Sunday, July 11, 2010

Embracing Your Niche in The Cloud

With all the talk and the hype surrounding cloud computing many seem to be missing a major factor -- both in terms of the growth potential as well as the current opportunity for cloud computing products and services. Although the tech media and analysts love to tell you the cloud is everything including a $160 billion plus opportunity, like it or not, Cloud Computing is still an emerging niche market and exists only as part of a much larger market segment. And I'm here to tell you that as soon as you start embracing this fact, the sooner you will start to capitalize on the opportunity.

Regardless of your industry or market segment, every single product or service that is sold today can be defined by its market niche. Of course there are the products aimed at wider demographic audiences otherwise known as mainstream niches. But those markets tend to take years or even decades to mature. As an example think of the broader web hosting industry compared to that of the shared hosting, VPS, CDN, or the managed / dedicated server markets. Those companies that arguably have had the most success in each of these markets focused on winning in their particular niches. Rackspace within managed hosting sector or Akamai in the CDN space. Both can be considered as part of the broader hosting markets, but both have significant differentiation and more importantly success with in their particular niches. Both have also been able to charge signifcantly more than the previous generations of services within the broader hosting market.

Also being first in market doesn't necessarily mean you're going to own it. When looking at niche markets it's interesting point out that narrower demographics (PaaS, SaaS or IaaS in contrast to VPS hosting) lead to elevated prices due to the concept called the price elasticity of demand. (Which is a good thing) In other words, a niche market is a highly specialized market that allows you to survive among the competition from numerous much larger and broader focused competitors.

As a further example think of Amazon (the book version of course) versus your local community corner book store. The economics that define success for that corner book store are significantly different than what Amazon would consider a success both from a profit margin as well as a volume point of view. The corner book store wins by effectively differentiating itself from it's much larger competitor. It's books are more expensive to buy, but possibly you can also buy a coffee or browse actual physical books or even have a conversation with a human. This differentiation attracts a unique customer profile and caters to an alternative market segment. A segment that possibly is willing to spend more for something they could have gotten cheaper at Amazon. These differentiators allow the corner book store to compete and even win business (within their niche) from that much larger competitor even though the price is higher. The same concept applies to cloud computing.

I suppose what I am saying is you will never win if your goal is be Amazon. You will win by not being Amazon. By being different. By embracing your niche.

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