This is an excellent, long, and content-filled article by HN favourite Patrick McKenzie about how to compete against established businesses not by building a better product (though that doesn't hurt), but by innovating on distribution models.
There are too many good points to summarise the articles, but here are a couple of good extracts:
We often hear products described using something like "It's like Facebook, except for dogs." How about, instead, describing businesses like "It's like Quicken, except Quicken sells primarily through boxed software channels and we're going to sell primarily through banks which will deal with us for a cut of the sale price and the ability to deepen relations with small business customers, who consume lots of high margin services and stay locked in for decades at at time." (That may or may not actually be true.)
(...)
I have a wee little heresy as an engineer: I think that you can make a perfectly viable business out of a product which is not better than competitors, solely by improving on the method of selling it. Farmville (and whatever Zynga has reskinned it as this week), for example, is not superior to all other options for entertainment… it just beats the pants off of most of their viral spread patterns, because promoting your use of the game is the core gameplay mechanic.
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