On recent visit to Southwest Utah I saw lots of pygmy forests containing pinyon pines and small oak trees, these forests are sparse and the trees no more than 8-10 feet tall. The National Park literature says that these trees have adapted to low water conditions. Contrast this with the Redwood forests of coastal California where resources (water & sunlight) are abundant. In this environment the trees are more densely packed and grow much taller.
Replace trees with firms and resources for customers, and this paragraph could describe a business landscape. Being binary for a moment, a new firm gets to choose between choosing to enter a market where resources (customers) are slim or to enter a market where there are lots of customers. Choosing a market with few customers, makes it easier to differentiate your firm but the odds of survival are worse. Choosing a market with more customers makes it harder differentiate your firm and therefore the survival odds are also tough.
Unless of course, your firm is first. In both instances you get to choose the best position and consume all available resources.
Once brands and companies embrace data, the biggest challenge they face for long term growth, and survival, is ensuring the data they control has a broad scope – i.e. it allows them to look to their edges of their vertical, and beyond. When Warren Buffet chooses firms to invest in, he looks at what he describes as their moat, either an economic, ip-related or technological moat. A firm’s moat helps insulate them from attack, and allows companies to weather economic downturns. In the data age, building broad scope data sources is an extra moat for firms.
Most companies in established verticals are either competing with Amazon or worried they will end up competing with Amazon. As with Google, Amazon gets a wide and detailed view of customer behaviors and trends from its many businesses. Just three of those business units, online store, web services and amazon video, provide a rich understanding of consumers and their preferences that Amazon can use to identify opportunities for launch new businesses.
Amazon is clearly ahead of the game, and if they don’t make a misstep the lack of real competition this early on will no doubt allow the power law of growth to take hold in many verticals. As Marc Andreessen wrote in 2011, “Software is eating the world”, Amazon is doing just this. No doubt Google and Facebook are on a similar path and are equally hungry.
For the rest of the commercial world, sage advice would be to build broad scope data sources that you control, rather than just enhancing analytics capabilities. Data sources that provide insight into incremental audiences are crucial to audience and sales growth.
Firms should invest in creating new behavioral datasets that they can control (analyze, shape, create experiments with). Ultimately future success will be determined by whether firms can create demand for their products by changing people’s behaviors and create incremental audiences. Looking beyond their verticals, and thinking about the growing their categories is key to this. This can only be achieved successfully by committing to a data strategy that encompasses, developing broad scope and deep data sources as well as advanced analytics.