technologies to enable easy migration between providers (e.g. Google open-sourced Kubernetes, pressuring AWS to adopt it and weakening lock-in)

• Build industry-wide partnerships to drive adoption of common standards (e.g. Google collaborated with Microsoft, RedHat, IBM, and Docker to push Kubernetes adoption)

• Create frameworks that simplify integration and reduce vendor dependence (e.g. Anthropic’s Model Context Protocol (MCP) standardizes AI data sharing, easing switching between AI models)

🗓️ Simplify onboarding

• Reduce end-user burden of procurement and implementation of the complement (e.g. building in-house and bundling) 

• Shift costs from CapEx to OpEx to ease budget constraints and reduce friction (e.g. move from upfront purchases to pay-as-you-go models)

• Offer group incentives by aggregating demand and pooling resources more efficiently

2 traps to avoid

🚨Commoditizing a complement that locks in the core product

• Making a complement easier to switch can backfire if it weakens the core product’s lock-in

• Commoditize only if the complement isn’t key to customer loyalty

🚨Failing to capture value after disrupting the ecosystem

• Complement commoditization opens the door for others to win

• Ensure the core product is well-positioned to capture the value shift fast or lose it

1 tool to leverage

📖 Best practice on disrupting incumbents

• Nearly every incumbent with a system of record is adding LLM features to commoditize and block startup threats

• LLM wrappers aren’t enough—combine them with proprietary data or high value workflows and innovate across multiple layers of the customer value chain

Bonus: 1 trend to spark startup ideas

📈 Avatars are becoming a foundational interface layer with commercial promise

• Avatars are already core to product experiences at Mercor and Delphi, with surging demand fueling HeyGen ($35M+ ARR) and Synthesia ($100M+ ARR)

• Three drivers behind the boom:

  • AI enables avatars to hold context-rich, coherent conversations that boost trust and utility

  • Recent breakthroughs in real-time audio and video generation are making avatars lifelike and emotionally expressive

  • Coaches, clinics, influencers, and sales teams are using avatars to operate 24/7

• Opportunities include:

  • High-fidelity expressions across cultures and tones

  • Easy customization and training

  • IP rights, especially for public figures

  • Avatar-to-avatar delegation and collaboration

  • Cross-platform integration and analytics for effectiveness