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The adtech ecosystem is becoming increasingly convoluted and as a result, it’s getting more and more difficult to identify where one technology platform ends and another one begins. This trend is set to continue as adtech vendors try to grow into new markets, become more diversified, and try to offer their clients a one-stop shop solution. But is this a positive thing? Or is the increasing homogeneity of the adtech space doing more harm than good? Should tech providers be trying to “fill gaps” in their product suite, or should they instead become hyper-focussed on their core competencies?
As investment in technology increases, and as the challenges we attempt to solve through technology expand and diversify, it is only natural to see technology providers iterate on their capabilities to cover an increasing number of use cases. This evolution is clearly, in some cases, a positive iteration of capability through which the technology vendor is able to both solve their client’s needs and also grow in new markets. However, it must in some cases, come at the expense of a single-minded vision and the focus required to maintain market-leading capabilities in one or two fields.
The trend towards diversification, by most accounts, is far outweighing the trend towards the establishment and maintenance so-called “pure-plays”. I believe that is an inherent result of the human preference towards observed short-term growth (greatly motivated by VC funding) over and above a consideration for long-term value creation.
Why is this important? Because, in my view, it could be inherently unsustainable, and at the very least, could mean that technology vendors are leaving a lot of money on the table by not identifying the long-term negative impacts of over-diversification and the positive impacts of remaining 100% focussed on their core capabilities. Some of the negative effects of over-diversification include:
– A lack of focus on core product diverting valuable engineering, development and product resource away from maintaining and iterating on core capabilities.
– Operational resource throughout the business becoming diluted and fragmented across multiple products, solutions, commercial models and support structures. Teams may become less experienced as they are required to “know a little about a lot”.
– Reduced overall competitiveness as new solutions built to “fill gaps”, will to others, be seen as core competencies. “Making the grade” against leaders in these new markets could be difficult and could begin to foster a negative perception of the overall direction and capability of the technology.
– You may lose the authority and authenticity of a single-minded technology vendor, with a clear focus on one solution, and a value proposition completely dependent on the development and successful market adoption of that solution.
– The broken window fallacy – The notion that there is an unseen cost related to the value that wasn’t created when the decision was made to create new capabilities in favour of improving core competencies. In other words, we often don’t evaluate what we could stand to gain by doubling-down on our core competencies in favour of diversifying capabilities and building new solutions.
In our personal life, we make decisions all the time to “improve ourselves” by learning new things and developing new talents and skills. But we often focus too much on the things we aren’t particularly good at, and not enough on creating differentiation through the things that we are good at. I think the same thing happens in business all the time and is prevalent within adtech. We focus a disproportionate amount of our time and resource building out capabilities in order to be competent across a number of use cases, instead of focussing that time and resource into creating differentiation and competitive advantage through our major strengths.
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