The Song Remains the Same: When Categories Consolidate

By Paul Wiefels, managing director & co-founder of Chasm Group, LLC


Cisco’s announcement that they will acquire Splunk in a reported $28 billion transaction is further evidence that the cybersecurity category is consolidating. But is consolidation “bad” per se? If the past is prologue—and in the tech industry that is practically guaranteed—customers typically come to welcome it. Over time their choices, while narrowed, become more informed, and their investment decisions and budgeting more predictable. More simply, it makes their lives easier.

We’ve heard the music before; seen the movie too. Widespread consumer demand gives rise to numerous ambitious companies creating a master category, which begets myriad category offshoots. If it’s software, dozens of three or four-letter acronyms ensue, watched over by analyst firms who slice and dice the expanding category in a well-intended (mostly) effort to establish a taxonomy. But over time, too many become too much.

Fewer choices mean less risk—for now.

Category consolidation is inevitable in that markets always choose winners and also-rans. Customers gravitate to the former. Mainstream markets are composed of, in our parlance, pragmatists and conservatives, who value standardizing on companies they regard as market leaders. Reducing vendor exposure can reduce in the short- and medium-term, both business and technical risk. Market share and market ecosystems become the predominant metrics rather than just placing “high and to the right” in an analyst market topology. Customer senior leaders come to think of their relationship with these leaders as adopting environments. Think Oracle or SAP. Microsoft and Google. Salesforce and Adobe. While customers may still opt for a best-of-breed approach to certain challenges, markets increasingly favor those who fit in and thus complement these environments with a special capability that creates a meaningful, significant benefit not otherwise currently available (though often promised) by the environment’s “master tenant.”

The flight to simplicity.

Category evolution is also inexorable. It is rarely delayed or derailed. Yes, customers risk becoming beholden to or dependent on a dominant vendor environment. But the alternative is increasing chaos. Too many vendors mean too many vendor roadmaps to make sense of. Too many POCs that otherwise occupy staff. Too many SLAs. Too much internal competition for limited or already committed budgets. You can outsource the whole mess to a cloud provider. But doing so has its own limitations including cost, regulatory compliance, data protection and so on. Either way, the simpler stack becomes the preferred stack.

What does it mean for players in the category when consolidation becomes evident? For vendors who don’t control or sponsor these environments, your choices going forward now must reflect this new reality. It is at this point that your market strategy can spell the differences between navigational success and something less than that.

There are a number of obstacles that can trip you up when consolidation occurs. In our experience, two stand out.

Adaptation delays—Remaining focused on and organized for the dynamics of the early market rather than one that is rapidly maturing. Organizations tend to delay making fundamental shifts in market strategy because they don’t recognize the need; it’s difficult to do so; it entails cost; it runs counter to current metrics, and so on. Therefore, we resist doing it, or we tinker around the margins. However, both strategy and execution must evolve, sometimes significantly so, as markets evolve. Not acting on both can lead to irreversible consequences. Organizations can become trapped or imprisoned by their prior successes.

Constricted perception—Continuing to believe that only you do what you do. I call this the mirror and window problem. Mistaking the former for the latter. While novel technologies, processes, and outcomes may have brought you to where you are now, imagining those will persist, or operating under the illusion that no one else is developing equivalent or near-equivalent capabilities can result in unpleasant surprises. Markets come not to believe it either. Our interviews with hundreds of customers regarding numerous product categories over the recent past evidences this. Buyers now have access to unlimited and free information, previously an advantage wielded by vendors who thought it to be persistent. It’s not.

What can you do to improve your posture going forward?

Recognize and optimize for your role in a category. A company cannot be more powerful than the category it is a member of. Categories that never evolve beyond technologies or tools are inherently less valuable than categories that evolve into critical business-driving or business-supporting applications and platforms. People try to “reinvent” categories but reinvention is not a panacea. Leadership teams must continually strive to define objectively the challenges of today and going forward, rather than extrapolating from what has been done previously. You need to think and act differently. This should manifest in a competitive, contemporary market strategy, not simply a new marketing campaign.

Affirm the market and segments that you serve. Are you a specialist in a few or a generalist in many? These become mutually exclusive approaches past initial customer adoption. If you provide a unique, persistent value that can be used by many, can you scale your efforts to support them and still extract a profit? Or do you provide deeper value to fewer, well-defined segments and use cases so as to be rewarded for your devotion? Can you “stick your elbows out” to serve adjacent segments or use cases? Consolidators create and foster environments. Don’t fight them. Make them better.

Maximize the attractiveness of your offer. An offer is not synonymous with your product. A complete offer is comprised not only of what you provide, but how you provide it. It follows from above that over time, your offer should be differentiated from a customer’s relevant alternatives less on the features of the product, and more on the “features” of the customer. How do you fit into the customer’s world? How does your offer add outsized value? How do you become core to that customer’s needs, purpose, or interests? These are sometimes taken for granted. But when categories begin to consolidate, ignoring them can come at great risk.

Emeritus professor of marketing at Northwestern University, Philip Kotler believed that “Marketing is not the art of finding clever ways to dispose of what you make. Marketing is the art of creating genuine customer value. It is the art of helping your customers become better off.” To that, we say amen. But it’s more than that. Not limited to marketing, it should be the mission of every enterprise.