I’ve been spending a lot of time recently thinking about market dynamics in tech – big picture stuff. Perhaps it’s my background as an economist and analyst, but I’m sensing a not-so-subtle fundamental change going on in ‘tech’ – and I figured this would be a great time and place to talk about it.
In a nutshell, the technology industry is maturing.
Now, I’ve learned the hard way that ‘mature’ is a very bad word when you mention it to the typical tech executive – they tend to react in horror to the word, and immediately recoil and get defensive.
Yet ‘mature’ is part of the natural evolution of any ecosystem, and the lifecycle of any business entity or market.
What does being in a mature market imply?
- Overall market growth decelerates
- Competition decreases as competitors consolidate
- The value proposition of the marketspace becomes better-understood and customers change their buying habits – tending to often buy the most well-established, full-featured products, rather than the ‘hot’ new entrants
Beyond the Implications
Note that not all of this is bad – as a matter of fact, in many cases it’s quite good – especially for incumbent providers who have already established themselves.
But there’s another implication, and it’s core to the title of this post – in my mind it’s the biggest implication for tech executives as they decide how to go forward in a mature market (after they get past the Denial stage and move into Acceptance, of course…)
The implication is that what has driven the success of so many startups (I would argue practically all startups) – a laser-like focus on a single product and a single market – at some point runs out of steam. That’s actually true in emerging markets as well, but it becomes particularly acute as markets mature.
I’ve long been a fan of Geoffrey Moore and his ‘Chasm’ books and theories. They have served the industry well.
But that thinking, while it can still be effective in the very early stages of a company’s life – as it tries to establish at least a single foothold in the market – is not enough anymore. I firmly believe that these days, companies need to think beyond the Chasm, and think of ‘the Next Hill’. This means getting beyond the ’single-product, single-market’ focus needed to cross the chasm, and thinking about building a portfolio of products, services and markets. In other words, establishing multiple, defensible positions to attack the market, surround the competition, and grow the business.
The obvious implication of this is that technology M&A makes a major comeback – which is already being predicted fairly broadly. But the bigger implication is that tech executives need to come to grips with a market that is no longer growing at double-digit rates, and where growth requires a totally different strategy.
There are some obvious examples of companies that ‘get’ this – Cisco has long been a practitioner of M&A and has well-established positions on many ‘hills’ – as it continues to expand to new ones. Oracle has adopted the practice more recently but also quite successfully. And Apple has staked out its position more by organically developing new products (such as the iPhone) than by doing acquisitions.
The Hill Consisting of a Lack of Diversification
Yet even some of the largest tech companies – such as Google and SAP (whose earnings miss earlier this week catalyzed much of my thinking on this topic) are still primarily ‘one-hill wonders’. Yes they have multiple products and services, but a 
large and significantly unbalanced percentage of their revenue and profits comes from single-product/single-market. (Google’s hill happens to be a particularly large one, but nonetheless PPC advertising will mature as well – you can make a good argument that it already is).
And there are many startups – some recent IPOs, others trying to raise their E or F rounds – that are languishing and desperately need to come to grips with this – and to implement the significant shifts in business strategy that a maturing market implies.
I’d love to hear the community’s thoughts on this topic and am planning to expand this thought into a series – unless someone convinces me I’m full of beans (I’m sure there are some tech executives, investors and PR firms who are going to try).
What do you think? And what are some examples of companies who you see who are adapting well? Or not?
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(Cross-posted @ The SiliconANGLE » Chris Selland)
