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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



The Multi-Enterprise Market

By Michael Tanner, Managing Director, The Chasm Group, LLC

When I think about the 1980s or early 1990’s, I find myself feeling pretty nostalgic. It was a much simpler time in the high-technology business. So much so, that thinking about launching new products and services just a decade ago feels almost quaint by comparison with today.

Back then, a lot of information technology products were almost always proprietary. Of course, each industry had its hardware, data or programming standards that suppliers mostly supported (usually in luke-warm fashion). But there were few de facto monopolies that drove competitive standards for interoperability. There was no SOAP, XML, COM, JAVA, .NET. You could not assume to be able to just “plug-in” to a TCP/IP network wherever you went. Even “Unix” was not standard.

Many departmental processes had not yet been automated, so the costs to switch from an often non-existing infrastructure to a new one were relatively low as compared with today. The value proposition for buying was about automating an existing manual approach. It was generally not about justifying the cost of ripping-out or leveraging prior technology investments. Most IT suppliers were providing new, disruptive technologies that solved problems not otherwise being solved.

As a result, strategies for new market development in the 80’s and 90’s were naturally centered on dominating key customer segments or departments within organizations. The idea was to create strong references and a “beach-head” by offering complete solutions for each target market, and then leveraging those references into new opportunities. This was, in-part, the recipe outlined in Geoffrey Moore’s book Crossing the Chasm in back in 1991, and is still recognized as great advice to this day.

But there are some differences between then and now. First, the perceived need to scale was not as great as today. Yes, companies then envisioned and planned for dramatic growth just like today. But they didn’t have to scale in order to avoid being squashed like a bug by a consolidating industry or established monopoly. Proprietary technology, high switching costs, and a world bereft of automation almost always left ample room to grow in the niches. The niche-orientation is still a great strategy to stimulate market development, but open and non-proprietary technology coupled with a new investment climate has created a perceived inevitability of consolidation in many categories.

More importantly, in the face of inevitable long-term consolidation, many of those potential consolidators are already selling different categories of products and even platforms to exactly the same customers as you are! While domain specialization, tailored offers and niche-marketing can still create huge differentiation, these strategies can also reduce the potential value of a company as an acquisition target. The acquirer often already has the customer base captured in another area. And after getting to a certain size, corporate anti-bodies make it increasingly hard for larger, multi-product line companies who are likely to be acquirers to take-on a market-specific approach to growth. So if you end up being a leading technology and solution provider to specific industries, you might actually create reasons not to be acquired even while you do the “right” thing for the business. Early-stage companies therefore face a seemingly irreconcilable strategic choice -- “cross the chasm” by deeply penetrating niche markets and building a sustainable business, or retain a visible, highly-horizontal market approach to keep the technology acquisition exit strategy open (while the cash lasts).

The second major difference between recent history and today has to do with end-users. In the “old days” of a decade ago, the customer used to be either a company buying for employees or an individual buying for his or herself. The objective was most-often to automate an existing internal process or to deploy within the walls of the company. Now fast-forward to today’s world. Companies that have automated many of their internal processes are now expanding automation outside of their companies and into the extended enterprise of partners, suppliers and channels. Distributed applications and processes deployed over an IP network now let the extended user community participate, thus creating opportunities for entirely new processes that span company boundaries.

So today should be absolutely ripe with opportunity! I believe it is. But unfortunately, a funny thing is happening on the way to the bank. If the organizations who represent an extended network of users do not adopt, the group that sponsors a multi-enterprise application simply can not get value from their technology investment. As it turns-out, this is a very big deal.

For example, what good is a supplier collaboration platform to a buyer if they can not get their suppliers to use it? How can you get supply chain visibility if the distribution centers, shippers, 3PLs or freight forwarders don’t deploy? IP telephony won’t reduce costs unless both ends of the line are equipped. Location-based wireless applications won’t deploy unless the service provider is equipped with the right servers. Sales force automation may work great when you can demand that the sales team use it. But how much improvement could be made if your distributors and agents were similarly tied in? New email encryption services have little value unless senders and receivers are both deployed. New wireless Broadband applications demand proximity to a wireless network.

Multi-enterprise expansion of standards-based technology has created new marketing challenges. In our consulting business over the past 10 years we have seen management teams struggle with assembling not just great products, but great whole products. The problem today is compounded because the solution is increasingly the network itself. In a multi-enterprise world, value only comes when a broad community of users adopts. So while you may have thought you were in the software, hardware or services business, you may actually be in the business of developing networks of people who use your products. This isn’t sales. It’s development. Until a viable network exists, your customer can not obtain the true ROI. There is no solution, and hence the market can not grow.

Here’s how you know if this applies to you:

  • The utility of your product or service is contingent upon wide-spread use by a cross-functional or cross-enterprise team. For example, messaging.

  • ROI requires that multiple individuals who are beyond the direct control of the buyer use the products. For example, supplier collaboration.

  • Your software or devices process data received from multiple sources that are both within and external to the buyer’s company. The data is aggregated to provide transactional information on demand. For example, logistics networks, network management solutions, soft-switch technology, B2B transaction systems.

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