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The CRM Market Has Gone Majority continued
The Meaning of Gorillas, Chimps, and Monkeys
Geoffrey Moore is the person who popularized the Gorilla, Chimp, and Monkey imagery some people now use to describe players and positions in the market place. There are even stock portfolios that are constructed on this basis. I hear this language tossed about in many tech firms without a clear understanding of what it really means.
I lifted the following from a review of the book, “The Gorilla Game,” which used to appear somewhere at http://www.extropy.org/ but may now have moved.
Gorillas are the large firms that have a death grip on hypergrowth markets. The gorilla company's product is a proprietary but open architecture: proprietary in that the gorilla controls its implementation and pricing; open in that other vendors can integrate their own products with the gorilla's, thereby creating a value chain in which numerous companies have an interest in promoting the potential gorilla's solution. This proprietary and open architecture offers a discontinuous innovation in the marketplace and so creates a new value chain. Once the company has established its gorilla position, these factors produce high switching costs. High switching costs combined with the numerous other advantages enjoyed by the gorilla produce outsize earnings and stock performance.
Following behind the gorilla are the chimps and monkeys. Monkeys clone the gorilla architecture and offer products 100%-compatible with the gorilla products at a discount. They live or die based solely on execution. Chimps "are companies that tried to become the gorilla but just didn't get picked." They have invested in their own product architecture-one incompatible with that of the gorilla.
Like every metaphor, this one is fraught with danger. In another review at http://www.salon.com/tech/books/1999/09/20/gorilla_game/index1.html, Thomas Scoville writes
It's a compellingly simple thesis. The problem is that, like most Post-Its, it doesn't always stick, especially to a slippery surface like the NASDAQ. One of the signal features of markets is the persistence with which they rebuff attempts to tag them with simple formulae.
But no matter. From the very beginning of the book, our attention is entertainingly diverted by a pleasantly disorienting menagerie of mixed metaphors. The authors depict a jungle not simply of imaginary industrial gorillas, but of lesser companies in pursuit (Chimps), and even smaller corporations exploiting niche markets (Monkeys). Then they jump-cut to a parallel universe of companies cast as Kings, Princes and Serfs.
Not even market dynamics are safe from metaphorical mangling: Software companies must be acquired, the authors assert, under market conditions known as "bowling alleys" -- periods of cascading, niche-to-niche market growth akin to the toppling of bowling pins. Companies must "cross the chasm" into profitability. The very markets themselves are periodically rearranged by "tornadoes."
All of this left me feeling just a little bit silly; for all the authors' heavy Wall Street cred, their industry analysis bears a suspicious similarity to the fantasy lives of adolescent boys: "And here comes the Gorilla. Now it's colliding with another gorilla! Two gorillas fighting! But they've got to stop for a while, because they're both being attacked by chimpanzees! Now they're all crossing the chasm! Now the monkeys are counterattacking! Aaaugh! Here comes the tornado!"
So what are we to conclude? Stay away from the metaphor might be one possibility. If you don’t agree with the conclusions, it would be better to stay away from Moore’s jungle taxonomy rather than to debate its finer points.
But let’s assume for the moment that the Moore and company are essentially correct. It seems that Siebel gets the gorilla prize in the CRM market space. You can quibble here if you like, but it would seem they meet the threshold requirement: proprietary but open architecture: proprietary in that the gorilla controls its implementation and pricing; open in that other vendors can integrate their own products with the gorilla's, thereby creating a value chain in which numerous companies have an interest in promoting the potential gorilla's solution.
What position does that leave the other big players? SAP is a gorilla in another space with PSFT playing a very credible Chimp. Oracle is a gorilla in still another space. That makes three gorillas fighting for dominance in a space they all intend to own. MSFT is the other obvious gorilla wanting to change the game in a completely different direction according to the dictates of dot.net. Braver people than me bet against Microsoft so you know where my money is on this one.
That’s a lot of gorillas. If you divide the ERP players into near equal thirds—we see one gorilla (1/3), four chimps (1/3), and a whole bunch of monkeys (1/3), each third with about six billion in revenues. It’s possible that the CRM market will distribute differently, but I doubt it.
As I’ve already said, when markets move into the majority hump of the curve, customers buy names they know according to criteria they understand. It is at this point that the gorilla/chimp/monkey distribution locks in until a disrupting innovation turns the category completely on its head. The likelihood that a firm will make a big move up the monkey/chimp/gorilla chain once a market goes majority is very, very small. The firms that pull this off often do it on the backside of the curve by pursuing an operational excellence strategy to the nth degree. They obliterate the competition with efficiencies and low costs based on proven technologies at the end of their lifecycle.
Gorillas win in the hump of the curve because they meet the threshold requirements: known brands and solid value delivery across dimensions majority buyers understand. They sell more and they enjoy higher market caps. Niche and segment players can also win in their part of the market because they can also meet the threshold requirements. They sell more in a category and enjoy a better multiple in the context of their category. I guess that would make them gorillas in the niche or something like that.
Free roaming chimps get crushed.
. . . continued
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05/03/06