Dan's Take

What's in a Name?

The Taxonomy challenge for both analysts and suppliers.

In a rapidly shifting market, analysts and suppliers face a never-ending challenge of how to categorize products and technology. The problem is different for both groups; segmenting the market, however, is a very important task.

Although the segmentation of competitive markets is called by different names by different research firms, being able to quickly assign a product to a market category is important. In the past, this categorization has been called a "taxonomy," a "codex," or just a "market segmentation."

Being the first to name a new category that becomes part of the industry lexicon provides bragging rights to a research firm. The firm that originated a term or a phrase can then go on to say something such as "you should purchase our research because our Senior Research Analyst, Reprehendo Arca Archa, was the first to define this category and would, of course, know more about it than just about anyone. You would be well advised to purchase research complied by that analyst."

The Analyst Perspective
For analysts, the issue is accurately carving up the market into competitive market areas that are both comprehensive and also mutually exclusive. Research firms want to make sure that product revenues don't get counted twice, and also that analysts can focus their attention on products having similar characteristics. After all, it isn't possible for an analyst to know everything about all technology and all products. Technology is moving so rapidly that an analyst can only have in-depth knowledge about a small number of markets.

Analysts face the problem that things are constantly changing. Over time, unfortunately, adjacent markets tend to grow into one another's spaces; that is, capabilities from technology in one segment often get grafted onto products in other categories. This can mean that research firms must refine their databases and merge historical revenue and shipments from several categories into a single "bucket," or separate revenues from a single category into several. The latter is really challenging.

The Supplier Perspective
Suppliers look at this from a different point of view. They want to know who their competitors are, to better understand whether their products are strong or need strengthening. They also hope that market segmentation is done in a way that views their product revenues and shipments as No. 1 in their assigned categories.

While I was at IDC, I remember a time in which five different suppliers were using one of my reports to claim that they were No. 1. One was No. 1 in worldwide revenues, another was No. 1 in worldwide shipments, one was No. 1 in Western European revenues, one was No. 1 in Western European product shipments, and yet another was No. 1 in revenues for commercial shipments in Asia. I was surprised that no one claimed to be No. 1 in New York City on Tuesday, March 15.

Here's an example a Kusnetzky Group client brought to my attention.  The client was seeking a product that would help them allow data to be kept in a small group of datacenters to both reduce their costs for storage and assure high levels of availability and reliability. After they sent out a request for proposal (RFP) to many suppliers, they received proposals from products that might be considered in the following categories:

  • Distributed file systems
  • Software-defined storage
  • Backup and disaster recovery
  • Data replication
  • Database replication and disaster recovery

How is this possible? Well, the key features found across all of these categories is the ability to encapsulate data into a form that can easily be moved across a network, actually move those "data capsules" across a network, break the data out of those "capsules," then restore the data in the proper form on the other side.

Dan's Take: Suppliers and Analyst Need to Change With the Times
What causes analysts and vendors to pull their hair out is that these categories appear to be separate, and one would believe that they would seldom compete with one another in the "real world." Yet, in this example, they were found to be in direct competition for the enterprise's money.

What we're seeing now is that enterprises are asking for solutions and seeing responses from many suppliers, offering what appears to be conflicting types of technology, all of which have the ability to address the enterprise requirements in one way or another.

This means that enterprise decision-makers would be well advised to phrase their requests in the broadest possible terms, rather than sticking to old taxonomies. While it's important to clearly describe the final goal, decision-makers just might be surprised that the best choice comes from a supplier they've never heard of, or one that has been competing for a long time in a market segment the decision-maker thought was irrelevant to their needs.

Analysts, however, still need to maintain their taxonomies and update them over time. Their research is still valuable. The winning research firms, however, are the ones who can transform the most quickly and be effective in understanding what is happening in a complex, ever-changing market.

About the Author

Daniel Kusnetzky, a reformed software engineer and product manager, founded Kusnetzky Group LLC in 2006. He's literally written the book on virtualization and often comments on cloud computing, mobility and systems software. He has been a business unit manager at a hardware company and head of corporate marketing and strategy at a software company.

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