The Stack Archive

Making conversation: How niche players could win

Mon 18 Aug 2014

Every market changes over the course of time. Start-ups often desire to grow to the point where they can either be bought by a larger enterprise for the short-term financial benefit of their own, and then there others amongst them that wish to shake up the market in a way that will significantly alter its landscape and enable them to compete and take market share from such incumbent companies as Amazon Web Services, Google and Microsoft. Indeed it’s possible for a niche player to become a large mainstream player. Facebook was in many respects one of those companies.

“Niche players tend to be hungrier, and as such they will be more flexible than the big guys tend to be”, says analyst firm Quocirca’s client services director Clive Longbottom. He believes that the niche players in any market, including IT are in sometimes in a better position to “create more complete template systems.” In contrast the focus of the larger mainstream enterprises is on what he describes as being the base components that customers have to pull together themselves based on a technical understanding of what they need.

Natural evolution

Gregor Petri, Gartner’s research director for cloud computing, responds by arguing that “there is a natural evolution in any technology market where the early adopters and innovators take the new innovations and apply them to problems they need to solve.” For example, he cites companies such as Netflix and Zynga who took some new technology, a new way of working and then applied it. Companies like these ones tend to experience strong growth, and as niche players he says they often think they’ve got it made.

Yet reality is different: the majority of customers just aren’t as brave as the early adopters. “They don’t want to solve all of the problems that inherently occur when they use such new technologies for themselves”, says Petri. Netflix put so much effort into solving an array of early problems that they are now publishing their solutions as open source to help others.

“As a start-up wanting to stream online videos to millions of US households it did not have any other option but to use cloud services, and yet the majority of the market does have other options,” he adds. In other words most of the players in the market will only use any new possibilities that arise if they are persistently able to solve a concrete problem for them. These problems arise when insurance companies need to perform risk simulations. They may involve organisations that need to do a lot of testing and development work, or who’ve need to analyse big data on a massive scale. In their view the cloud becomes an easier means of doing all of this faster than they could before.

Where innovation begins

Petri therefore says that innovation has to begin with early adopters, and many of these are found amongst the start-ups. They then move upwards into what he describes as the ‘early majority’ before joining the mainstream players and market. Once their technology has solved some specific problems, it becomes more considered as being a solution rather than a tool. The potential then is for the company to move into the mass market.

“The PC is market is a nice consumer example of this because nowadays, if you buy a PC it comes completely pre-configured with most of the applications already installed and so customers no longer need to be technical wizards to use it”, he explains. He also cites TCP/IP networking as a business example, which was first used for specific niche purposes such as for the creation of remote offices and lab automation. Today it’s a core part of the networked world.

When players in the market become part of the mainstream a shake-out can occur. The previously innovative technology becomes normal infrastructure; a standard modus operandi. Geoffrey Moore wrote about it in his book, ‘The Guerilla Game’. It’s the point where people start asking questions about who’s going to be the guerrilla, but in Petri’s view the cloud market just isn’t at this point yet because today’s cloud expenditure is only between 3-5% of an enterprises total IT spending. He says that not all of this money will be spent on investing in cloud technologies, and so in his view there will be an ongoing role for traditional IT infrastructure for a considerable time to come.

Enterprises to stay

Longbottom adds that large enterprises are likely to “remain around for the foreseeable future, and they are less likely to allow their platforms to age over time – they have deep pockets to keep up to date with what’s happening, but smaller players have the better capability to go the extra mile and to work with you to ensure that you [as a customer] get what you need.” He also thinks that the large enterprise players aren’t standing up to be counted as the moment.
While enterprise players are bringing out more ‘stuff’ in their portfolios and reduce their prices, he argues that they have go to do more to compete rather than state that they have been fine and dandy purveyors of cloud functions since the world began. Niche players in contrast are more flexible, but there business models aren’t steadfast enough to prevent many of them going broke. Large enterprises will mitigate this risk through their contracts and subsequently placing it upon the backs of the small to mid-sized customer. Larger customers will be fortunate enough though to have the capacity to negotiate a bespoke contract which small companies will find hard to achieve.

Partnerships are best

Niche technology players may therefore find that it makes more sense to partner with the larger and more established players in the IT market. Petri believes this allows both parties to concentrate on what they do best because going it alone can be difficult for nice players; they need efficient off-the-shelf technologies from the enterprise players to be able to deliver their products, services and solutions at a reasonable cost. In his opinion niche players won’t in the long run have the scale or power to invest in these base technologies themselves, but at the same time they won’t be able to stand still as “a broad infrastructure player; you have to move up”.

“Think of an operating system vendor that add a back-up module, something that customers traditional bought from a partner – that partner then has to also move up, maybe to deliver complete disaster recovery services instead of just back-up services”, Petri explains. In conclusion he says that the cloud market is evolving rapidly, moving faster than it would in traditional IT.
Customers are beginning to realise that they don’t have to enter into multi-year commitments with cloud services, but they do need to be aware that it is a very dynamic market. As such it may not be the case that the niche players are a threat to their large counterparts. It seems that both may in fact need each other and by working together they can use their strengths to complement each other while at the same time reducing their inherent weaknesses. That seems to be the way to win.

By Graham Jarvis


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