Market Leadership Should Be A Top Priority For Technology Companies  

Setting a goal of market leadership for your high tech company would seem to be obvious, wouldn't it?  Unfortunately it's not. Companies often dismiss market leadership as a serious objective, viewing it instead as unrealistic or simply unattainable.

Many executives hold the notion that carving out little pieces of multiple markets is just as good as owning the lion’s share of a single one, provided both approaches bring in equivalent revenue.  Plus, the rationale goes, it's much easier being a second-tier player filling excess customer demand created – and paid for – by the leader.  You’re not dependent on any single market.  And you’re too small in any single one to be noticed, or at least taken as a threat, by the competition.

Leaders love that attitude in their competitors.  They know firsthand that while it may work in commodity markets such as computer monitors or memory chips, it ensures less profitable second-class citizenship in dynamic, considered-purchase technology markets such as application software or network switching.  Think of technology leaders such as Microsoft, Intel, Sun and Oracle.  All four compete against companies with certain technologies and products that arguably are superior to theirs.  Yet each exploits its dominant leadership position to sustain market leverage over those competitors.

Indeed, being the market leader carries many more benefits than just prestige and a bigger share than the competition.  Look at a few.  First, market-leading products command premium price margins (such as new generations of Intel's Pentium™ processor).  Likewise, cost of sales of leading products, thanks largely to heavy pull-through demand, will usually be lowest within their categories.  With such ready demand, leaders can exact the most favorable distribution terms (such as minimal price discounting to the sales channel) since their products are easy to sell.  A leader's product life cycles tend to be longer as well  (Microsoft Works™ may be old, but still generates huge revenues).

Leadership makes the future brighter too.  Emerging companies all want to work and ally with leaders, offering them essentially "free" third-party support. Such clout also gives leaders early, often exclusive access to new technologies and decision makers.  Recruiting is much easier as well, since people want to work for market leaders. Still another advantage is the huge amount of publicity and ready public forum that go with being the market trend setter and news maker.  Furthermore, leaders command maximum customer loyalty.  The list of benefits goes on and on.

But is leadership in technology markets really realistic, especially for a small, fledgling company?  Yes, provided it focuses on a discrete, well-understood (and thus usually small) piece of the market for which it can provide a competitively superior, compelling solution.  Getting there, of course, is all about market segmentation, an arduous but necessary process for building a successful technology business, especially in new and/or rapidly changing markets

The process of market segmentation usually evokes grimaces from those who have tackled it in the past.  The reason, notes well-known business author Geoff Moore, is that it's a "high risk, low data decision."  That's because technology company management teams, while knowing their particular technologies thoroughly, usually know very little about the seemingly infinite numbers of potential target customers and applications from which they must choose.  This lack of domain knowledge makes deciding which market segments to pursue difficult , and which not to pursue almost painful.  Complicating matters, single segments often appear too small to support the company or to satisfy investor requirements for growth.

Market segmentation, while difficult,  is nothing less than essential for technology companies.  A manageable, stepwise process to address it will be discussed in a future issue.

by James R. Helbig as published in ICCB

9/12/2000