Investing

Nine Companies That Destroyed Their Largest Competitors

GM vs. Toyota

General Motors has actually experienced two major reversals of fortune in the race to become the top automaker in the world. Since the 1930s, GM had been the dominant U.S. automaker, and for most of the latter half of the 20th century it was dominant in the global market as well. As the global recession took hold in the past few years, the automaker began to lose its grip on the global top spot. By the end of 2008, Toyota officially became the world’s largest automaker, beating out GM by more than half a million units sold. GM’s global market share continued to decline, and even in the U.S. its share dropped. By June 2009, fueled by lagging sales and financial troubles from the recession, the manufacturer filed for Chapter 11 bankruptcy. It took just two years, however, for the company to regain its title. GM’s new IPO was successful and it also quickly reported a profit. And with recall troubles and the Japan earthquake hitting rival Toyota hard, GM again became the world’s largest automaker in August of this year. In the first half of 2011, GM sold 4.5 million cars compared to its Japanese counterpart’s 3.7 million.

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Amazon vs. Barnes & Noble

Barnes & Noble (NYSE: BKS) was for years the largest bookseller in the country. However, online retailer Amazon.com has flanked the company by taking book selling online and out of the expensive business of running stores and carrying hundreds of thousands of titles in physical inventory. The convenience and ease of operations was essential to Amazon. Later, its e-book reader Kindle survived, and won, the e-reader war with B&N’s Nook and others. Some bookstores, including Borders, have gone under, while Barnes & Noble has merely lost its profitability. Barnes & Noble’s net income has dropped from $147 million in 2006 to a loss of $74 million in 2010. Amazon, meanwhile saw net income jump from $190 million to $1.2 billion. Some suggest the age of the physical book may be nearly at an end.

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Blockbuster vs. Netflix

Blockbuster was founded in 1985 as a VHS rental company. By the turn of the century, the company was the McDonald’s (NYSE: MCD) of movie rentals. In 1999 — the year in which Netflix began operations — Blockbuster, with more than 6,500 stores around the country, went public. By 2006, Netflix had emerged on the scene, making just shy of $1 billion in revenue that year. This was still well short of Blockbuster’s revenue, which was roughly $5.5 billion. But in 2007, the small company introduced streaming video, which allowed viewers the option to watch films on home computers. This feature, along with the growing popularity of the company’s DVD delivery service, led to a steady decline in blockbuster’s profitability. By 2010, the massive company was losing millions each quarter, finally declaring bankruptcy by the middle of the year. While the company was being acquired by Dish Network (NASDAQ: DISH) for a mere $320 million, Netflix was already exceeding 25 million subscribers.

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Delta vs. American Airlines

In many cases, a company’s reversal of fortune comes through a natural loss or gain of market share because of the success of its specific products. In the case of the airline industry, American Airlines’ fall from the lead came as a result of mergers. After acquiring a bankrupt TWA in 2001, American Airlines (NYSE: AMR) became the world’s largest airline. In 2007, despite being plagued by rising fuel costs and other difficulties, it still maintained the lead with nearly 100 million passenger miles flown. Delta (NYSE: DAL) came in second, at 73 million passenger miles. During the recession, however, as airlines continued to suffer, two significant mergers occurred. First, Delta acquired Northwest in 2008, instantly becoming the biggest commercial airline in the world. In 2010, the much larger Delta had 109 million passenger miles to American’s 86 million. And after United (NYSE: UAL) and Continental merged in October of that year, American went from second to third place among U.S. airlines.

Michael B. Sauter, Douglas A. McIntyre

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