The End of the Beginning

The Marketing Tech Zoo: Scott Brinker’s Marketing Technology Landscape

The world of Enterprise SaaS is a dull place.

I mean that, of course, in jest. I just think that it’s unnatural to feel genuinely excited about the latest obscure enterprise tool. This is a world where people geek out on the best sales dialers (we love Dialpad and Aircall) and the most accurate lead enrichment tools (big fan of Clearbit). We love all these tools, and more, because they are useful and unadorned in the value they deliver. Modern enterprise tools are the result of nearly two decades of indoctrination into the SaaS jobs-to-be-done ethos, and they are very, very good at what they do.

Ever seen Scott Brinker’s Marketing Tech landscape? There are currently 6,289 companies in the marketing technology space, which is up from 150 in 2011. That’s a 60% CAGR. You want an email cadence automation tool for companies with 100-250 employees in the vertical farming industry? Here, have three.

Blogs, books, and conferences like SaaStr have democratized the building blocks for starting a software business. In the waning twilight of this current decade, the playbook for starting a basic SaaS business is relatively well-worn. It reads as follows:

  1. Find an overlooked area of the customer funnel / ERP tech stack that hasn’t been revamped in years, or find a vertical industry with legacy software providers who have underdelivered value
  2. Find what it takes to be good at that one very specific job in that area, or what it takes to deliver value to that vertical
  3. Iterate until you are best in breed at these things
  4. Expand from that into adjacent jobs
  5. Repeat steps (2) and (3) for each new area entered in (4)
  6. Build up enough proprietary data or integration lock-in to become a platform

Most companies spend years trying – and failing – to find an accurate and truthful answer to (1). But there are a few other things that fall out of this playbook:

There is a nice looking piece of software that exists for nearly every task within each defined function of a modern organization.

Let’s assume that a startup discovers a neglected area of promise, figures out how to deliver value within that area, and sets on its way to becoming the leader at doing that task. They have now entered the ever-more-crowded battlefield of modern software. They are now competing against 6,288 other hungry startups to be the function of choice for a buyer’s job-to-be-done

Software decisions are increasingly made at the team and IC level 

The technology industry exists in a perpetual state of oscillation between various states which are in opposition to each other. Client / server, modular / bundled, open source / closed, vertical / horizontal, abstracted / discrete.

There is a similar pendulum that swings between buyers of software. Enterprise sales software used to be purchased by a CRO or VP of Sales (it still probably is in many companies. I may be a little naive). In R&D teams, developers have been some of the main buyers of software for years, and we are seeing the equivalent thing happening in nimble sales and marketing teams. The email inbox of every revenue-generating or decision-making role is a veritable graveyard of Martech 5000 functions, and ICs and tactical teams are the only people who can separate the signal from the noise.

In 2030, what are the skills that we will take for granted but which in 2019 are only held by those in specialized roles? Spreadsheets are second nature to most corporate employees but were only used by accountants in the 1980s. Powerpoint has helped everyone learn to create presentations identical to those done by professionals only decades ago. Youtube and iMovie taught us all to create, edit, and distribute high-quality videos. I think that making software will be a skill which everyone has in 10 years and it won’t be because everyone suddenly learned to code. It will be because software exists which allows non-technical people to create contextual and purpose-built software within organizations of all shapes and sizes. Shishir Mehrotra of Coda agrees.

I think the days of the Martech 5000 are coming to an end. Enterprise software will be dominated by a few large platforms – Salesforce, Shopify, Slack, Intercom 🙂 – in the same way that the consumer internet is dominated by Facebook / Google / Amazon / Apple. We’ve reached the end of the beginning. Companies like Coda, Airtable, Notion, and Figma are some examples of what I think the future holds.

The next era is:

  1. Code free
  2. Power shifting from the decision maker to the doer
    • I can use Coda, Airtable, Notion, and Figma by logging in with my Intercom Gmail account. They get my info and my contacts, and I get a secure login with no credit card. When ICs in an organization are able to effortlessly start using a piece of collaborative software, the usage will be driven bottoms-up and not top-down.
  3. APIs abstracted into visual components
    • APIs do a pretty good job creating an interaction method for the data and work done by a piece of software. You knows what’s even better? APIs represented by visual modules in tools like Airtable and Coda. I had the original Lego Mindstorms kit when I was young. It had a drag-and-drop coding interface. Connect this block to that one and the robot turned left and went one foot. Imagine modules like that but for the tools used in your workflow today.
  4. Collaboration first
    • I think we all probably have Dropbox to thank for driving the idea that all software should have collaboration built-in. Tools like Notion unlock platform-free browser-based collaboration for design elements that previously needed to be manipulated on specialized Macs. The next generation of tools will design around collaboration as a core differentiator, and not just as a feature.
  5. Contextual linking between previously disconnected units of information 
    • Among other things, today’s internet enables us to create context between disparate forms of information. Think Google Image search converting a text query to matching images, but for pieces of information from proprietary pieces of software. I could use Coda packs to pull in lead information from Intercom, parse the conversation text using Google Natural Language processor, and enrich the email address with contact information from FullContact. The next era will connect our existing tools in ways that were previously unimaginable. You should also just probably do the above example all in Intercom though 🙂
A demonstration using Coda to rebuild Yelp https://blog.coda.io/new-building-block-layouts-6337b28a4ca7

I listened this past weekend to Patrick O’Shaughnessy interview Alex Danco on his podcast. One of the points Alex made was around how new tools will enable entrepreneurs around the world to build businesses like a “carpet of flowers blooming on the forest floor.” I thought that was a wonderful way to put it, and I hope it happens that way.

Thank you for reading.

Links:

  1. Andy Dunn, Get One Thing Right 
  2. Scott Brinker, Martech 5000
  3. Clayton Christensen, Job to be Done
  4. Shishir Mehrotra, What Will Software Look Like When Everyone Can Create It?
  5. Invest Like The Best, Interview With Alex Danco

Abstracting Innovation

I just finished The Upstarts by Brad Stone. The book details the founding and first few years of Airbnb and Uber. Its coverage of Uber’s founding is particularly poignant given the recent anger towards that company. If you want to read more about that story, go check out my post from last week or read Daniel Compton’s post on the potential ramifications of Google’s lawsuit against Uber and Otto.

The Upstarts also got me thinking about the ideation of new technological innovations. In this post, I’ll try to illustrate a framework for thinking about the growth and maturity of similar new technologies. (As I started writing, it quickly became apparent that there was more content here than I originally thought. As such, I think this will be a three-part post that I’ll flesh out over the next couple weeks).

The Innovation Cycle

All new technologies go through a cycle whereby they are invented, introduced as a unique feature, and commoditized. After commoditization (ubiquity), they either go extinct or are reborn in a new iteration with the benefit of underlying technological improvements. I’ve attempted to illustrate this relationship below.

Innovation Cycle.jpg

In this model, new technology arises in a few different ways. It is then launched as a unique feature controlled by a small number of stakeholders. The technology then becomes pervasive and permanent through commoditization, which means that it becomes an interchangeable good with no meaningful qualitative differences across its providers. Finally, the feature either goes extinct, finds new use cases downstream, or is reinvented due to new upstream technologies. Let’s break down each step of the process.

Invention

Historically – although there are exceptions – new consumer and enterprise technology came about in one of three ways:

  1. Government research
  2. New social norms
  3. Invention out of necessity

Government research is responsible for most of the ‘general-purpose’ technologies that the modern world couldn’t live without: GPS, the internet, RAM, and microprocessors are just a few examples. However, most of these technologies were invented many decades ago. Recently, innovation has shifted to the private sector. There are a number of reasons why this happened – I’ve provided a few below:

  • Decreasing cost of computing power
  • Distribution of computing resources available to everyone
  • Proliferation of graduate research students including many from formerly developing countries starting private companies
  • Changing nature of corporations to include research labs and venture departments internally

Basically, the tools needed to create innovative products have been democratized to the point that they are freely available to all (the innovation cycle itself has been commoditized!). Today, new innovations are either born out of changing social norms and generational shifts or are created by companies to solve their own internal problems.

A quick look at the raft of large private technology companies today provides a decent backdrop for thinking about how changing social norms are responsible for the formation of many of today’s most impactful and innovative brands. Three of the largest private U.S. tech companies have a product that offers access to shared goods and services. These are, of course, Airbnb, Uber, and WeWork. Ignoring the necessity of the smartphone/internet to these products, I contend that each of these business’ products would have been largely unfathomable 50 years ago. If you asked consumers in the 60s whether they would be comfortable sharing their home or car with strangers, or if you asked companies whether they would be willing to work in an open shared space next to their competitors, I think all parties would have responded with a resounding no.

The Great Recession created ~2 generations of consumers that are fundamentally averse to debt and ownership. While the seeds for the sharing economy were likely planted with the growth and maturity of millennials and Generation Z, the lasting scars and slow recovery of the economy since 2008 have created millions of consumers that are resistant to the commitment of ownership and the debt that comes with it.

Modern innovation is also born out of necessity. If we continue looking down the list of valuable private companies, we can see a few examples of companies whose products were created as a tool used internally within a company. Slack, the popular team messaging tool, was created within a gaming company to help improve communication and collaboration internally. Cloudera, the database software company, was founded by Yahoo, Google, Facebook, and Oracle engineers to help bring Hadoop to industries other than technology. Hadoop is an open-source distributed database tool that was created within Yahoo.

While many of the primary innovations that occurred in decades past came about because of hardware innovations funded by public entities, the explosion of software and IT technologies coupled with social and commercial trends is largely responsible for the ideas impacting our world today.

New Features

Shortly after its invention, a new product or use of technology enjoys a short-lived period as a vertically-integrated product/feature unique to its inventor. During that period, users flock to that service primarily due to the novelty of the new product. After the initial exuberance, one of three things happens:

  1. The initial surge of users and interest is only hype and the product slowly dies out. There may remain a dedicated base of loyal or niche users, but the product remains essentially unique to its creator. I think Houseparty is at this stage in its lifecycle.
  2. The product slowly gains users but adoption isn’t as widespread as the initial trajectory suggested. Total users are asymptotic to a decent and sustainable number. Competitors may offer similar products but new companies aren’t formed to copy the new feature. The product reaches permanence and acceptance in popular culture but continued attention doesn’t substantially grow its user base. I think Twitter is a good example of this.
  3. The product gains traction outside the initial surge of early adopters. Adoption continues and new use cases are invented regularly. There is a strong mix of niche use case, hardcore users, and casual users. Competitors spring up to copy the initial concept and add their own differentiating factors, but the core product remains essentially homogeneous across all providers. The product becomes a standard feature in many different use cases and is no longer seen as a differentiating factor. Most people will eventually have some sort of contact with the product. The product will eventually go off the market when the next generation is introduced. I think the video chat that Skype helped pioneer is a good example of this.

Commoditization

The third case above is, of course, commoditization. When a good or service is commoditized, it becomes readily and cheaply available from a wide range of providers. While different providers may offer slightly different features to entice consumers to buy from them, the product from one provider is largely indistinguishable from that of a competitor.

Untitled

The chart above illustrates the process whereby a feature is invented and then becomes a commodity. Most technology hardware has been commoditized. Cloud computing is in the final stages of commoditization right now. Software providers have to constantly reinvent and improve their products to avoid commoditization.

Commoditization means that the field is level for all players. Everyone gets to start from the same point because everyone has the exact same resources available to them (except human capital). The commoditization of IT and cloud computing has enabled the rapid growth and massive scale of today’s tech leaders. This trend will only continue, although the next generation of technologies like machine learning and AI might resist commoditization given their need for massive data sets to function.

Snap is at the point in the lifecycle of its product Snapchat where it is being tested by the forces of commoditization. Snapchat has two core features: 1. disappearing picture and video messages and 2. stories. While it has launched other features like Discover, I think that the core of Snapchat’s user base primarily uses the service for one of the two reasons listed above. So, then, given that Snapchat’s main features are simply software products, why would they resist the forces of commoditization when so many other products haven’t?

The crux of that question is whether Snap is a brand or a feature set. There are hundreds of clothing brands that make black men’s t-shirts. I have my favorites, and I like them for often bizarre reasons. So, is Snap an enduring brand, much like J. Crew has held on to a category of products for so long? Will consumers continue to use Snap when its main products are available elsewhere? Or is Snap’s feature set simply a new invention that others will implement in their own way (say, on iMessage or Instagram)? Did Snap simply shift the model of media consumption for others to implement on their own channels?

My next post will talk about why some products and companies resist commoditization.

Conclusion

New technology innovations may seemingly come out of thin air, but shifts in generational values and corporate models are largely responsible for most of the new technologies we have today. Once a new product is introduced, its owner enjoys a period of time where it owns the entire market. Once the novelty wears off, the product goes through a period where it either achieves mass adoption or sees rapid extinction. In the former case, imitators move in and the product becomes a low-cost commodity good.

In the next post on this topic, I’ll go through some case studies of technology commoditization. In the final post, I’ll explore why some technologies resist commoditization trends.

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Notes

  1. Daniel Compton: The Uber Bombshell
  2. TED Blog: Mariana Mazzucato
  3. Beating the Commoditization Curve
  4. Forbes: Shenzen’s High-Tech Empire
  5. HBR: It Doesn’t Matter
  6. BPD: Search and Such
  7. BPD: Snapchat vs. Instagram
  8. TechCrunch: Introducing Instagram Stories

Tech’s Hidden Bubbles

I’ve been dismayed by the situation unfolding over the past week in response to Susan Fowler’s incendiary blog post. If you haven’t read the post, you should, but if you haven’t, it’s helpful to know that Susan was an engineer at Uber from late 2015 through the end of 2016. Susan contends that Uber not only turned a blind eye to a repeated sexual offender but that the company actively rewards those who exhibit Machiavellian behavior to the detriment of other coworkers.

Continue reading “Tech’s Hidden Bubbles”