Bigger Is Not Always Better

One key dynamic of the data business is that the strongest businesses serve single, tightly-defined markets, typically a single vertical market. The problem for

One key dynamic of the data business is that the strongest businesses serve single, tightly-defined markets, typically a single vertical market. The result is that the market opportunity tends to be smaller, but it is much easier to stay close to and defend.

The problem for data publishers attempting to build products with horizontal coverage across multiple markets, or who want to play in large consumer markets, comes down to a very simple reality: it’s hard to be everything to everybody.

It’s instructive to look at some of the reasons why it’s so hard to achieve long-term success with broad-based data products:

Lowest common denominator:

In order to operate efficiently, broad-based data publishers typically have to collect fairly standardized and fairly shallow data across multiple vertical markets. This creates an opportunity for other data publishers to “slice and dice” these publishers, peeling off the largest and most profitable vertical sub-markets, and serving the same need with deeper and more tailored data.

Greater incentive for competitors 

If you achieve any level of success with a horizontal, broad-based data product, you’ve not only identified a big market need, you’ve identified a big market opportunity as well. That means it may well be worth it for a competitor to invest significantly to steal market share or push you out entirely. Contrast this with successful vertical market data publishers, where the small scale of the market is one of their best protections. Competitors typically can’t financially justify trying to push their way into small vertical markets.

Turning an ocean liner

In addition to being a juicy competitive target, an established broad-based data publisher typically succeeds because it has built an operation that over time becomes very difficult to change for technical and business reasons. That means it will be at the mercy of such forces as new technology, shifts in user preferences and new business models, and just a few competitive successes can break the momentum and market dominance of the incumbent data provider. Moreover, the incumbent data responder is only able to react slowly, if it can react at all.

Too cool for school 

While some broad-based data publishers become exposed because they can’t react quickly, others expose themselves by innovating so aggressively they get ahead of their markets and their customers. In a relentless quest to stay relevant and ahead of the competition, these publishers roll out features and functionality that their customers often don’t understand or even want, adding complexity to the user experience while muddying the core value proposition.

Platform envy

Perhaps encouraged by the spectacular success of Amazon, it’s easy to take the view that your data product can become a data platform, a way to distribute all kinds of data, products, whatever. That’s a big leap technologically, and while platforms are enticing to publishers, they almost inherently mean diffused focus, thus opening opportunities for competitors to enter the market with more focused products.

 

The most successful data publishers and products I see these days tend to serve one market and serve it extremely well. As long as these businesses stay close to their customers, evolve their products regularly and prudently, and offer good customer support and fair pricing, they can be enormously profitable while remaining largely immune to competition. That’s why in the data business at least, bigger isn’t always better.

This article is adapted from the InfoCommerce Group blog.

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