Be Splunk, Not Box

splk_box

If competition matters, you haven’t innovated in your market definition.

The companies I admire most stand in their own image.   They can’t easily be defined by any definition of a market that Gartner or Forrester have defined and written reports about. They chart a clear mission or goal – and that goal substantively redefines a market or a product category. Because their world-view is so unique, it ultimately enables them to stand on their own, much less concerned about competitors than about adoption of that world-view. Lets take two success stories in the Big Data / Software world as examples: Splunk and Box. Both are highly successful companies with likely multi-billion-dollar market capitalizations.

Here’s what Splunk’s S-1 said about its competitive environment at the time of its IPO:

“We compete against a variety of large software vendors and smaller specialized companies, open source projects and custom development efforts, which provide solutions in the specific markets we address. Our principal competitors include:

  • IT departments of potential customers which have undertaken custom software development efforts to analyze and manage their machine data.
  • Security,systems management and other IT vendors,including BMC Software,CA,HP,IBM,Intel,Microsoft,Quest Software, TIBCO and VMware.
  • Web analytics vendors, including Adobe Systems, Google, IBM and Webtrends.
  • Business intelligence vendors, including IBM, Oracle and SAP.
  • Companies targeting the big data market by commercializing open source software, such as the various Hadoop distributions and NoSQL data stores.
  • Small-specialized vendors, which provide complementary or competitive solutions in enterprise data analytics, data warehousing and big data technologies that may compete with our software.”

Huh? They compete with everyone from custom software to web analytics to business intelligence to security to systems management vendors?

Here’s what Box’s S-1 said about its competitive environment:

“The market for cloud-based Enterprise Content Collaboration services is fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry for certain applications and services. Many of our competitors and potential competitors are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. Our competitors include Citrix, Dropbox, EMC, Google, and Microsoft.”

Rough. All they have to do to succeed is win against a rapidly innovating start-up with a disruptive adoption model (Dropbox), and three of the largest software businesses in the world (EMC, Google, Microsoft).

Splunk had raised $40 million by the time of its IPO. Box had raised $400M. Their respective business models had a lot to do with the capital requirements but the primary culprit was the competitive environment for each of the two companies. Box simply needs ungodly amounts of money to achieve dominance in its market versus Splunk’s more modest needs. Why?

Because Box did not innovate in its definition of the market, while Splunk did. Both companies innovated in their early products – they would not have gained meaningful adoption otherwise. But product innovation isn’t nearly enough. It’s market definition innovation that is truly sustainable. In Box’s case – it was clear they were selling a collaboration and file storage service. That market existed long before Box got there and will exist long after. Even SAAS versions of such a service existed. In Splunk’s case no one was very clear what they were – were they a log management company? Were they a search company (a lot of the early innovation was search on log files)? Were they a systems management company (a lot of early use cases were around keeping systems up and running)? By having a murky market definition, Splunk could compete against legacy vendors in all of those categories because no one could neatly put them in a box (no pun intended).

This meant that venture capitalists funded fewer competitors and each of the major players in the space (large security or log management or search or systems management companies) all just walked away. Why? Because none of them thought it was their market to compete in. Of course, as the category evolved, large entrants started to pay attention. However, it’s all too late. It’s not enough for a competitor to compete by simply building a better product, or throwing capital at the problem, or arriving with better distribution. They have to learn completely new businesses. Security companies don’t have systems management DNA. Systems management companies don’t have search DNA. And Search companies don’t get selling into IT. What a terrific competitive moat!

Don’t get me wrong – you can compete with better execution in a highly competitive market. Just prepare to raise several hundred million dollars and be an execution machine. The hardest thing about innovating on market definition is that you don’t get to have a well-defined (and easily communicable) total addressable market, or TAM. Your products and your proposition define your TAM. Your TAM does not define your products.

At BloomReach, we think a lot about market definition.   And I love that no one can put us in a box. Are we an SEO company? A big data company? A site search company? A personalization company? An e-commerce enabler? A SAAS company? World-views are powerful things. And there is nothing like standing alone in your world-view and being right.

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2 thoughts on “Be Splunk, Not Box”

  1. Hi Raj, This is an unusual perspective. I would have thought that having a murky market definition would be a drawback, not an advantage. If no one understands who you are, why would they use your product/invest in you? But you make an interesting case here…

    Like

  2. Raj,
    Enjoying the blog so far.

    Having competed against incumbents in established, well-defined categories as well as having tried to create completely new categories, I have realized that there are opportunities and challenges to each.

    That aside, the differences between Splunk and Box have less to do with category definition and more to do with underlying market trends and economics. Both are taking advantage of the increase in data volume and variety, but to different ends.

    In the case of Box, the challenge is that the premium value of their service actually decreases as data increases (given that the underlying infrastructure is approaching zero as scale increase).

    In the case of Splunk, the premium value of their service increases as data increases (up to a point), since organizations have even more need to inventory and make sense of their data as scale increases.

    A potential way forward for Box is to be more like AWS: operating on the edge of commoditization for basic services while adding more and more higher-level services that can command premiums and lock in customers.

    Like

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