You would think it's easy to spot competition out there. If you're BMW, there's Mercedes. If you're AT&T, there's Sprint. If you're Facebook, there's Yahoo (uh nope, sorry, bad joke).....you get my point. All too often though I am surprised to see how often early-stage companies poorly analyze their market, especially when doing a competitive analysis. This is glaringly obvious especially when pitching your business plan to me.
One thing to always keep in mind when looking at your market and analyzing it for competition is to think of your user. Be it a consumer internet site or some sort of software. Ask yourself how your user will put your product or service to work. All too often, inexperienced founders forget to think about alternative types of competitors. I'll give you a simple example
Think about it this way: you're a local gym. All of a sudden Bally's opens up in town. This is clearly direct competition. Yet, don't forget that the ice cream store down the road is also indirect competition. If I'm one to invest my time into eating ice cream I sure won't be one to necessarily spend much time in the gym. The ice cream shop is competing with you for my attention, my money and my time. This doesn't mean that you'll open an ice cream store next to your reception but you may put in a cafe (as most gym chains have) to attract people to hang around and buy high-margin products (just like ice-cream and with as many calories but usually called protein shakes).
Same goes for the tech world. If you're launching a vertical social network and you tell me Facebook is not competition, I'm going to think you're delusional. I personally only have so much time per day to invest in reading and updating social networks. I've needled it down to Facebook and Twitter. No other social network of any sort will get any significant time from me anymore. This also means that if you are another social network, you're competing with Facebook or Twitter for my time. I know, I know, your product is completely different. Your users will want to use your product because it's aimed directly at them. Well, no, not happening. It doesn't work that way. You're competing for time and not necessarily just attention.
The situation was the same for CRM software in the early days. If I remember a report I read correctly, in its heyday, Siebel was used only by 20% of the people who had this software installed at their site. People didn't want to use a full CRM suite...there was no need for it and they had alternate products and processes at their disposal. They knew these things. They were comfortable with them. Salesforce came along and offered something easy, cheap and focussed for the user. I think you know the rest of the story. I bet someone at Siebel initially said "Salesforce? Who are they? They aren't our competition!"
If you're in a situation yourself where you need to consider who will be competing with you, don't forget to think outside the box. Think about who COULD possibly be competition in the eyes of your customer. Don't simply look at the direct competition which is easy to spot. Heed competition coming at you from angles.