Breaking Into Specialized Markets Requires Special Skills

Posted by Big Melv
Oct 30 2014

You’ve wrecked your knee trying to be Ken Griffey Jr. in the company’s annual softball tourney. Do you visit your general practitioner? Or hobble over to an orthopedist — maybe even the doc who treats Griffey himself? If you answered GP, you probably belong to an HMO. Given a choice, most everyone wants a specialist — computer customers, too.

So now the industry is hanging out its own shingle — and it doesn’t say GP on it. Companies once content to push one-size-fits-all products to broad business markets are turning to a new prescription: Customized solutions aimed at vertical markets. Apple is hawking its Newton to doctors, real estate agents — even farmers. IBM is restructuring its entire 40,000-person sales force along industry lines. And Novell and Microsoft are pressing their resellers and ISVs to tailor Windows and NetWare for bankers, insurance agents, and lawyers.

But maneuvering in vertical markets is as complicated — and risky — as microsurgery. The sales cycle is long. Customers are more demanding. And they have a lot of quirky product requirements — like a PDA that can stand up to the ammonia fumes in barns. As a result, like a hospital emergency room, verticals have seen their share of victims.

Take Agilis Corp. Its “mobile workstation” was rugged enough to drop kick across a stage. Unfortunately, says former Agilis marketing manager Bill Frezza, the company was populated “entirely by Silicon Valley startup junkies” with no experience in the public safety and utilities markets Agilis had targeted. They didn’t understand the custom applications its customers required, nor the sales channels they bought from. “You should have seen us trying to sell to staid established companies,” says Frezza, now president of Wireless Computing Associates, a consulting firm. “They looked at us as if we had just landed from Mars.” The result? The heart monitor went beeeeeep.

Undeterred Such failures, however, aren’t deterring a flock of new entrants into vertical markets. The money is just too enticing. John McGilvray, a consultant with Input, a market researcher in Mountain View, Calif., predicts that, by 1998, U.S. companies will double the $14 billion they shelled out last year on industry-specific software applications. He pegs banking, finance, manufacturing, and government as perhaps the biggest verticals of all. But emerging technologies are yielding some attractive opp ortunities, too. In four years, for example, handhelds customized for the industrial and retail markets will rack up about $3 billion in sales, the Gartner Group Inc. says. And, according to New York’s Brenner Securities Inc., there is a multibillion market in wireless data communications just for the trucking and delivery businesses.

But it’s the medical industry that may offer the most promise of all. Though the ultimate shape and scope of President Clinton’s health-care reforms remain unknown, this much is for certain: The cost-saving managed-care craze, whether driven by the government or the private sector, is demanding more efficient information systems to track medical data. As a result, Dr. Jason Rosenbluth, an analyst with Volpe Welty & Co., a San Francisco investment banking firm, says the software and service segment of the h ealth-care market will soar from about $3.5 billion today to about $15 billion by decade’s end. He doesn’t track hardware expenditures, but considering that many of the nation’s more than 5,500 hospitals are moving to client/server environments, there are billions of dollars to be made replacing their proprietary systems with PCs and servers.

Arcane Whether it’s health care or overnight delivery, though, there’s an overarching reason why vertical demand everywhere is growing so astronomically. Dwayne Walker, Microsoft’s GM of worldwide solutions sales and marketing, says customers need more expert help because they’re moving to open and complicated client/server systems. They’re making the switch at the very same time they’re reducing their in-house development staffs to cut costs. And it’s not just the soaring demand that makes verticals so al luring. Unlike the rapidly commoditizing mass markets of the ’90s, vertical markets represent a refuge, where customers are willing to pay a premium for low-volume, high-expertise solutions.

If nothing else, verticals come in so many shapes and sizes that they offer a niche for nearly everyone — even those with such seemingly arcane solutions as Cutting Edge Inc. of Marblehead, Mass., which got its start by making software for sailmakers. Last year, Dauphin Technology Inc. of Lombard, Ill., took a crack at the broad market with a much-praised handheld, but it retreated six months later into verticals. It’s now targeting police departments, telephone companies, hospitals, and w arehouses. Unlike Dauphin, Campbell Software Inc. of Evanston, Ill., started out zeroing in on a vertical — scheduling software for the service industry. So far, so good. It’s landed accounts with the likes of The Gap, Staples, and Warner Bros. stores. And tiny Tampa, Fla., Badger Computers, a division of defense contractor Group Technologies Corp., is finding success selling its rugged, portable PCs into environments such as police cars, buses, and locomotives. Its PC for train engineers is so tough, you have to pummel the keys to make it work.

Don’t confuse the verticals with little niche players, though. After all, IBM is overhauling its sales force into 14 industry-related groups. Each one has its own leader. And reporting to them will be industry-specific consulting, development, and manufacturing teams. Why the switch? Robert Timpson, GM of IBM’s finance industry segment, says customers are telling IBM they are overwhelmed by all the new technology getting pitched to them. What they really want is a business “solution.” And that’s one of I BM’s traditional strengths.

Forget Comdex: Microsoft and Novell want to offer more vertical solutions, too, but both are smart enough to not go it alone. They know the markets are too scattered and diverse. So both are relying on their resellers and ISVs to carry the effort. Microsoft says it will double the “tens of millions of dollars” it spends on vertical-marketing efforts this year and next year. Not to be outdone, Novell, for the first time, will initiate a vertical-marketing campaign later this year among its 15,000 resellers w orldwide. But it doesn’t expect an easy time of convincing its resellers to dive into vertical markets. Says Kevin Auger, a senior manager for solutions marketing for Novell: “One of our challenges is educating them about how they can be more effective and make more money by providing the complete turnkey solution.”

Another challenge is educating yourself. As Agilis’ flop shows, you must know your market inside out. Forget Comdex and go to your customers’ trade shows — like the Retail Information Systems Conference in Orlando last October.

Nothing replaces primary research, but a lack of industry-specific market data means many vertical players are left to do a lot of digging themselves. Some go to extremes to know their markets. Take Geotek Communications Inc. of Montvale, N.J. It’s building a wireless data communications network targeted primarily at the transportation industry. It sends its MBA product managers to ride shotgun with burly, tattooed truckers to find out how they work. That strategy uncovered a bit of information you’d never find in a market-research report: Truckers will sometimes break new devices on purpose if they aren’t easy enough to use. To avoid that fate, Geotek has run dozens of focus groups with truckers to make sure its communications device is as simple to use as a phone.

No Dead Ends

Even if your product rates high on usability, don’t expect to make a quick sale. The sales cycle can run up to 18 months. Part of the reason: Most sales are large, and the customers want absolute proof that the technology is going to offer an adequate return on investment. Vertical customers are skittish about whom they’ll do business with, because they don’t want to be stuck with a dead-end product. Remember Eo, Agilis, and Grid. “There is a lot of hand holding,” says Alan Yong, CEO of Dauphin. So Yong is on the road every week meeting with potential customers. “They don’t want to talk to a fast-talking salesman,” he explains. “They want to talk to me to make sure we’re committed and we’ll be around.”

Even big Apple has a tough sell. How does it convince buyers that it won’t abandon vertical markets if the Newton doesn’t take off commercially in a few years? Apple boasts that the Newton beats entrenched competitors on price — about $600 versus $2,000 to $3,000 — but it doesn’t have the credibility of market leaders Norand, Symbol Technologies, or Telxon, which have made handhelds for verticals for years.

Serving vertical markets often requires bending and stretching technology like a Russian gymnast. Often times, applications must work with 10-year-old technology, proprietary platforms, and obscure operating systems, says Campbell Software CEO Mike Campbell. His scheduling software for retailers runs on 11 OSes, including Xenix, a little-known version of Unix. It has to because there is no technological uniformity in the service industry, he says.

What Smells? Then there are times when you have to go the extra mile to win accounts. Dauphin is helping design a bar-code reader to work with its handheld so one of its potential customers, a large retail chain, can use it for inventory management. “We have to do it,” says Yong. “They are talking about potentially 5,000 systems.” And of course you’ll run into uncommon environments that need special solutions. Apple was confronted with the unusual question of whether its Newton could stand ammonia fumes be cause farmers might use it in barns.

Serving vertical markets may take you into some strange places, including barns, warehouses, and 18-wheelers. But that’s what it takes. The cry from customers for customized solutions is only going to get louder. “Customers are not interested in reads, feeds, and speeds,” says management consultant Sam Albert, a former IBMer. “They’re interested in overall solutions to their business problems.” The only way to provide solutions is to truly understand their business. Be prepared to get some manure on your boots. If not, you may find yourself knee deep in it sooner than you think.