As a platform guy, a lot of my companies are in the business of securing “design wins.” Basically, they are providing an integral slice of our target customer’s overall technology pie.
Our success is predicated on adding enough must-have value that we are both indispensable (and thus, designed in), and solving a meaty enough of a problem that we can secure high margins.
Our customer’s alternative is “doing nothing,” rolling their own in-house solution or choosing another vendor. It’s the ultimate win or go home decision, which tends to keep you intellectually honest.
Whether the total end solution is a PC, a network device, a hosted service or a company’s online web presence, history suggests that margins flow unevenly to a tiny subset of vendors in the value chain.
In the PC realm, it was Microsoft and Intel, with many, many vendors left to pursue lower-margin (and indefensible) trimmings. In the network era, it’s been Oracle and to a lesser extent, BEA Web Logic. Ironically, once BEA lost the margin game, they rather ungamely sold themselves to the aforementioned Oracle, who is in a never-ending pursuit of fortifying and protecting their design win sandbox.
Of course, open source has been cited by many as a counter-revolution to this model, but I would argue that it is just an example of the margins shifting elsewhere on the solution stack, a natural course when a given piece of technology is perceived as commoditized/undifferentiated.
So if you are in the platform business, never lose sight of your truth to these two questions:
- In a head-to-head competition with our customer’s best-perceived alternative, are we consistently winning by a landslide?
- When it comes down to sorting out the economics, are we the main course, the side course, the secret sauce or the necessary, but forgettable, dinner roll on the table?
It’s amazing how many companies continue down a strategic dead end road for no other reason than it’s what they did yesterday and/or because they are still winning deals, even as margins and ASPs (average selling price) fall off of a cliff.
Related Posts:
- The Five Keys to Business Success
- On Intellectual Honesty: Seeing things as they really are
- Metrics of Success: You can't improve what you don't measure
- "Strategic" versus "Win-able": The 1.0/3.0 Paradox
