I often find that when building competitive strategies, vendors tend to focus all of their efforts on other vendors with similar products and technologies. They believe that if they understand how the other vendors in their segment are taking their products to market, they will give themselves a good chance of winning business. Whilst there is nothing wrong with this strategy, it is very easy to get trapped into the habit of seeing things only from a vendor perspective and forgetting that the customer always has a choice.
The result is that vendor A believes that as long as he/she builds clear differentiation versus vendors B,C and D he will win the business. The reality is that vendors need to build strategies to combat the other alternatives that might equally well serve the end user. These alternatives might not be recognisable as a “competitor” at all.
I wrote in an earlier blog about the 8 fingered glove seller who might find that their competition doesn’t just come from other glove suppliers but also might come from sellers of coats with big warm pockets. A little tangential perhaps and a better illustration might be a middleware vendor who believes that its competition for a piece of ERP integration business comes from other middleware vendors but who actually loses the business to an ERP vendor that addresses the problem within the ERP software. The ERP vendor isn’t in the integration space, but they were able to eliminate the problem by changing their software.
Understanding all of the legitimate alternatives that a prospect has is essential and it is this issue that comes into sharp focus in a slowdown where the obvious alternative that presents itself to an organisation is to do nothing. No amount of competitive planning and intelligence gathering will allow a vendor to win against a strategy of committed inaction.
This “inaction alternative” represents a double conundrum for early market vendors. The approach that that more mature vendors use to convince the customer to invest is to sell on value, or as part of a solution sale. They demonstrate the value they’ve been able to deliver to previous customers, focus in on a pain that they perceive their end user prospects are experiencing and build investment justification for their solution. It is this justification, if sold at the right level in the organisation, that can turn round a decision to do nothing.
Early market software vendors are typically trying to build brand new demand for their new technological approach. As a result the “need” does not already exist in their market which makes generating leads difficult when IT spend in under so much scrutiny. Secondly, early market vendors struggle to document the value they have delivered to existing customer which makes it difficult to justify investment. This is because their sales are usually made to the technical side of their customers’ organisations and their propositions typically focus on features and capabilities instead of business value.
A fantastic example of the dilemma that early market vendors face is found in the cloud computing space. The cloud proposition is multi-layered, subtle and spans hardware and software but it effectively revolves around cost savings and on-demand scalability. With corporations facing incredible pressure on IT spend, cloud computing should be able to save most large corporations vast amounts of money. Obviously, there will need to upfront investment and it is also true that many cloud computing offerings need to mature to totally fulfil enterprise needs but the potential benefits are clear. So it will be fascinating to see how these early market cloud and cloud-enabling vendors will tackle a market where investment in new concepts is tight.
The irony is that cloud computing offers not only the potential to shave a few points of the corporate IT spend but instead could completely transform the size and nature of IT budgets and departments. It could be the killer application of the economic slowdown, but first vendors will need to convince enterprises to invest.
We’ll be carrying out a REPAMA Segment Analysis Study on the cloud space (Application virtualization/Dynamic Application Service Management) in the coming months, and will be fascinated to map the different go-to-market approaches that the successful and not so successful vendors are taking.