Why Finding Competitors Is Tough

When analyzing companies, you'll often find you need to analyze the competitors of the companies your are considering. It makes sense, as the industry is a factor in your analysis. But when you start your search, you learn why finding competitors is tough. We'll explore some of the issues in this article, as well as some workarounds.

You can't analyze companies in a vacuum. That is, you may find a great company, but without comparing it against its peers or competitors, you won't get the full story. Competitors play a crucial role for your analysis.

Knowing this, you set out to search for competitors, only to hit roadblocks along the way. It seems like it should be an easy task, but it's not. The following discusses many of the challenges associated with finding competitors (followed by explanations of each):

• Competitors Are Not Clearly Defined
• Companies Compete in Multiple Segments
• The Size of the Company Matters
• Data About Competition Is Not Always Accurate
• Competitor Data Changes Often
• Tools to Find Competitors Are Expensive
• Competitor Info Is Not Primary Data Offered
• Competitors May Be Acquired by Target Company

Challenges in Finding Target Company Competitors

Now, perhaps you are getting a bit excited to know that you can find competitor information. Many local libraries make ReferenceUSA available as part of their offerings. You just need your library card number to access.

While I agree that Siemens PLM Software may be a good candidate for a Micosoft competitor, others are not so clear cut. Apptio, for instance, is a cloud-based company, which you could argue competes with Microsoft.

However, their cloud application is niche-focused, catering to the financial trading crowd. I can't find anything that suggests that Microsoft offers a competing product.

You may argue that Apptio uses machine learning as part of their product. That itself, may place it in a competing category with Microsoft. But machine learning is quite extensive. Most companies lay claim to incorporating machine learning. Does that mean most companies will now compete with Microsoft?

Competitor Data Changes Often

At one time, Morningstar.com and Yahoo Finance listed competitors for the target company you were analyzing. Those features seem to be gone from both now.

I am going to let you in on a little secret. There is a backdoor access to the old Morningstar interace for obtaining competitor information (at least at the time of this writing). It's not clear if the website will list it forever, though. I wouldn't depend on it, if I were you.

Here is a list of competitors Morningstar returned when I ran the query:

Seems like a goldmine of information, right? The trouble is, you'll have to know the industry well enough to know if each of these companies belong in the list of competitors for Microsoft.

I won't go through each of the items and compare how they would or would not be competitors of Microsoft. You would need to have a good handle on what each company does and where it could fit as a competitor. Now you can recognize why they pay financial analysts the big bucks. They need to know this stuff!

The takeaway for this section is you can't rely on free services to provide competitor data forever.

NOTE: If the Morningstar link is still working when you read this (my guess it is going away soon), then you'll need to change the stock symbol to that of the company you are getting competitor information. The example listed here shows BTU. If you were analyzing Microsoft, you would change the BTU to MSFT. It's the paramenter that comes after t= in the URL string.

Tools to Find Competitors Are Expensive

Do you have a few hundred (or more ) dollars that you can spare every month? If so, you can get competitor data. You can subscribe to services like D&B. Alexa, and several others.

The following shows the pricing options for Alexa:

The good news is that many of these services will give you a free trial. I am not saying it is never worth it to have subscriptions. It's just that you'll need to justify the costs. If you aren't going to be analyzing many companies, try to stick with free services, if possible.

Competitor Info Is Not Primary Data Offered

Another problem with services that offer competitor information is that it is an ancillary function of the service. When Yahoo Finance included competitor information, it was one function among many. This isn't necessarily bad, but it may be an indication that the developers aren't putting all their effort in the one function.

Conversely, when you find a service that is specific to one function, like competitors, for instance, they will concentrate on that function.

Competitors May Be Acquired by Target Company

Suppose instead of Microsoft acquiring Nokia, Apple bought the company. At that moment in time, Apple would no longer be a competitor of Nokia. Therefore, any list that mentioned Apple, would likely remove Nokia as a competitor.

Acquisitions happen often in the corporate world. Sometimes, they happen for the sole purposes of having one less competitor to contend with. Companies buy other companies for a variety of reasons, sometimes just to remove them as competitors.

How to Overcome the Challenges in Finding Competitors

• Use Common Sense
• Pay for Premium Services (HBR, others)
• Use Better Searching Techniques
• Analyze Target Company's Financial Statements
• Read Analyst Reports Who Cover Target Company
• View the Resumes of Top Brass of Company
• Target Company Press Releases
• View Trade Journals
• Check Out Your Stock Broker's Research Reports
• Company Lawsuits from Competitors
• Product Comparisons & Reviews
• Look for Groups/Pages on Facebook and LinkedIn
• A Few Secret Sources - Shhh! Don't Tell! 🙂

You could use the above information to learn which other companies compete in those segments. For instance, Azure is a cloud-based SaaS. Find out what other vendors offer these kinds of services (hint: Amazon is one!)

The articles you find with a standard search may discuss competitors of your target company. It's not a surefire way of finding this information, but every little tidbit helps.

Pay for Premium Services 

I hate to say it, but the best resources are those that cost money. I mention this not to encourage you to purchase subscriptions, but just as a frame of reference.

Should you decide to pay for services, the premiums are usually rather hefty. You can expect to pay several hundreds of dollars per month for these services. Examples of services that may provide useful services are D&B, Thomson Reuters, and Bloomberg.

Yahoo Finance and Morningstar also offer premium services (among other providers). However, I haven't found whether these providers offer competitor information. I showed earlier how Morningstar still has a page that shows competitors, but it is an older page and who knows how long they will maintain it.

The following is a partial data dictionary for Zacks Company Profiles service:

While the company does not offer a specific competitor break out, using the industry code and sector information may help you obtain this information. This particular database costs $900 per year. That may seem like a lot of money until you break it out monthly, which comes out to $75. Unfortunately, it looks like you would need to pay the $900 in full.

Use Better Searching Techniques

Did you know Google has advanced search capabilities? While coverage of all the advanced features could fill up an article on its own, I'll specify some of the useful options for finding competitors.

Search using Quotes ("") - when you want to search for a specific phrase, you can use quotes around your search. If you search for Microsoft competitors without quotes, you may get information about Microsoft that is both related and unrelated to competitors. Also, you'll likely get information about competitors in general.

Conversely, when you use quotes around the phrase "Microsoft competitors", your search will be more targeted to the entire phrase. It's not perfect, but it is better than not using quotes.

Ensure the Most Recent Information with Dates - It's unclear why Google doesn't always return the most current results first, but you'll often find results from several years ago appearing on the first page. By filtering by date, you can ensure that the results are for the most recent periods.

There are predefined date buckets that you can use. These include the past hour, past 24 hrs, past week, past month, and past year. The other options are for Google to decide (Any Time) or to define a custom range, where you can add any date range you think is relevant.

The following shows the sequence of steps to access this feature:

Step 1 - after initial query, select "Tools"

Step 2 - Choose date presets or custom range:

Step 3 - Choose the desired date selection:

The command in Google is as follows:

site:fool.com microsoft

Reading through this article helped me realize that Slack is a competitor of Microsoft. Of course, this is something we would have known already when you look through the company's financial statements (next section: Analyze Target Company's Financial Statements)

Would I have received the same results with a standard Google search? Maybe. But who knows? The site: operator allows you to hone in on your search. You'll find this to be one of the more useful operators to use going forward.

Analyze Target Company's Financial Statements

Who better to know about a company's competitors than the company itself! This section describes where to find information on what Microsoft believes are its main competitors. The source of information comes directly from the financial statement reports. Here are the steps for locating and using those reports.

Step 1 - Go to Microsoft's website. Scroll to the bottom.

NOTE: It's possible to see a different view when you go to Microsoft. Companies change their websites often. This is true for all the screens going forward.

Step 2 - Locate the Investors menu option and click it.

Step 3 - On the Investors page for Microsoft, scroll down until you reach the Annual Report section. Feel free to view the Quarterly Reports, too. That won't be covered in this article, though.

Step 4 - View or download the annual report. For this article, we'll view it online.

Step 5 - Search for competition - do this by using the <Ctrl> f or <Cmd> f (on Mac) and enter the word "competition" (without quotes).

Step 6 - Read through each section. For a big company like Microsoft, they will likely break out the competition by segment. That is what Microsoft did in its Annual Report.

You'll see the different companies listed that Microsoft considers its competitors within each identified business segment. I captured only three pages. There may be more. Scan through all sections that relate to competition.

As you can see, Microsoft has identified several companies in different segments. There are certainly ones that overlap, too. You should gain an appreciation into how complicated competitive analysis can be.

Microsoft competes in the Enterprise, Search,  Office, and Gaming segments, among others.

NOTE: If you cover smaller companies, you probably won't have to deal with as many competitors.

As an aside, you could have used the SECs Edgar website to find Microsoft's financial statements. All public companies are required to file them with the SEC. 

Once your gather a list of competitors, here's another little nifty trick: view the financial statements of those competitors. Find the competitors of their competitors. You'll still need to validate this new list to make sure they are active competitors of your target company. But you'll have more possible candidates to work with.

Read Analyst Reports Who Cover Target Company

Analysts do a great amount of research on the companies they cover. While some would argue about the accuracy of the reports they produce, it's likely they will get competition information correct. 

You'll have to do a bit of fishing to get the information you need. But I have a little trick that may help. When you append the operator filetype:pdf to a search, you'll open up a slew of options for your research. For instance:

microsoft stock analyst reports filetype:pdf

Therefore, if you have the ability to peruse trade journals within the industry of your target company, you'll learn about the competitors who contribute.

Trade journals are often a great way for investors to learn about the companies on their watchlists. Unfortunately, these trade journals are not free and often aren't cheap. However, for the purposes of getting a list of competitors, you can see if many offer free trials. It never hurts to ask.

If you have a few industries that you'll be investing in regularly, you may want to consider subscribing to a few of the trade journals. You can consider this a cost of doing business for your investing portfolio.

Check Out Your Stock Broker's Research Reports

Most brokers (both traditional and online) offer customers research reports. Often, these reports can be rather extensive. Some brokers will base the amount of research on the activity of customers. In other words, if you are an active trader, you may have access to more in depth reports than someone who makes a few trades a year.

What is included in these reports depends on the brokers. However, it's likely that many will include some form of competitor analysis. If you already have a broker, you can download a few reports to get a feel for what's included.

Company Lawsuits from Competitors

It's amazing how many companies will come out of the woodwork when a lawsuit is involved. Even if a competitor is not involved with the lawsuit, they're likely to make a statement about it. They'll take a side between two or more parties and they'll try to show how they would not do what the offending company did. They'll "take the high road," so to speak.

Knowledge of Competitors May Not Be Enough

If knowing who the competitors are, how can that not be enough? Why do we even go through this process? I already touched on this a bit, you have to know your industry to understand whether a competitor is a good one.

You could choose to use all the competitors you find (from the methods above). However, suppose for Microsoft, that Google, Oracle and IBM have P/E ratios of 25. But then you have a lesser-known company like Proofpoint has a P/E ratio of 15. If you are trying to run a comparables analysis, the Proofpoint P/E can skew the results.

Again, knowing your industries and what numbers make sense will go a long way in solving this problem.

Conclusion

I choose a complicated company like Microsoft to illustrate many of the issues analysts face when analyzing companies. Competitor analysis is more of an art than science. If you think you'll be able to automate the analysis of competitors, hopefully this article shows how difficult that task will likely be. It may be possible soon with artificial intelligence and other related tools. But we're not there yet.