Jun

24

On Barriers to Entry

Filed Under B2B, Big Data, Blog, data analytics, Education, eLearning, Financial services, healthcare, Industry Analysis, internet, Publishing, Reed Elsevier, Search, STM, Thomson, Uncategorized, Workflow | Leave a Comment

On the morning after the British electorate performed the largest mass suicide attempt in even our eccentric history, thoughts naturally turn to the future. Will a Europe that envies English as a Lingua Franca and which would like Start-up City Europe to be Berlin or Barcelona instead of London’s Silicon Round-about, find ways, in this messy divorce, to challenge the status quo in European information marketplaces? Like everything else I have heard this morning, it is “too early to tell”, but while thinking about competition and competition rules, it may be worth speculating on something else. Is competition what it used to be, and what has happened to the “barriers to market entry” that seemed so important to us all in pre-digital non-networked marketplaces.

And it may be necessary to remind those under a certain age what those historical barriers to entry were. The greatest of them was Ownership. Primarily the ownership of Intellectual Property. And first and foremost the possession of Copyright in Proprietory Information, Data or Content. For 70 years from the death of the author. This Ownership position was also reflected in Brand, and with luck one could combine the two to create quasi-monopolistic positions. Then add domination of distribution networks, exclusive positions with third party agents in important subsidiary markets. Then look at the Know-how created to run these businesses, and the way it was passed like an inheritance from generation to generation of long-serving staff and one can easily see how intimidating and expensive it was to attempt to compete. As the tyro CEO of the European Law Centre in 1980, I looked at Sweet and Maxwell (late eighteenth century) and Butterworth (late nineteenth century) and wondered, although my online product was a wonderful innovation, how I could possibly compete.

The short answer is that you couldn’t. Thomson bought one and Reed the other, acknowledging that if you wanted market share you had to buy it, or condemn yourself to niche plays in subsidiary markets that these Titans disdained. But now turn your mind to market entry today. Established plays who have put down roots are almost a challenge to disruptive start-ups rather than a threat. I grapple now with the opposite problem of valuation: how do you place value on ex-print – migrating – to digital companies when it is easier for a start-up to enter their markets than it is to rent a garage in London from which to do the disrupting? In an amazingly short time, the Age of Content has collapsed around us in all but entertainment marketplaces. It is not just that content became commoditised. It is also to do with our expectations. As the costs of computing and storage continue to collapse in relative terms, volume is no longer a factor here. I read the suggestion in Ars Technica this week that it will soon be possible to download major data collections like Elsevier’s ScienceDirect and provide them to every user. Which reminded me that you could download major collections (SciHub) a and provide them free in Kazakstan.

While major publishers still own the copyrights, theses ownerships no longer present barriers to entry. As I have so often written here, users want solutions, and preferably ones that slot into workflow. So where do we look now for barriers? In a world where users want a comprehensive view of all of the content/data/information which may be pertinent to solution, we can always simulate the content we do not have even if we cannot acquire it as Open Data or find it on the Open Web. But we can add value to it, both in terms of semantic web treatment, and entity extraction for building taxonomies and ontologies. Our knowledge system is both a differentiator and a barrier if it becomes a market standard. Indeed, much of our software performs barrier roles – even if it is hard to protect and, even if our techniques achieved patent protection, that is a short term gain at best.

But where else can we turn? Well, for some an acquired skills base may be a barrier against raw star-up competition. With many players seriously concerned about price competition from well-funded second stage offerings seeking to buy market share on price, it is also important to inspect the state of the Golden Handcuffs that hold the employed skills base in place. And the same applies to the customer relationships. Since customers are a very likely source of competitive pressure, it becomes important to “value” the customer and his relationship with you – are you so expensive that it will soon be cheaper for him to acquire your technology on the market and do your process internally for himself? What was the cost of acquiring that relationship and how quickly could you build another one? What parts of the relationship are defensible from competitive attack on either price or value?

It now becomes harder to value a company in terms of barriers to entry because many of these elements involve valuing intangibles. In a networked society location is no longer a very important factor, and in a network where brands can be created and built in a remarkably short time there is little sacred about trust and brand authority in the abstract. Yet markets still keep asking about defensible value positions, and none of the old answers work anymore.

Mar

25

On Co-creation and Procreation

Filed Under B2B, Big Data, Blog, data analytics, Financial services, Industry Analysis, internet, Reed Elsevier, Thomson, Uncategorized, Workflow | Leave a Comment

A few days have gone by and I have read a great deal of commentary on the merger of IHS and Markit. It has been interesting to see the various hopes expressed for a dynamic future, the justified faith in valuations borne of data and analytics, the readings of the leadership tea leaves in analytical circles and the various interpretations surrounding the decision to move the tax base to London. All good stuff. But it leaves me puzzled about the questions not asked and the analysis not performed. I have known IHS since it was a Thyssen Bornemiza company years ago, aligned with search engines of the 1980s like BRS. Seeing it then as the Information Handling Services outsource for the aircraft industry of Denver (think taxonomy when we called it thesaurus!) I have watched it grow at least once before out of control, re-niche itself around energy and engineering, and then regrow again in wild acquisitive profusion. Likewise I have watched Markit’s lusty growth, it’s move into data markets (recall DataExplorers) and its competitive issues with Bloomberg and Thomson Reuters.

So, what I wanted to know from the commentators was fairly basic: Does this mean that the IHS rapid acquisition strategy has failed? Is this a portfolio company that, once again, needs weeding and reconcentrating? Will that be done more effectively in London than in Denver? Does this mean that the strategy of buying high value, profitable operations and keeping them in their niches is at an end? When they decide which business areas they want to centre upon, will they create a new data platform, concentrate all of their data from these currently unrelated companies, and begin again on new product development in co-operation with their clients?

And the questions go on. Does this mean the end of using acquisitions as a way of goosing the share price and a return to strategies based around organic growth? Does it suggest a strategy that returns to the old portfolio ideas (it’s never raining everywhere), or, hopefully, is there a Thomsonesque idea here of a Markets company, with the glue not corporate law and compliance, but a specialization in the energy and engineering sectors, the former especially being of great interest and a wider concern for all corporates at large. So does such a strategy foreshadow a bid for Thomson’s IP interests, now available, which would cement a traditional specialization of IHS in industrial documentation from standards to patents? And having just swallowed IPIS, the oil pricing service, can they let Argus Media, now on the block, go to a competitor with similar strategic aims (like Verisk, owner of Wood Mackenzie). (Perhaps, since it will probably go to private equity, this should not disturb a night’s sleep!).

Nature abhors a vacuum! Since I have no answers to hand from managers or analysts, I may have to supply some of my own. IHS owns many stunning properties. But it really does need to get them onto one coherent platform, along with the user data and profiling that has arisen from their historical usage, and get into the service provision mode of co-creating new services in conjunction with their clients. They need no more than two “broad niches”, and Markit can well cover the market focus of those – sell everything that does not fit these niche definitions. Bring third party and Open niche data onto the platform in order to become once more the focus of user service creation efforts – I have already written at boring length on the flawed decision to sell GlobalSpec. Use the business models that give greatest returns for the greatest amount of user reliance and loyalty – business models are not religious beliefs. Above all, think carefully about new product development. Your data is vital: your productisation of it as of now is less so. Your brands are valuable but they are not static either, so you need to be able to extend them across new services built co-operatively with your customers.

And is there room for such a strategy? And who is doing it? Well, a class example would be Lexis Nexis Risk in the insurance vertical. Thomson Reuters are slowly moving from Portfolio Mode to Corporate Market Services mode (corporates as investment vehicles plugged into a service base of law, tax, risk and compliance). Does Bloomberg see it or not? Bloomberg Law and BNA says they buy some of this – but neither of the large markets players, by their small investments in data (New Energy Finance, Point Carbon etc) has put themselves in anywhere near the position now occupied by Markit in energy markets. How that positioning is deployed and how successful it is could be the key to consolidations as yet un-imagined.

Above all, success will depend upon how effectively these players can co-create with users who know and trust them and procreate new product development. The start-ups cannot be relied on to work quickly enough on seed corn funding. The conglomerates cannot simply wait for start-up trial and error to succeed and buy the results – and then not integrate them into their own operations. If we as an industry cannot get this right- then our users will do it for themselves!

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