One of the attractions of Industry Cloud providers and other multi-sided software platforms is the prospect of “network economies”, or “winner-take-all” outcomes. In simpler terms, as an industry cloud provider grows subsequent sales to either buyers or suppliers should be easier. A prospective buyer will find all of their suppliers on the network and vice versa.
And yet, many industries have not yet evolved to the point where they have only one or two winners. Why not? Clearly are many are headed the direction of such consolidation, but it does take time for these companies to solve the “chicken and egg” problem of participation and to establish dominance. It took a long time for the payment, EDI, credit card, auction, and dating site networks (to name a few) to evolve into near oligopolies. It should not surprise us that it will take even longer in the B2B Internet world.
But there is a much more interesting reason why multiple industry cloud providers have succeeded in the same “industry”. And that has to do with the loose definition of an “industry”. Industries are not one monolithic set of buyer-supplier relationships. They often comprise many highly differentiated segments. As long as these segments are sufficiently differentiated, multiple marketplaces will survive. It is “winner-take-all”, but only within these differentiated segments.
A great example is the gigantic, “too-big-to-fail” auto industry. Consider the different segments within the auto industry:
- Big OEMs
- Auto dealers
- Parts manufacturers
- Scrap yards
- Collision and repair shops
- Auto insurance providers
- Title insurance providers, etc.
Not surprisingly, there are several Industry Cloud providers who specialize in these various segments and are flourishing without competing. DealerTrack, for instance, is moving to do almost everything a dealer could need. They were primarily back-office, but just announced they are buying Dealer.com to extend their offering to the front office. Covisint automates messaging between OEMs and tier 1 suppliers. OEConnect specializes in the OEM parts portion of the industry for dealers and repair shops. CCC and Solera work between the repairers, dealers, and insurers. I’m probably missing a few Industry Cloud providers. The same phenomenon is true in almost every huge “industry”; there are multiple IC providers in the different segments of financial services, food/agriculture, energy, etc.
In the future, I’m going to try to be more careful not to lump every IC provider into gigantic “industries” such as financial services, healthcare, food and auto, lest I give the false impression that some day I expect each one of these “industries” to boil down to three behemoths serving every aspect of the industry’s needs. A much more nuanced analysis of each IC’s client base and value proposition is necessary to figure out who really is competing with whom.
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