By Fernanda Arreola and Robert Pickering
Taking as an example the cloud industry, we help break down the different types of services and innovations that create value in technological markets where large leaders have taken a lead.
The new technological “El Dorados” are a great opportunity for many. From quantum computing to regenerative language, large firms like Google, Microsoft, and Amazon are taking a leading role and experiencing significant growth. However, similar to what happened during the gold rush, not everyone will find gold.
In this article, we take a look at what happened in the late 18th century and try to shed light on how you may reformulate the real value that your startup or innovation can bring to novel technological markets. We use as an illustration some observations from the cloud industry, showing the different types of services that can retrieve a precious sustainable stance.
The California Gold Rush
The California Gold Rush began around 1848 when gold was discovered at Sutter’s Mill in California. This led to a massive migration from around the world, with people seeking to make their way to the West Coast in hopes of becoming rich. The influx of new workers accelerated changes in the region, leading to the displacement of many native settlers and the development of what we know today as San Francisco.
With time, the easily available surface gold ran out, making extraction available only to a few bigger players who could invest in more sophisticated mining techniques. Those who did not have the means to invest in heavy equipment were set to fail.
However, a new group of entrepreneurs found success by understanding that the large new businesses couldn’t fulfill all the needs of the newly created territory. They developed successful firms to satisfy those needs, with examples like Levi Strauss (selling jeans) and Samuel Brannan (selling gloves and shovels). But how can this first “El Dorado” help us to identify whether we appropriately serve the leading technological players?
Selling more than shovels
The activities of gold mining firms required other complementary businesses to facilitate production, the recruitment of workers, or the distribution of gold. When a new business activity is created, companies that manage to take an early and large market share will be difficult to overtake by young and small competing firms. However, new “value gaps” will be generated, leaving the chance for other actors to create such value. This is what we call, “selling shovels”.
But today, selling shovels is not enough. Therefore, we came together with an easy-to-understand concept that shows how entrepreneurs, inventors, and innovators fill “value gaps” in technological environments where large leaders prevail. We call our concept “building around innovation houses”. An innovation house is a synthesised version of an innovation ecosystem. Like your own house, innovation houses require maintenance, surveillance, cleaning, refurbishing, tools that facilitate efficiency, moving services, storage, recruiting, and training.
Therefore, when tech giants such as AWS, Google, and Microsoft, have established their “houses” it will be difficult for newcomers to take over their position, or, in this analogy, to outbig a big competing house. But there are a lot of complementary products and services they need that newcomers can position themselves in. First, several services are completely out of the strategic scope of large tech firms (maintenance, cleaning, banking). Secondly, there are activities that, even within their own set of skills, are too specific or time-consuming for them to engage internal resources (repairs, training, and recruiting). Third, some activities require an “external eye” (security, advisory, strategy) and must be undertaken by independent structures.
Filling the value gaps
If you are attracted by any new technology, and you want to create something that serves the needs of this community, we suggest you use the concept of innovation houses to see the fit that exists for you, the value you can propose, and your likely competitors. Targeting value will increase the chances of survival of your innovation and clarify your positioning in sometimes overcrowded or generalist markets.
To illustrate how the concept of innovation house works, we can take the example of the cloud industry.
Actors working within the cloud innovation house
- Storage: Snowflake, Teradata
- Refurbishment: Nvidia, Dell, Lenovo, Apple, very integrated sectors
- Security: Snyk, Datadog, Orca Security, Wiz, CrowdStrike
- Movers: Consultants, PWC Implementation
- Legal (regulation): Lawyers, Law Schools
- Efficiency: Consultants, Energy Providers
- Accounting Services: Deloitte
- Specialised Recruitment: Welcome to the Jungle, Manpower
- Training: Ecole 42, Universities
As you can see, when thinking about the ensemble of products and services that a technological giant requires to subsist, it is easier to foresee a sustainable positioning. Regardless of their choice, all new firms must be attentive to secure a place where they generate a value proposition that is as rare, difficult to imitate and adapted to the capacities of the organisation, as possible.
About the Authors
Fernanda Arreola is a Professor of Strategy, Innovation, and Entrepreneurship at ESSCA and a researcher focusing on service innovation, governance, and social entrepreneurship. Fernanda has held numerous managerial posts and possesses a range of international academic and professional experience.
Robert Pickering is an experienced software engineer and published technical author with over 20 years of experience. He currently works at Datadog building out their security product suite.
