How to Conduct a Competitive Analysis of Software Solutions

If you are a software developer, marketer, or entrepreneur, you know how important it is to keep an eye on your competitors and their products.

You want to know what they are doing, how they are doing it, and how you can do it better. You also want to learn from their successes and failures and use that knowledge to improve your software product or service.

But how do you do that?

How do you conduct a data-driven competitive analysis of available software solutions and contrast them against yours?

In this post, you’ll learn what software competitive analysis is, why it’s important, and how to conduct it effectively. We’ll also explore some of the best methods, challenges, and limitations that come with software competitive analysis.

The purpose of competitive analysis is to identify your competitors’ strengths, weaknesses, opportunities, and threats.

Then, use this information to improve your marketing strategies and competitive position in the market.

Competitive analysis can help you, as a business owner or marketer, to:

  • Derive valuable insights to develop a unique value proposition and competitive advantage
  • Differentiate your product or service within your competitive landscape
  • Benchmark your performance and progress against your competitors
  • Learn from your competitors’ best practices and avoid their mistakes
  • Understand your target market and customers better
  • Enhance your product’s key features and functionality
  • Identify gaps and opportunities in the market
  • Increase ‌customer satisfaction and loyalty

Benefits of software competitive analysis

Software competitive analysis is the process of analyzing and comparing the software products or services offered by your competitors in the same industry or niche. 

Competitive analysis is especially important and beneficial for software companies and products because:

  • Complex software: Software products or services are often complex and intangible, requiring clear and compelling communication and a demonstration of value.
  • Low barrier to entry: The industry has low barriers to entry, making it easy for new companies to enter the market and compete with your products and services.
  • Innovation: The software industry is highly dynamic and competitive, with constant changes and innovations, you must stay on top of.
  • Market saturation: The market is often saturated and crowded, with many similar or substitute products or services.
  • Customer expectation: Software customers are often sophisticated and demanding, with high expectations and low switching costs.

By conducting a software competitive analysis, you can:

  • Develop better marketing campaigns and content marketing strategies across different marketing channels.
  • Assess the threat of new entrants or substitutes in the software market and how to defend or counter them.
  • Stay up-to-date with the latest trends and developments in the software industry and your niche.
  • Enhance your software product or service features, functionality, usability, design, and quality.
  • Identify and track the changes and updates in your competitors’ products or services.
  • Optimize your software marketing efforts, including your digital marketing strategies.

Types of competitors

The first step to unlocking the benefits of a software competitor analysis is identifying and categorizing your competitors. 

However, not all competitors are the same. Some may pose different levels of threat or opportunity for your software product or service.

There are three main types of competitors you should consider.

Direct competitors

Direct competitors are companies within your niche that offer the same or similar solutions to your target audience’s pain points. They impact your software product or service’s performance and positioning the most.

For example, if you offer a construction project management software product, your direct competitors are other project management software products in the same niche.

Indirect competitors

Indirect competitors are those who offer different or alternative solutions to the same or similar problems for customers like yours. 

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They aren’t as obvious or immediate as your direct competitors but can still affect your software product or service performance and positioning. 

Never underestimate the power of an indirect competitor, especially if they offer a better or cheaper solution than yours.

Examples of indirect competitors for a construction project management tool include other software products for team management or time management. These are in the same category of software tools but offer different features that set them apart from your solution.

Replacement competitors

Replacement competitors, also known as phantom competitors, offer products that can replace yours but that aren’t in the same category. You both seek to solve the same pain points for your customers, but the means are different.

For example, note-taking software can be a replacement competitor for construction project management software. It helps users capture, organize, and share information and also offers task and information management features that can solve some project managers’ pain points. 

However, it does so in a different way than typical project management tools.

Types of competitive analysis

There are several types and methods of competitive analysis you can use for your software product or service. Which one depends on your goals, objectives, and available resources. 

Below are the three most common and useful.

SWOT analysis

Strength, weakness, opportunities, and threats (SWOT) analysis is a simple and popular matrix framework that helps you evaluate your software product or service, as well as your competitors. 

It helps you identify your competitive advantages and disadvantages and the potential risks and opportunities in the market.

To conduct a software SWOT analysis, you must:

  • List the internal factors that affect your software product or service performance and positioning. These factors include features, functionality, usability, design, quality, pricing, and more, representing your strengths and weaknesses.
  • List the external factors that affect your software product or service performance and positioning, such as your competitors, their products and services (including their features, functionality, usability, design, quality, pricing, etc.), your customers, market trends, industry changes, regulations, etc. These represent your opportunities and threats.
  • Compare your strengths and weaknesses with your competitors and identify your unique selling points and value proposition.
  • Compare your opportunities and threats with your competitors and identify the gaps and opportunities in the market that you can fill or exploit.

Repeat the same analysis for each of your competitors to gain a clear view of what makes each industry player successful and where they’re below par. 

With this information, you can design new short and long-term strategies to take advantage of your strengths, overcome your weaknesses, exploit every opportunity, and avoid every threat.

Market share analysis

Market share analysis is a method to measure and compare your sales and revenue with your competitors in a given market or segment. 

It helps you understand your relative position and performance in the market and how you can improve or maintain it.

To conduct a market share analysis, you must:

  1. Select the fiscal period, such as a quarter or a year, that you want to analyze.
  2. Calculate your software sales and revenue for that period using your sales data, financial reports, or other sources.
  3. Calculate your niche’s total market sales and revenue for that period using market research, industry reports, or other sources.
  4. Use the market share formula to calculate your market share percentage, as shown below.

Market Share = (Sales Revenue/ Total Market Sales Revenue) x 100

Repeat the same steps for your competitors and compare your market share percentage with theirs.

This information allows you to benchmark your market share percentage with your direct competitors. Once you have that, you can identify your market position and potential, such as leader, challenger, follower, or niche player.

You can also identify your top competitors using the Pareto or 80/20 rule.

80-20 rule/pareto principle

Source: WallStreetMojo

This rule states that 80% of the market share is held by 20% of the competitors. Competitors in that top 20% are the ones you should focus on as your main threats or opportunities.

This type of competitive analysis can help you narrow down the list of competitors to focus on. It’s one of the best methods for helping you prioritize your actions. Otherwise, you’re left analyzing the entire market.

Search engine optimization (SEO) analysis

SEO analysis is a method that helps you analyze and optimize your product’s website and content for search engines such as Google or Bing. 

It helps you improve your search ranking for organic keywords, website and content visibility, and organic traffic.

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In turn, you unlock valuable insights that help improve product development and attract more qualified and relevant leads and customers.

According to Ahrefs, less than 10% of all web pages get search traffic from Google, making SEO a vital part of digital marketing.

Google search traffic

Source: Ahrefs

Conducting an SEO analysis will also help you:

  • Compare your website and content performance with your competitors and identify your strengths and weaknesses regarding SEO factors, such as domain authority, backlink profiles, content quality, page authority, readability, freshness, relevance, structure, and length.
  • Identify the relevant keywords that your target customers use to search for your software product or service and take advantage of that search volume.
  • Understand the types of content and media that work best with your target customer, such as images, videos, interactive content, or others.
  • Analyze your website and content performance for those keywords and develop strategies to increase search engine rankings.
  • Analyze your competitors’ website and content performance for those keywords.
  • Find and fill the keywords and content gaps between you and your competitors.

Using SEO tools can help improve your SEO strategy, content marketing, and SEO performance dramatically.

Steps for conducting a competitive analysis of software products

Software competitive analysis helps you gain detailed insights into your target audience, optimize your SEO and content strategies, and monitor your competitors’ performance. 

To achieve these goals, follow the steps below.

1. Gather data on and analyze your target market and competitors

The first step is to gather data on your target market and analyze it. 

At a minimum, you should describe your competitor’s specific verticals, product features, target market, and market share.

You should also note any overlap and differences between your target markets and how they affect your competitive positioning.

A key feature often overlooked when gathering data is the robustness of security measures implemented within software solutions, particularly for those relying on modern infrastructure like Kubernetes.

Kubernetes cluster

Source: Kubernetes

By analyzing your competitors’ approaches to security, especially in Kubernetes environments, you can identify gaps in their strategies and position your solution as a more secure and reliable choice. 

Consequently, you should consider using Kubernetes security best practices in the data you gather about your competitors and implementing them in your software solution to enhance its competitive edge.

How to gather data on your competitors

One way to gather and analyze data on your target market and competitors is to use data analytics tools or platforms to collect and analyze data from various other sources.

You can also track and measure user behavior, engagement, retention, and revenue of your mobile apps and those of your competitors with different mobile app analytics tools.

These competitive analysis tools will make your life much easier when conducting competitive analysis for your software solutions.

What to do with the data

With the relevant data at hand, you can create buyer personas and ideal customer profiles (ICPs) for you and your competitors. While both serve a similar purpose, there are subtle differences between the two.

Ideal customer profile and Buyer personas

Source: HubSpot

Buyer personas are highly detailed fictional representations of your ideal customers based on their demographics, psychographics, goals, challenges, preferences, and more. They’re typically used for B2C marketing.

ICPs, on the other hand, are typically used for B2B marketing. They focus more on the high-level characteristics of the ideal organizations that’d buy your software product or service, such as pain points, location, industry, budget, and size.

By creating buyer personas or ICPs, you can better understand your target market and competitors. That way, you can tailor your software product or service to their needs and expectations, helping your sales team close more deals.

2. Identify keywords for SEO and content strategies

Virtually all modern software companies market their products online, so performing an SEO analysis of your competitors is essential. 

You can create and optimize your content by identifying keywords for SEO and content strategies to match your target audience’s intent and needs. It’s the perfect recipe for outranking your competitors on search engines.

To identify keywords for SEO and content strategies, you can use different keyword research tools

These tools help analyze your competitor’s content strategy, such as how often they publish, the keywords they target, the quality of their content, structure, accuracy, and tone.

Ahrefs keywords explorer tool

Source: Ahrefs

You should also evaluate the photos and imagery they use. Do they use generic stock photos or custom illustrations? Are they sourced from outside professionals or done in-house?

You can also use social media management tools to analyze your competitor’s social media performance and presence, including engagement metrics like engagement rates, number of likes, and number of shares.

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3. Monitor performance through competition tracking tools

The third step is to use competition tracking tools, which are a type of competitive intelligence tool, to track your competitors’ performance. 

Monitoring performance means measuring and evaluating your software product or service’s performance against your competitors over time.

The goal is to learn from the competition to inform your business strategy, identify marketing trends, and make data-driven decisions to continually improve your software product or service.

You can track and compare various metrics and indicators of your software product or service and your competitors, such as social media presence, downloads, features, reviews, ratings, installs, and pricing.

4. Analyze your results and identify actionable insights

The fourth and final step is to analyze your data for actionable insights. 

Actionable insights are the key takeaways and learnings you can use to improve your software product or service and achieve your business goals. 

They make your software competitive analysis not only descriptive but also prescriptive and predictive. You can use the quantitative and qualitative data provided by win/loss analysis services providers to analyze your results and identify actionable insights. 

Or, if you’d rather take a hands-on approach, win/loss analysis tools are also helpful software applications to streamline the analysis of customer and prospect feedback. 

Win-loss analysis tool

Source: Coefficient

That way, you can dive into the weeds to learn why they chose one software product over another.

The process of analyzing your results and identifying actionable insights involves the following steps:

  1. Collect and organize your data from various sources and competitor research tools.
  2. Visualize and interpret your data using charts, graphs, tables, and dashboards.
  3. Compare your data with your competitors’ data.
  4. Identify the gaps, strengths, weaknesses, opportunities, and threats in your software product or service and your competitors.

Once that’s done, you can generate hypotheses related to the data and test them using experiments and tests. 

The latter will help you validate or invalidate your hypotheses and draw conclusions, leading to meaningful and impactful insights you can act on.

Challenges and limitations of SaaS competitive analysis

Software competitive analysis isn’t a one-time or easy task. It requires constant and consistent effort, attention, and a critical and analytical mindset. 

It also comes with challenges and limitations you must be aware of and overcome.

Data quality and availability

Not all data and metrics are reliable, accurate, or up-to-date. Depending on the source, some data and metrics may be missing, incomplete, or outdated.

To overcome this limitation, you must verify and validate your data and metrics and use multiple sources and methods to cross-check them.

Data interpretation and analysis

Even the best and most accurate data may not be relevant, meaningful, or actionable. Data can be difficult, complex, or ambiguous to interpret and analyze.

The result? Analysis paralyzes when trying to identify useful insights.

To avoid this dreaded fate, you must filter and prioritize the data and metrics you use and use appropriate tools and methods to simplify and visualize them.

Data bias and assumptions

Research bias is a challenge for any type of research, especially in marketing. 

Some data and metrics may be influenced, affected, or distorted by your biases and assumptions or by your competitors. 

For example, some data and metrics may be based on opinions, perceptions, or preferences rather than facts. In software competitive analysis, it’s critical to avoid and remove biased data and metrics as much as possible.

How? Identify and understand the potential sources of bias in your data. It could stem from the data collection process, how data is processed, or inherent biases in the data itself.

Keep up with the competition

Software competitive analysis is a vital process for any software company or product that wants to stay ahead of the competition and gain a competitive edge in the market. It means analyzing your company’s performance and comparing it with your competitors.

Conducting software competitive analysis effectively and efficiently requires tools and methods to help you collect, analyze, and visualize data and metrics on your software product or service and your competitors. 

Competitive analysis comes with challenges and limitations, such as issues with data quality, availability, relevance, and bias. However, these shortcomings are manageable, and working to overcome them is worth the effort.

Learn more about market intelligence, its types, best practices, and use cases. 

Edited by Jigmee Bhutia

منبع: https://learn.g2.com/software-competitive-analysis

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