Handling the Curves


The Science of Shakeouts and Adoption


by Joey Tamer


Digital Coast Reporter Issue 3
in Silicon Alley Reporter Issue 18, October 1998

Emerging technologies, including the Internet, can be tracked by two curves. One is rather well defined by now, the other rarely mentioned. Both must be understood and tracked for a company to survive and succeed during the birth of new technology.

The first curve is well documented in the literature: the innovator-early adopter-early majority-late majority adoption curve. This tongue-twisting model tracks a bell-shaped curve of adoption of new technology. The innovator buys version 1.0 of everything, and tries to get his hands on Betas. The early adopter waits until the initial stabilization of the technology, and tends not to assemble kits. The early majority is the largest part of the bell-shaped curve, and represents the launch of new technology into the mass market.

This is the exciting time, when everybody's brother's cousin can tell you about the technology, and show it to you in his den. The late majority, sometimes referred to as "Joe Six-Pack", are the non-urban folks who never worried much about touch tone phones, pay-per-view or answering machines. When reaching the late majority, the bell-shaped curve is on its way down, indicating a slowing in consumer appetites, already sated during the high days of the early majority.

The second curve is rarely discussed, even though it's the foundation for the adoption curve. It looks like this:

1. Build the infrastructure. This is when the hardware and the pipelines and the fiber optics and cable connections and the nuts and bolts of a reliable infrastructure are constructed. We are concerned with the basics, not with the bells and whistles. We want to know "Can we get it from here to there?"

2. Establish standards. Here we try to stabilize the delivery infrastructure, and the software which will run on it. At this point all switching cables, delivery mechanisms, operating systems and intellectual property attempt to become standard, and there is virtually no cooperation among the players. Everyone wants to be the Big Dog.

3. Educate target market: Round 1: This phase begins teaching the user (corporate, consumer or distributor) how the infrastructure works, which standard is best, and what the future will look like. The target market must buy into the story, or no market is formed.

4. Shakeout: Round 1: At this moment, one or two players win, and the others lose. Standards begin to emerge, with promise for market share. This happens on all levels--infrastructure, hardware, software.

5. Mergers and acquisitions: Round 1: During this period, various of the players who survived the first-round shake out join with one another to create a more dominant market share, to shakeout the remaining players. At the end of this round, there are only two or three players in each domain. They will fight it out for market share.

6. Shakeout: Round 2: This is the natural next step after M&A: Round: 1.

7. Educate target market: Round 2: Now, the Big Dogs get aggressive in educating the target market, in order to create dominant market awareness and market share.

8. Products become commodities. Once the target market is educated about the value and the use of the infrastructure, the standards, and the products themselves, this education sinks into the community knowledge of the users. At this point, the cost of educating the market, the cost of technical service, the cost of selling comes down, as do the prices of the products, creating intellectual property as commodities which are bought by more and more of the mass market.

9. Mergers and Acquisitions: Round 2: Now the top players who have the most market share start to buy each other, expanding laterally into adjacent industries, expanding globally, becoming conglomerates, creating only a few dominant companies who set the standards and control the world market.

10. Global expansion. The Big Dogs run the world.

It is easy to see that the innovators are buying and using technology in the early stages of infrastructure, standards, and education of the target market. The early adopter comes in around the time of the first shakeouts, mergers and acquisitions, when market share is being established among dominant leaders. The early majority, riding a huge push into the market, participates in the new technologies during the second round of education, when products are well-defined commodities, and the second round mergers and acquisitions are defining the dominant companies who will set the standards. Joe Six-Pack, sitting in rural America, is part of the global expansion, focused nationally on third-tier geographies.

Timing is of critical importance. An executive must be able to track both curves, and know where his company and product fit as the two curves overlay one another. This knowledge determines a company's entry strategy, positioning, pricing and distribution. This timing predicts how long the company can endure until it can gain market dominance, and what capital is required to ensure its survival. Knowing when the curve declines predicts a company's exit strategy. Survival and success depend on this timing.




Joey Tamer refines the vision, strategy and success of companies -- 
Fortune 1000, capitalized start-ups and investment fund.

www.joeytamer.com    (310) 245 5310   joey @ joeytamer.com