In Arthur Clarke’s famed Rama series, everything happens in threes. The business world seemed to copy that for a long time, with the Big Three Automakers, the Big Three Long-Distance Carriers and so on. There always seemed to be three of anything major.
Today, everything is becoming about twos: primary and backup. Companies fight to be either the clear leader in a market or the primary alternative; being No. 3 doesn’t cut it anymore. If there’s a No. 3, it’s only a matter of time before it either merges with No. 2 or 1 or is out-positioned by them. There’s simply no cachet in being No. 3. Simply, the gap between Nos. 1 and 2 and No. 3 and the rest of the pack is growing, and where it’s not, consolidation will make it happen. We’ve started to see snippets of this consolidation already, but we need a lot more so we can move out of this stage and get back to more widespread innovation that is needed to achieve true order-of-magnitude changes in the way things are done.
The problem with such close competitors is that the thinking outside the box becomes more narrowly focused. Larger players have more investment in the status quo, and their definition of winning the marketplace is easily reduced to simply beating the other player enough to win market share. The big advances are less likely to come easily because anyone with promise in today’s capital-starved and tight customer marketplace has a hard time staying around long enough to have that big impact. Anytime a company has made a huge move in the market, it has disappeared just as quickly. AFC, bought by Tellabs. NetSolve and Actona, swallowed up by Cisco. The good companies will get eaten before they get too big.
With such a focus on just a few players, the chance for innovators to get to market is nigh impossible. We hear it all the time: “We will only buy from a major player.” It’s just getting worse, not easier out there.
We’re now entering a period that likely will last longer than we’d like. It’s the Land of the Giants, where the few big players will make baby steps and advance at a pace driven by each other rather than customers. Sure, they all talk about what customers want, but they really only need to outpace each other to become the “better option.” So the measurement of success is smaller.
The rest of the market is the little guys with paper clips tied to string as climbing gear, struggling to just climb to the next level.
So these days the par for the course is for companies to team up. We’re seeing the most interesting partnerships in the market, and it’s not just two players getting together, but four, five and six players getting together to advance against a No. 2. And that’s what’s needed – bold business development and innovative combinations, where the speed and simplicity of the deal is to be emphasized.
So there will be two paths to success in the market: those tactical innovators who do something small and reasonable and get acquired before they get too big, and those strategic innovators who tackle the big guys by simply outbuilding their vision of the larger-scale market.
And the replaced players? They’ll fall hard and fast. There will be several No. 1, 60% market share players who will be gone in a few years, outplayed by more nimble, smaller-but-teamed-up competitors. These forlorn market share leaders thus become part of the Land of the Lost, or simply Lost (to provide a more current pop culture reference).
Eat or be eaten. Times have not changed that much. But the ability of the market to sustain three large players seems to have passed. We’re continually moving toward twosomes. If you aren’t going to be happy with that outcome, then you need to start voting with your dollars to keep innovation alive or to speed the death of those who can’t keep up.
Briere is CEO of TeleChoice, a market strategy consultancy for the telecom industry. He can be reached at telecomcatalyst@telechoice.com.
