Horizontal to Vertical Markets

(Ref Id: 1419970404)

Definitions: What are Verticals in Business.


Recently I heard a LIMS consultant complain about having to compete with human resourcing companies for contracts with the larger consumers of LIMS. You might be wondering why this would be an issue since virtually all LIMS vendors purport to be able to support their own products? Well, big LIMS vendors are most frequently victims of their own success -- when they start doing well the demand often exceeds their capacity and customers will venture out into the contract market or try to hire someone to help them with their LIMS. Since hiring is typically preferable to contracting they'll originally try to employ a human resource firm to meet their needs.

Lots of large companies place heavy emphasis on human resource firms -- so much so that virtually all requests for IT services get routed to what they refer to as their 'primary (IT resource) vendors.' The reason for this is relatively simple -- it frees the client from having to sift through hundreds of candidate profiles or to meet with large numbers of unqualified candidates. The human resource firm performs the dual tasks of producing interest in a position (notice how most notices for positions actually come from these firms) while simultaneously filtering the candidate pool. A small LIMS service company will often find that requests for services for the largest clients come via one or more of these providers or via smaller companies that work with them.

Scrubbing Your Label

When a LIMS consultant works in this manner the third-party service firm effectively commoditizes the service offering. This is a lot like taking a can of Coke, pouring out its contents into a tall glass, and then handing it over to the client while referring to it as 'cola.' Don't like the taste? I'll get you another 'cola.' All of the distinguishing marks and features (as well as the advantages of using one brand over another) are eliminated or 'whitewashed' and the focus for any perceived benefit rests on the delivery agent. In this case the LIMS consultant becomes more like a database administrator -- one is supposed to be exactly as good as another.

The contract between the third party firm normally places restrictions on the LIMS consultant (cannot directly solicit the company for business for some time period, etc.) in a way that perpetuates this brand dilution. The resource vendor wins whether the LIMS consultant is effective or not primarily because they get paid either way and secondarily because any success is attributable to their presence and business model. Any failures are quickly cleaned up through service contracts that are easily terminated.

Can't Sidestep the Middle Man?

With all these advantages it is safe to say that this business model is here to stay. So why be upset with it? Ah, because these intermediate vendors typically want about 20-30% of the contract's value so a LIMS consultant must take a pay cut. Also, a LIMS consulting firm will find some obstacles when trying to add additional consultants to a contract due to the intermediate relationship. The resource vendor looks good when it finds additional resources, not you. They'll happily pummel a LIMS consultant with questions about his/her associates so they can present those to their clients on your recommendation but if you suggest that those additional resources enter an existing contract via your firm you will often find resistance.

If you are a LIMS consultant who has found these scenarios to be the case there is good news for you -- it is called Open Source. In order to understand its effects on the above models you'll need to learn a little bit about markets. Specifically you'll need to learn about horizontal and vertical markets.

Horizontal/Vertical LIMS Consulting Markets

LIMS providers themselves are typically fairly small companies. Even those that were purchased by very large entities act internally like very small companies armed with the huge wallets of their parent companies. This situation exists because no amount of money can inject all that one needs to know about LIMS into an individual's brain in a short period of time. Despite their best efforts, you cannot produce a quality LIMS professional in a hurry and the turnover is phenomenal. There are just so many ways to make a faster buck in computing that often it is not seen as a worthwhile professional choice anymore.

When you specialize in, let's say, STARLIMS you've entered a particular vertical market ("vertical markets are those that focus on a specific niche and can be marketed to in a similar manner"). STARLIMS customers are those that have purchased or are about to purchase the STARLIMS product. You might be thinking that an implementation of STARLIMS in one industry would be wildly different from another and you would be correct if it were not for the Pareto Rule. Over time 80% of the customers for a particular LIMS will likely fall into several niche industries -- areas where their product excels and has a good track record. Because of this consultants really only have to be familiar with the top industries where the product is deployed to be marketable using that LIMS. The implementations in the food industry for XYZ LIMS will be largely the same and will often change at the same pace. Hence, a STARLIMS practitioner will find herself useful for implementations for a great number of companies making/selling the same stuff in short order.

Verticals are incredibly attractive to human resource providers -- companies that really do not hold much in-house knowledge other than what is necessary to locate and match talent to client needs -- because there are fewer, larger, more easily-identifiable clients and they are willing to pay more for specialized services.

Oddly enough the LIMS industry started out with a heavy horizontal focus -- so much that even the products themselves were architected to be realigned with virtually any laboratory (albeit clumsily in some cases) that the vendor happened to encounter. InnaPhase set a strong precedent for going against this trend by building tools, from the ground up, that targeted high-value verticals.

Now for the good part, a horizontal market is one that "focus[es] on a broad range of customers and products that spread across industries." If the verticals are defined as higher-paying, more easily identifiable niches then horizontal markets will be just the opposite: lower paying, less nichy, and harder to define. Where the vertical market has a maximum number of customers (in our example here that limit is exactly <= the number of customers that have bought or are about to buy STARLIMS) the horizontal market should only be limited by your capacity to serve customers. What are we talking about here? An Open Source LIMS offers the ideal solution to meet horizontal market demands.

Open Source LIMS Benefits

First, with Open Source there is no sales model. The system is downloaded and installed and then, provided the customer finds some use for it, actually used. A consultant could literally take the system with her and install it and begin working on it the same day in any environment. Of course the client would need to accept such a thing but, practically speaking, if this was not an obstacle you can see the point. There would be no need for a) the vendor to have been interested in this client and have marketed to this client and b) there would be no need to wait for various licensing and support agreements to be struck between a vendor and a client. Therefore the upper limit becomes how many organizations would use your services for the LIMS, not how many have or are imminently going to pay for the vendor's product.

The model is very different. Your reputation becomes more important than that of the provider's. Even if the original provider became disinterested in making LIMS entirely and switched to making video games the client would be largely unaffected so long as your services were still available. For this reason it behooves the tenured/intelligent LIMS consultant to spend any and all free hours installing and supporting Open Source LIMS products because of the benefits he/she can find in the horizontal marketspaces of the world. Where are these market spaces, you ask? Anywhere the marketing of the LIMS vendors fears to tread because it is 'unfamiliar' or 'nichy' or 'not-profitable'. It is anywhere the human resourcing vendors are not looking toward for sourcing opportunities.

All you need to do is get really good at one or more of the widely accepted Open Source LIMS that are getting lots of downloads and you can start doing this right away. It really should not matter that these products are not as mature as commercial counterparts for reasons described above: first, those products originally started in the similarly horizontal spaces and, due the Pareto Rule, are now settled in a handful of industries (OR they started in verticals from the onset); second, the 'incompleteness' of these systems may actually be advantageous since it will allow for these horizontal markets to grow much the same way as the more established systems grew in the past. When a horizontal market player that has been using an Open Source LIMS shifts into high gear to become someone that the larger players will take notice of you will be ahead of the curve.

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Citation: Horizontal to Vertical Markets. (2014). Retrieved Wed May 23 11:05:49 2018, from http://www.limsexpert.com/cgi-bin/bixchange/bixchange.cgi?pom=limsexpert3;iid=readMore;go=1419970404