Google's business model has received a fair amount of ink over the years. The point being made in the articles was that Google was paying attention to and funding research into adjacent markets. During the heydays of the dot-com era, 20% of a the typical Google employee's time was allocated to paying attention to adjacent markets. The reasoning behind this attention to adjacent markets was that by understanding what was taking place and what customer needs were not being met, opportunities presented themselves for the company’s growth and expansion.
Google has grown from its core business of Internet search to include enterprise search, a bevy of in-the-cloud data applications, application mashups, mobile device applications and most recently a reasonably robust one-number follow-me voice application. This growth is significant.
Cisco Systems is another example of a company built on working the adjacent market awareness strategy. Founded in 1984 as a routing company, Cisco has since become an end-to-end infrastructure platform company as well as a software company. Moving along the path of adjacencies, Cisco has also moved into multimedia, mobility, and communications markets.
What happens when firms do not pay attention to adjacent markets? The industry gets really interesting to watch because the wins and losses are spectacular to observe.
Newspapers
The newspaper industry is undergoing substantial changes. Cities with two daily newspapers are seeing one of them fold; Seattle and Denver are the most recent cities to lose one of their two daily papers. More are expected in the coming months in cities and towns across the country. The demise of the newspaper is directly attributable to the Internet.
Where newspapers provided, at best, day old news; the Internet and its army of participants offer breaking news. News reporters, leveraging two, maybe three sources cannot compete with the wisdom of crowds and the hundreds of perspectives brought to a story on line. As evidenced by the New York Times and Wall Street Journal, having an online presence adds substantial value to the content. A biased reporter will be called out quickly, additional sources and content linked to the original story, and different perspectives articulated.
The revenue streams of classified advertising and business advertising have evaporated. Craigslist reaches a wider audience than any local newspaper. Business advertising is being micro-targeted for greater effectiveness. The revenue streams are gone, the reporters have been displaced, and it is just flat out expensive to operate a physical newspaper with all its requisite infrastructure.
TDM and PBXs
Traditional telephony vendors are an exceptionally good example of not paying attention to adjacent markets. First there was the monopoly, then a handful of smaller telephony vendors with their territories handed to them by the legal system. They happily exploited their customer base, which was everyone, because there was no competition. An oligopoly, just like the failing US auto industry, making the vendors complacent.
Then along came the Internet and the Internet Protocol. Having started out blissfully ignorant of data networking and its ability to connect people and devices, the telephony vendors are now scrambling for survival. Telephony vendors argued features and 5-9s reliability, resisting the call of their customers to provide full multimedia communication functionality on a standardized infrastructure. By the time they started listening to their customers, it was too late. The data networking and software development companies, with their eye on adjacent market opportunities, took the voice business down to its lowest common denominator, software.
Today voice communication is one component of a portfolio of communication methods, all of them driven by software. The communications portfolio market is dominated by vendors with deep pockets, marketing muscle, intelligent channel strategies and an awareness of adjacent market opportunities. Traditional telephony vendors threw away their opportunity to be relevant. Now the Alcatel-Lucents, Avayas, and Nortels of the world can only hope to be one small component of a much larger portfolio of business communications. Assuming, of course, they ever emerge from bankruptcy, private equity ownership, or executive management ineffectiveness.
PR Agencies and Analyst Organizations
PR agencies and analyst organizations are in the midst of adjacent market impacts. Social media companies and tools are making these traditional businesses re-assess their business models. Social media allows companies to communicate with their existing customers and prospects in a wide variety of channels.
Where PR agencies have leaned heavily on journalists for exposure, there is opportunity for businesses to use their customers as a voice of the company. Customer testimonials trump a press release when prospects are looking for solutions to their burning problems. Firms with tightly integrated social media tools experience substantially more exposure at lower cost than any PR agency can deliver.
PR firms have the opportunity to grab this adjacent market and take advantage of what it has to offer. By becoming experts in social media implementations and usage, the traditional PR firm can expand its business into new adjacent opportunities of market communication offering wider, deeper reach more quickly for their clients.
Analyst firms are faced with a similar situation. Social media allows companies to query customers and prospects on a wide variety of issues, including market perceptions of competitors. Analyst firms offering market intelligence reports are at a disadvantage to social media tools. Information has a shelf life and social media provides nearly real time market information. The analyst firms cannot compete in this area.
What the analyst firms can offer; however, is the deep analysis of market trends and competitors. Analyst firms that keep an eye on a particular market, and the players in the adjacent markets, have a lot of value to offer their customers. Like the PR agencies, the traditional analyst firms can take advantage of adjacent markets, utilizing the same social media tools as their customers, to provide a horizon-to-horizon view of given markets.
Virtualization and Hardware Vendors
Virtualization and cloud computing has had a significant adjacent market impact on traditional hardware vendors. The examples are numerous, but the most stunning comes from Microsoft's CEO, Steve Ballmer publically acknowledging at the Mobile World Congress conference in February that it sees Google as a looming, must-be-dealt-with-threat. Specifics can be found here.
At the conference, Google announced its Android OS would be appearing on laptops and netbooks. This is a direct threat to Microsoft's Windows OS for both the desktop and mobile devices. While Microsoft was busy working on the adjacent voice market; Google was busy working on the adjacent desktop/laptop market. The market share battleground between these two technology titans will be in netbook OS installations and cloud computing. Google preannounced its release of Android for netbooks. Microsoft followed suit with Ballmer stating Windows Mobile 7, due out in January 2010, will be optimized for netbooks. The battle lines have been drawn, with devices connecting into the cloud as the focal point.
What's the big deal about cloud computing and virtualization? Who is really working in the cloud? According to research released by Forrester in early March, cloud computing is a big deal. Forrester took a look at the impact of the adjacent market of cloud computing on the traditional desktop environment and provides some interesting facts. See Forrester's press release here:
Among the 2,600 research participants surveyed in North America and Europe, the trend to migrate to cloud computing is well underway. A few statistics from the research include:
x86 server virtualization adoption. Fifty-four percent of enterprises have implemented x86 server virtualization or are doing so within the next 12 months. Fifty-three percent of SMBs have already implemented x86 server virtualization or are doing so within the next 12 months.
Virtualization of OS. Enterprises report virtualizing 31 percent of their operating system (OS) instances today, and SMBs have virtualized about 36 percent of their OS instances. In two years, enterprise respondents expect to virtualize an average of 54 percent of all OS instances, while SMB respondents expect to virtualize 61 percent of all OS instances.
Alternatives to traditional PC technologies. Firms are feeling real pain over the costs of maintaining PCs. Seventy percent of enterprises and 74 percent of SMBs said they hope to lower PC costs with alternative technologies such as various forms of desktop or client virtualization.
Virtualization of OS. Enterprises report virtualizing 31 percent of their operating system (OS) instances today, and SMBs have virtualized about 36 percent of their OS instances. In two years, enterprise respondents expect to virtualize an average of 54 percent of all OS instances, while SMB respondents expect to virtualize 61 percent of all OS instances.
Alternatives to traditional PC technologies. Firms are feeling real pain over the costs of maintaining PCs. Seventy percent of enterprises and 74 percent of SMBs said they hope to lower PC costs with alternative technologies such as various forms of desktop or client virtualization.
Clearly, both Google and Microsoft see the impact of the adjacent market of virtualization and cloud computing and are taking action to meet their customers’ and prospects’ business needs.
Bottom Line
Companies seeking to grow need to pay attention to their adjacent markets. Big, revolutionary market transitions occur when adjacent markets start to blend. The transitions are small, nearly imperceptible. They may even appear to be inconsequential such as craigslist for classified advertising and the ultimate impact on the newspaper industry. We have witnessed revolutionary market shifts with newspapers and traditional telephony vendors. We are currently living in the tumultuous times of social media and virtualization.
In placid eras, like the industrial or dot com run up, many businesses only addressed the world around them, while those who saw fantastic opportunity were viewed as radicals. The past decade has not been ordinary and those that remained placid are now paying the price in market share and potentially their very existence.
Pay attention to the company's radicals. It is their awareness of adjacent markets that will assist in the firm's ability to move into new markets and achieve long term growth.
Martha Young is founder and principal of Nova Amber, LLC. She has been writing on the topic of virtual business processes since 2002. She can be reached at: http://www.linkedin.com/in/marthalyoung or on Twitter.
