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Strategies & Market Trends : Bowling Alleys and Tornadoes: G&K Hunting Grounds -- Ignore unavailable to you. Want to Upgrade?

To: HeyRainier who wrote (4)	7/12/1999 10:17:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 153

Defining the Tornado Rainier, Congratulations on the new thread and thanks for taking the initiative to make it a worthwhile one! I tried to post this message yesterday, but the computer gremlins did me in. If you don't mind, I'd like to cut to the chase about how we determine if the adoption of a product has entered the tornado phase. Doing that is much easier said than done. I'll provide below every reference in the book I can find about defining a tornado: Page 8: "Companies in hypergrowth markets experience revenue and earnings growth that goes through the roof -- 30% to 40% quarter-over-quarter growth is not untypical." Page 33: "... severe inversion of supply and demand. This inversion, in turn, stimulates a tornado, or hypergrowth -- not untypically 300% per year in the very early going, 'slowing down' to 100% over a longer period ..." Page 35: "The tornado lasts only a few years, perhaps three to five, the time it takes for the inital surge of demand to be absorbed, after which the market reestablishes equilibrium with supply." Page 39: "During the tornado the mass of customers make their first purchases in the new product category." Page 140: "Tornadoes occur when -- and only when -- a new value chain comes into existence." Page 211: "... a simple rule of thumb for establishing the start of a tornado: When year-to-year growth approaches or exceeds 100%, and when quarter-to-quarter growth also is rapidly accelerating, a tornado has begun. The first part of this forumla, the 100% part, ensures that the market meets the hypergrowth criterion. The second part, the idea that not only is it growing prodigiously, but its growth is actually accelerating, captures the full potential of the tornado." So there we have them. A rather ambiguous bunch (in my opinion) of criteria including quantitative criteria ranging from 100% annual growth combined with accelerating quarterly growth to 300% annual growth slowing down to 100% growth. Which is it? And to top it off, the authors say that the hypergrowth lasts three to five years. Case Study: Front Office Software For yet more confusion, I'll use the example of the front office sotware market. I have been a serious student of the market since before the book was published and was thrilled to see that the authors used that market as a case study. Yet I find it very confusing when it comes to using the case study as an example of defining a tornado stage. In my study of the front office software market I don't see any examples of tornado-like hypergrowth unless we go back to Siebel's very early beginnings when the revenues in 1995 are much, much smaller than the examples used in the book. With such small revenues, I don't believe that the huge growth by percentage correctly identifies a tornado. More important, as recently as the fall of 1998 when the book was published, the authors wrote that "there is no evidence that [sales force automation, Siebel's primary front office product] is across the chasm." (Page 256.) They reconfirm their opinion that Siebel's 1995 growth was not exemplary of the tornado, noting that at the end of 1997, the front office market was still in the pre-tornado stage. (Page 261.) But ... We also know that the book says all gorillas emerge from tornadoes, the importance being that without a tornado we have no gorilla. Yet in his public list-serve, Geoff Moore wrote that all of Silicon Valley concedes Siebel as the gorilla of the front office. So please allow me to repeat that though the authors felt as recently as nine months to a year ago they felt the tornado had not begun and though they mention that a tornado lasts three to five years, Mr. Moore says we have a gorilla in the name of Siebel. My conclusion is that it is exceptionally difficult to define a tornado, possibly because in the rapidly changing dynamics of the high-tech business the definition of a tornado should also change. It's even more probable that a tornado can't be defined as neatly and quantitatively as the authors would have liked to believe. The other conclusion to be drawn is that maybe Siebel is already a gorilla, proving that, contrary to the authors' former beliefs, a tornado is not in every case needed to spawn a gorilla. Though I'm playhing my not-real-money Front Office Gorilla Game with the assumption that Clarify and Vantive still have a chance at becoming a gorilla, my fundamental thinking is that Siebel quite likely is the gorilla -- that it was indeed spawned by a tornado of different dimensions than those we see defined in the book. That being the case, we (and the authors) need to work on a better definition of a tornado. Now to the most important part of this post ... Your thoughts? Coments anyone? --Mike Buckley

To: HeyRainier who wrote (4)	7/12/1999 10:39:00 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 153

Rainier, Hey, that gets us back to the final Gorilla Game case study in the text, where Clarify and Vantive show up as gorilla candidates in the customer service applications field. True, but since the book was published a lot has happened. Scopus, which along with Clarify and Vantive was one of the top three leaders in the customer service market, was acquired by Siebel. That acquisition made Siebel a more complete front office provider, being by far the leading sales force automation provider and one of the leading customer service providers after its acquisition of Scopus. In the mean time, Vantive decided it wanted to be more well rounded, deciding to compete in Siebel's market. But it didn't work out. The company is now supposedly refocused on its core competency, but we'll have to see how effective the new management team is now that founding CEO Luongo is gone. Clarify, in the mean time, appears to be fully recovered from its disastrous acquisition a few years ago. But it is showing signs of great performance with pint-sized revenue compared to Siebel's. That leads me to your other comment: it looks like Clarify has taken the lead in the Customer Service gorilla game. Because Siebel doesn't break out its sources of revenue, we don't know that Clarify is the leader. Actually, I doubt that it is. To put the two companies' revenue into perspective, Siebel had more revenue in the first quarter than Clarify had in the last three quarters combined. --Mike Buckley