The idea of a niche product by itself is slightly flawed. The intent of this post was certainly not to be mired in the meaning of the term niche. Nevertheless, I do so with the intent of drawing upon the different definitions that reveals some interesting connotations of how the term has come to be used in the context of products and companies. Here are some of the definitions (only the noun form) –
- A shallow recess especially one in a wall to display a statue or ornament
- A cranny, hollow or crevice, as in a rock
- A position particularly well-suited to the person who occupies it
- A situation or activity specially suited to a person’s interests, abilities or nature
- A focused, targetable part of a market
- A special area of demand for a product or service
The sequence of the definitions above, tells us the rough evolution of the term over the years. It is evident from the very words and phrases that are used to describe the word, that the last few definitions are fairly recent.
Now let us take a look at the way the industry has used the term niche. We have niche players in Gartner’s Magic Quadrant that attributes a relatively lesser ability to execute and a lower completeness of vision with respect to one market segment, to companies that fall in that category. On a different note, it beats me why I should be talking about folks who neither have a complete vision nor the ability to follow a strategy through with action!
Somewhere in the entire scheme of things (read parlance and thought process) that the industry has gotten used to, every small player with a small footprint of product installations and customers is christened a niche player. Well, there is nothing wrong if a niche player is small. But there is everything wrong when you start talking about every small player as a niche one!
In this era in the evolution of organizations and businesses (why even in our personal lives for that matter), the number of brick-and-mortar products that are available to cater to each aspect of the business and the choices they offer is, mildly put, large. Despite this backdrop, it is somewhat surprising that the entire business application products space comprises much fewer large players than one would expect. A look at the evolution of these large companies reveals some really interesting facts.
Most of these products evolved, first time around, from robust and comprehensive home-grown automation solutions for rather generic business processes. These were packaged and taken to the neighborhood market with the promise of shorter time-to-market and lesser cost of implementation. These were obvious advantages of a ‘second sale’. With the buyer community latching on to the idea, the footprint grew to an installed base of, at best double digits and at least 5-6 instances and the market itself grew beyond the neighborhood and even across borders aided by a globalization agenda.
In parallel, the number of acquisitions in the space grew dramatically and the smaller companies with their products got cannibalized. The core reason behind the consolidation was as much aspiration as economics. Well, this is all very fine because that is the precise way businesses evolve. But what may turn out to be more interesting is to look at the company that had implemented the product from the smaller (and so called niche) product company in the first place. This company now, is pretty much at the mercy of the larger product company and their strategy to retain or retire the product and brand it acquired. And then, there are the other niche product companies that haven’t sold out and continue to live with the ‘niche’ they have made for themselves. The niche, however, for these companies, has begun to take on the first two of the definitions presented right at the beginning!
At the other end of the spectrum, the larger product companies which started with less than 40-50% coverage and hold on the entire spectrum of business processes that an organization typically has, have continually grown that coverage to over 70-75% through organic and inorganic expansions. Much can be said and debated about what is the core competence of an organization and if or not their customers would see a product or service differentiation if three-fourth of their processes are standardized and pretty much the same as the rest of their flock! But that is a slightly different point.
It is clear that a strategy that is built around adoption of a niche product and company ought to be carefully evaluated against the long-term goals of one’s organization and the sustenance of the strategy over a longer time horizon. And if one does go that path, would it not be prudent to have an option open to transfer ownership of the product and its support to your organization, is well worth consideration.
You may also find some interesting perspectives on this and related themes in
Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.
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