Technology’s ability to disrupt CapEx hurdles is well exemplified by Amazon’s success with Long Tail marketing and their oft repeated quote, “We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday”.
The use of an Online Platform to replace expensive physical shelf space with an unlimited virtual shelf space allowed the catalog creation of literally every book in the warehouse and made it accessible to buyers not just in the neighborhood but across the globe.
Analytics and Recommendations have provided readers with suggestions on lesser known but similar books, thereby personalizing the selection for buyers (from Long Tail). Further technology innovations led to the development of eReaders (a.k.a Kindle) which got rid of the additional CapEx towards Inventory Carrying Costs, Warehouse Management and Supply Chain Management. This has created a level playing field between a best-selling author and a niche author with very select readers, thereby setting the stage for Long Tail strategies. Similar success stories abound in other content consumption markets (Media Entertainment segments) like Videos and Music (a.k.a NetFlix, iTunes). If one were to draw parallels from Retail to IT, here are some technology innovations and disruptions that are necessitating the use of Long Tail strategies.
Thanks to virtualization, a Project Manager need not waste valuable buffer right at the start of the project towards the acquisition of CapEx for servers and software development environments. Infrastructure as a service provides computing power and storage on a need basis.
With the maturing of Cloud technologies, enterprises need not block a lot of capital towards licenses and AMCs. Using software on a pay per use basis (SaaS) on Hybrid and Public Clouds with adequate security can provide the same business impact for IT at much lower spends.
Baird Equity Research Technology estimates that for every dollar spent on Cloud, there is at least $3 to $4 not spent on traditional IT, and this ratio will likely expand further. This means that the IT industry can no longer focus only on large enterprises (Fortune 500 companies) as that piece of the pie is drastically shrinking.
The silver lining in this dark cloud are the disruptive technologies that are making IT accessible to a Long Tail of small and medium enterprises (SMEs) who can leverage best-of-breed technologies from the Cloud using their existing OpEx budgets (without any CapEx outflow). So much so, that IBM, Hewlett-Packard, Microsoft, Oracle, and others are moving their technology offerings into the Cloud despite it cannibalizing their own revenue streams.
What does this entail for Service Providers?
Service Providers need to now tailor their processes to provide uniform quality services across SMEs as well as Fortune 500 clients. Dependency on platforms and processes would increase vis-à-vis dedicated outstanding individuals for key accounts (a.k.a Client Partners, Engagement Managers, etc.) The quality of customers would not be dependent on the number of Key Accounts ($100 million accounts, $50 million accounts, etc.) but rather a better measure of success would be the stickiness and CSAT of sub million dollar accounts.
The portfolio of services would also shift from typical ASM and managed services for large enterprises, to business aligned analytics and reporting solutions for the Long Tail of SME customers.
In an attempt to solve the Long Tail conundrum, this transition promises to be a tumultuous yet interesting journey for the entire IT industry with many shake ups in the offing. Luckily, the transition will be quite prolonged and not as abrupt as the Retail industry, thanks to the cultural shift in buyer behavior, the complexity of the technology landscape, and the application portfolios of the enterprises.