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Inside the Tornado: Strategies for Developing, Leveraging, and Surviving Hyper-growth Markets (Paperback)
by Geoffrey A. Moore
| Category:
Marketing, Sales, High technology, New economy |
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¥ 168.00
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| MSL Pointer Review:
Using the "tornado" metaphor correctly, this book suggests that turbulence of unprecedented magnitude has occurred within the global marketplace which the Internet have created. Should be read with Crossing the Chasm. |
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Author: Geoffrey A. Moore
Publisher: Collins
Pub. in:
ISBN: 0060745819
Pages: 272
Measurements: 8 x 5.3 x 0.7 inches
Origin of product: USA
Order code: BA00126
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- Awards & Credential -
The author is one of the most recognized experts on the "disruptive technology" innovation. |
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Inside the Tornado is the 1995 sequel to the 1991 book, Crossing the Chasm. Inside the Tornado repeats the arguments of Crossing the Chasm, and adds three new stages of how to manage a business during the lifecycle of a technology. While Crossing the Chasm was primarily about marketing with some strategy emphasis, this book reverses the emphasis. I recommend the 1999 paperback version because it contains a new introduction that serves better as a helpful afterword to the book, as Mr. Moore suggests, in updating it for the Internet.
In Crossing the Chasm, Mr. Moore successfully argues that new technologies first attract customers who love technology, and will try anything. If you succeed with that group, you will next attract visionary customers who will want to use the technology to steal a march on their competitors. After that comes the chasm, getting into broad acceptance. Many technologies never make it. The method to cross is described in Inside the Tornado as the bowling alley. You pick a few key segments that may reflect the needs of other segments. By providing custom solutions for these segments, you create a ricochet effect into striking good solutions for other niches. The analogy is to the way that after the bowling ball first hits the one and three pins (for right handers) and then continues on to take out the five pin, those three pins hit the pins behind them, which in turn go backward to take out the pins in the final row, until you have a strike.
The tornado is the period of mass market acceptance. This is when there is a lot of demand as everyone who decides about infrastructure adopts the new standard simultaneously. You have to standardize, get your costs down, and ship at low prices. Your strategy is just the opposite of the bowling alley period. The metaphor here is to the tornado in the Wizard of Oz that sweeps Dorothy, Toto, and her house from Kansas to Oz.
Then comes Main Street, when the market demand is now filled and you are looking at "aftermarket development, when the base infrastructure has been deployed and the goal now is to flesh out its potential." You once again focus on segments, and create custom solutions.
The final period is End of Life, when "wholly new paradigms come to market and supplant the leaders who themselves had only just arrived." In essence, you start a new technology cycle. The best companies (like Intel) will do this to themselves.
The book also describes the importance of becoming the gorilla who will have about 50 percent market share and earn 75-80 percent of industry profits as a result of dominating the tornado period. Gorillas are made during the tornado. Oracle is described as an example.
During the bowling alley your company needs to be very good at product leadership and customer intimacy, during the tornado you need to shift to product leadership combined with operational excellence, and in Main Street the focus is on operational excellence and customer intimacy. This thinking will remind you of the book, The Discipline of Market Leaders, and the work of Dr. Adizes. Most companies will not be agile enough to make these transitions. Examples abound in the book. Apple's example will hit home with you, I'm sure.
As to the Internet, things are different. In the original book, the Internet is only mentioned three times. In the introduction here, Mr. Moore says that the "Internet market tornado, however, is so powerful that it has sucked all four models into its vortex." Companies are succeeding simultaneously in different parts of the Internet space at the same time with each of the strategies outlined here.
In the future, I think technologies will evolve more like the Internet has. During these evolutions, I think that business model discontinuities will be more important than technology discontinuities. While you can only put technology discontinuities in during parts of the cycle (never during the tornado), business model shifts can occur at any stage. Also, it is easier to shift business models than to shift technologies. Business model shifts affect your own operations more than customers, while technologies have a large impact on customers. My current work is focused on how the two need to interact with one another, which is not addressed here.
After you have read this excellent book, I suggest that you consider the organizational planning issues required to create such a multi-faceted effectiveness. For example, you may find it easier to have two organizations. One will focus on creating custom solutions, while another focuses on mass market solutions. In that way, you can hedge your bets with predicting the timing of each phase.
May you always focus your attention on the most important activities required by the markets you serve
I found Moore's descriptions of the phases of the Technology Adoption Life Cycle (TALC) very useful:
- Early Market: time of great excitement when customers are technology enthusiasts
- Chasm: early-market interest wanes
- Bowling Alley: Niche-based adoption in advance of general marketplace
- Tornado: mass-market adoption
- Main Street: aftermarket development
- End of Life: leaders are supplanted by new paradigms/technology
The individual chapters on The Bowling Alley, Inside the Tornado, and On
Main Street were full of company examples and useful advice and warnings.
The last chapter on Organization Leadership which described the types of recruiting and management talent appropriate for each stage of the TALC contains very valuable advice.
This book is about how high tech entrepreneurs can create and execute marketing strategies that work. Moore introduces a strategic model based on the bell-shaped diffusion curve concept which says that innovations undergo different stages in their course to market leadership. And Moore explains detailed what is necessary to do to gain market dominance. Moore describes this model very realistic and he does not care about typical marketing myths. This model is explained by many examples from successful companies such as Intel, Microsoft and Oracle. This books is one of the very few books in the marketing literature without typical buzz words, simplifications or exaggerations.
This is fantastic. Some simple mataphors: the bowling alley (niche marketing where you pick off segments like pins), tornado (when market demand increases exponentially) and main-street (when the tornado dies down and you need to focus on adding value). Some jungle characters: the gorilla - the company with the greatest market share, the chimps - the apes who wanted to be gorillas but failed and the monkeys - the low cost clone providers.
(From quoting an American reader)
Target readers:
Product/Marketing managers, business development managers, entrepreneurs, IT consultants, system integrators, venture capitalists, product development professionals/ engineers, MBAs, and people interested in IT/Internet and other high-tech industries.
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Geoffrey A. Moore is the author of two bestselling books on the development of high-tech markets: Crossing the Chasm and Inside the Tornado. He is chairman of The Chasm Group, which provides marketing strategy consulting services to hundreds of high-tech companies. He is also a venture partner with Mohr Davidow Ventures, a venture capital firm. Moore was recently named one of the "Elite 100 leading the digital revolution" by Upside magazine.
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From Publisher
In Inside the Tornado, Geoffrey A. Moore continues his classic three-part series delving into the high-stakes world of hypergrowth markets. Here, Moore examines these markets and their implications for business strategies and, in turn, provides effective guidelines for winning market share and building margin share in mainstream markets.
Once a product reaches the mainstream market, it faces three often vexing questions: What is the best way to develop a stronger market for the product's growth? What is the most effective way to capitalize on and sustain growth? And when this market inevitably subsides, how can businesses survive the change?
Moore deftly answers these questions and provides businesses with the knowledge and tools they need in this fast-paced lucrative market.
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Chapter One
The Land of Oz
At the beginning of The Wizard of Oz, Dorothy and Toto are caught up inside a tornado, swept away from their mundane world of Kansas, and deposited into the marvelous land of Oz. This miraculous form of ascension is also reenacted from time to time on our own public stock exchanges.
Consider the following:
- Compaq Computers, which in recent years has overtaken IBM as the leader of the Intel-based PC market, grew from zero to $1 billion in less than five years.
- Ditto for Conner Peripherals, the disk-drive storage company who slipstreamed Compaq's hypergrowth by supplying it, as well as many of its competitors, with low-cost Winchester hard drives.
-Over a six-year period from 1977 to 1982, Atari's home game business doubled in size every year, driving the company from $50 million to $1.6 billion in revenues.
- In successive years during the mid-1980s, Mentor Graphics grew from $2 million to $25 million to $85 million to $135 million to $200 million.
- For the entire decade of the 1980s, Oracle Corporation grew at an annually compounded rate of 100 percent.
- More recently, Cisco Systems and Bay Networks have appeared out of nowhere to become billion-dollar companies--leaders, respectively, in the network router and the network hub markets. We didn't even know what routers and hubs were until just a few years ago.
- In the seven years prior to 1992, Sony shipped their first ten million CD-ROM players. The next ten million were shipped over the following seven months, and the ten million after that in the following five months.
- Hewlett-Packard's PC printer business, a $10 billion enterprise in 1994, shipped its first product a scant ten years earlier.
- And finally, Microsoft in less than fifteen years has grown from a boutique language software company focused on BASIC to the richest and most powerful software company in the world.
Such are the market forces generated by discontinuous innovations, or what more recently have been termed paradigm shifts. These shifts begin with the appearance of a new category of product that incorporates breakthrough technology enabling unprecedented benefits. It is immediately proposed as the natural replacement for a whole class of infrastructure, winning early converts and enthusiastic predictions of a new world order. But the market is a conservative institution, and it presses back against the new changes, preferring to stay with the status quo. For a long time, although much is written about the new paradigm, little of economic significance happens. Indeed, sometimes the innovation is never embraced, falling back into some primordial entrepreneurial soup, as did artificial intelligence in the 1980s and pen-based computing in the early 1990s. But in many other cases there comes a flash point of change when the entire marketplace, under the pressure of continually escalating disequilibrium in price/performance, shifts its allegiance from the old architecture to the new.
This sequence of events unleashes a vortex of market demand. Infrastructure, to be useful, must be standard and global, so once the market moves to switch out the old for the new, it wants to complete this transition as rapidly as possible. All the pent-up interest in the product is thus converted into a massive purchasing binge, causing demand to vastly outstrip supply. Companies grow at hypergrowth rates, with billions of dollars of revenue seeming to appear from out of nowhere.
We have seen this happen again and again in our own lives. Take communications. After the better part of a century being content with letters, telegrams, and telephones, we have in the past thirty years adopted touch-tone phones, direct-dial long distance, Federal Express, answering machines, fax machines, voice mail, e-mail, and now Internet addresses. In every case, until a certain mass was reached, we didn't really need to convert. But as soon as it was, it became unacceptable not to participate. As members of a market, our behavior is invariable: we move as a herd, we mill and mill and mill around, and then all of a sudden we stampede. And that is what creates the tornado.
Nowhere has the tornado touched down more often in the past quarter-century than in the computer and electronics industry. In the domain of business computing, it began with the proliferation of the IBM mainframe, which won worldwide support as the first major computing infrastructure standard. Then, in the space of less than a decade beginning in the late 1970s, three new architectures arose to challenge and displace that paradigm: the minicomputer, the personal computer, and the technical workstation, and we came to know a whole new set of companies, including DEC, HP, Sun, Apollo, Compaq, Intel, and Microsoft. In conjunction with these three architectures came a communications networking paradigm shift that moved from the centralized hub-and-spokes approach of mainframe-centric computing to the decentralized world of Local Area Networks interconnected via Wide Area Networks, and we met companies like 3-Com, Novell, Cisco, and Bay Networks. And concurrent with both these shifts, virtually all of our software, from the underlying operating systems to the databases, to the applications and the tools that build them, was overthrown or reworked, in most cases more than once, driving companies like Oracle, Sybase, Lotus, Ashton-Tate, and WordPerfect into our consciousness.
Yet during this same period we still bought most of our cars from General Motors, Ford, and Chrysler. And we flew United or American or Delta. And we drank Coke or Pepsi or Dr. Pepper. While some sectors, in other words, were generating whole industries out of thin air, creating hordes of market leaders from early unknowns, others continued along relatively familiar paths - because they did not introduce discontinuity into their infrastructure paradigms. The car you drive today is not materially different from one driven forty years ago. Ditto for the air transportation and the soft drinks. By contrast, high tech's insistence on repeatedly swapping out all its infrastructure is exceptionally expensive, and more than one corporation has challenged the whole rationale behind this behavior. But there is a dynamic in operation that gives people little choice. All computing is built atop an underpinning of semiconductor-based integrated circuits, which has the remark- able property of dramatically increasing its price/performance far faster than anything else in the history of our economy. In the 1970s, the rate was already an astounding order of magnitude every ten years. In the 1980s it decreased to an order of magnitude every seven years. In the middle of the 1990s the time has compressed to three and a half years. By the end of the decade microprocessor- based systems will increase ten times in power every 2.5 years. And there is no foreseeable end in sight.
This phenomenon has an extraordinarily destabilizing effect on every industry within the high-tech sector. All high-tech products ultimately take their value from software, and the software written at any point in time must work within the power constraints of the current or soon-to-be-shipped hardware. But after only a few short years, another order of magnitude of additional power has come on the scene, making these same design constraints obsolete. New products, designed to the new performance vectors, incorporate software that simply blows away the old reference points. Their new capability translates into the kind of competitive advantages that stimulate virtually any business customer - better communications, faster time to market, more efficient transaction processing, deeper understanding of their customers, earlier detection of trends. You name it, it now appears within reach.
To be sure, nobody currently enjoying success with their old paradigm really wants to change. Everybody agrees that there is already too much cycling and recycling of high-tech products, and that we would be better served if we could just take a brief time out and catch our breath. But all the while the semiconductor engine keeps rumbling beneath our feet, and at some point the attraction of dramatically escalated capabilities simply overwhelms the inclination not to change, and despite everyone's best intentions, yet another tornado gets under way.
Each one of these changes generates massive new influxes of spending, as if we were to build up and then tear down our cities over and over again. These new pools of capital, in turn, create some of the fiercest economic competition on the planet, in part because winning or losing is compressed into such a short span of time. And with each revolution, it seems, it is not the old guard but rather a whole new set of players who are swept into prominence, redrawing the boundaries of the high-tech marketplace and realigning the power structures that dominate it.
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Rajat Sadana (MSL quote), USA
<2006-12-27 00:00>
This is probably the best and the most complete of the 3 books written by Geoffrey A. Moore. It is also one of the best business books that I have read in the past 5 years (I read a lot). This is one of the few books that clearly states how that strategies that companies follow while crossing the Chasm differ from those while they are in the tornado or a mass adoption. It takes an in-depth look at the general principles that an entrepreneurial venture should focus at during the inception stage including strategies for product design and deciding which verticals to target. It also describes how start up companies made their first sale and how they moved on from one vertical to another. And then how the very same companies adopted their products when the tornado arrived. In essence, it tells why and how companies like Oracle and Lotus could hold their ground and live under the radar in the presence of bigger rivals and how they outdid them.
This book is an exceptional resource for any Entrepreneur and business development manager or someone starting a new venture. I would highly recommend this book if you are an investment manager and invest in growth companies for this book gives you a yardstick to measure the progress of start ups and new ventures.
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Jeffrey Takle (MSL quote), USA
<2006-12-27 00:00>
Thankfully, this is not littered with platitudes and meaningless anaologies, the hallmarks of 99% of the latest-and-greatest business books. Especially since it was written in 1999, Moore's is an incredibly insightful and prophetic book on strategy for the high-tech industry. He was predicting cutting edge changes then that are coming into reality today in 2005. The book is much more descriptive than prescriptive though, and is best used as a tool to instigate discussions about corporate strategy, rather than as a checklist for strategic implementation.
I help run an online software development company and although it isn't exactly "high tech" I still found the vast majority of it very helpful and the rest of it fascinating. Market shifts are demanding broadband wireless Internet everywhere - free. Companies are shifting towards web-basing software applications. All very relevant to my business.
The book is well written, an easy and moderately fast read, and very accessible by anyone who is technology-savvy enough to at least hold an email address. Yes, buy it. Buy the paperback and save money.
Short Synopsis: In the infancy of a market, products need to be highly tailored to meet the psychological and technical needs of leading edge techno-geeks; nothing new here. When a company wants to take that product and make it marketable to the middle majority - where the biggest money sits - it requires a commitment to discipline and shift its strategy in order to do so. The emphasis shifts initially to identifying a single niche segment and creating a comprehensive, tailored product, that meets all of their needs - create the "whole product" by using partners and 3rd party services to patchwork the thing together. Then, stop tweaking the product. If that works, pick related niches and go after them the same way, creating the "whole product" for each of them. Once people at large are comfortable enough to make the paradigm shift for that market (this all deals with new, high-tech changes) and start doing so en masse, the strategy must completely shift again to a ship-first / fix-the-product-later mentality in a mad, market share scramble. At this phase, you are "In the Tornado." Lots of examples of successful and abysmal strategies used by high tech companies whose names are familiar to everyone, at each stage mentioned above. |
Lars Bergstrom (MSL quote), USA
<2006-12-27 00:00>
Beyond the previous Chasm book, there's a great deal of additional depth in how to make the transition with your business to get your products out to a wider range of people. He also introduced the idea of companies that effectively "live" in one part of the adoption phase or another, not dominating it, but rather living off the share that the market implicitly either wants to give to another competitor to keep a diverse environment or because they're the low-cost clone alternative.
Like another reviewer, I found the gorilla/chimp/monkey metaphor a bit much, though primarily because the "gorilla company" metaphor is used in a slightly different way in the real world. My biggest concern was with the people issues; there's a lot of discussion around how to transition your company from one stage to another and how that will affect the various roles, rewards the people in those roles should expect, and even the type of work those people should be doing. I don't think - especially for companies as people-based as technology companies - he spends enough time talking about how you handle those issues, set expectations, and actually lead your company through these sorts of changes. Academically, I could see how he was saying to transform the company over time. Practically, though, I couldn't see how some of his messages could be delivered well. Especially to the engineers working on products. |
Joanna Daneman (MSL quote), USA
<2006-12-27 00:00>
This was a groundbreaking book for many readers, who grew up in the pre-Silicon Valley boom days. How could Intel, Microsoft and other high-tech giants seize so much revenue, so fast? What were their marketing secrets and how can you apply them if you are in a new technology business? These are good questions and the description of how the successful companies stayed ahead of their competitors is educational.
The rules look simple:
1. Just ship
2. Expand your distribution channels (and leave none unprotected)
3. Drive to the next lowest price point.
To me, this is more like staying ahead of the wave in surfing rather than riding a tornado, but whatever the metaphor, these are accurate descriptions of how high growth companies kept their products rolling and revenues coming in during high-demand times.
But do any of these rules apply to staying ahead of the competition during the lean times? Where have the tornados dropped everyone during the inevitable slowdown after a long, strong period of growth? Look at HP - who drove these rules to high success with the laser and inkjets and unbeknownst to many, took the lead in the home PC market too before the recession hit. Now, when spending on technology has been frozen by corporations seeking to hold costs down during the downturn, how do any of the marketing rules set out by Moore apply? (Joanna Daneman, USA)
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