bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
November 23rd, 2007
Greenstone Venture Partners
“And I'll grow a little bigger
Maybe that can be my goal,
I was told a million times
Of all the people in my way,
How I had to keep on trying
And get better every day”
– Queen, Keep Yourself Alive
Last time, I wrote about a worrisome trend that our
biggest BC technology companies were not getting bigger…
They certainly are not getting bigger in aggregate since
2003 in terms of market capitalization.
Some companies have done well, others have
sputtered. Many of you asked me or
offered your own reasons why this was happening.
Some of you pointed out that overall technology
employment and GDP from technology was up in that same
five year period. Clearly the emerging companies and the
“bought” companies working under a foreign company
banner are growing here. But I
wanted to tackle a more specific issue: Why can’t we
grow a RIM, a Microsoft or a Google in our backyard?
offer two reasons we don’t yet have a mega-company in
technology: Product Extension and Platforms.
Product Extension is the process whereby a
company expands its product offerings to increase its
revenue and profit. Platforms are
the fundamental technologies that others build on,
generating better pricing and/or license revenue,
because the platform is dominant in terms of market
at the mega companies in technology and lump them in to
these two options:
Microsoft – platform (Windows) and product extension
Google – platform (search)
RIM – platform (Blackberry)
Cisco – product extension (network to enterprise to home
and small office)
Intel – platform (CPU)
Apple – product extension (computers to consumer
Let’s look at product extension first.
As a start-up, you are strongly encouraged to be
laser-like in your focus on your one product.
Getting it to market and establishing your
company is the only option due to constraints on capital
and good people. You may be acquired along the way if
you make a splash with your innovation and get
significant customer pull through.
You may emerge with a hit product, raise more capital
and extend your product line up. You
have to reach more markets by adding new products in
related market segments or extending your product up or
down the price curve in your existing segment.
You can do this through internal development or
you can acquire your way into related markets.
When you are a larger company, product extension
is absolutely critical to growing your company’s revenue
and profit. Let’s look at a
successful company or two that have done that.
Microsoft “embraces and extends” as a core strategy.
They moved into the browser market against
Netscape. They dominated the
productivity software category with Office (stomping the
single product companies, Lotus,
Wordperfect and Harvard Graphics along the way).
They came into the game market and now are one of
three dominant players with Xbox.
They innovated and they acquired their way into huge
markets extending their Windows platform dominance and
creating huge amounts of revenue and growth potential.
Growth for Microsoft in the future will be
related to adding more and more products, not just
succession of existing products, but extension into new
Apple is as big as it is today because its core
competence is design innovation… which means it makes
incredible products in almost any market it chooses to
enter. Unlike Microsoft and Cisco
(which almost always acquires its way into product
extension), Apple always enters with its own innovation.
So it expends a ton of capital in development.
Cisco, on the other hand, expends a ton of
capital in acquiring product and streamlining it into
its gargantuan distribution channels.
other way to be a monster technology company is to own a
platform technology and milk it over many years because
competitors find it hard to copy the product or enter
the market. The platform is
something that has a large enough market that it starts
to feed upon itself (others build on top of it and make
money because it is so huge or the market share is so
dominant, no one can enter, creating huge price
advantages). One trick
ponies are very rare… but
they do exist. Becoming gargantuan
this way is almost by accident: Microsoft and Intel got
lucky with the PC explosion and IBM’s stupidity to
create their initial dominance. But
in other cases, it is well thought out: Google and RIM
are examples of planning to be market dominant from the
is gargantuan because they made the Blackberry actually
work. Its reliability in delivering
e-mail, initially over pager networks and now any
wireless data protocol,
separates it from the competition and made its platform
dominant. Google set out to change
search and its initial technology dominance led to
market share dominance. But it was
its fortunate purchase of AdSense
that gave them the ridiculous revenue on top of their
let’s look at the local companies and pick their plan
and see if it worked, if it did not work
or if it is a plan in
process… will any of them be gargantuan?
and Angiotech, like many
biotech companies, start out life as a one-trick pony
(like all start-ups do). Unless they have a solid
“pipeline” of new drugs or devices (product extension),
their success is meteoric. The
successful drug/device enjoys some period of incredible
success only to be caught by competition.
The challenge to creating biotech monster
companies like Genentech or Amgen is to acquire or grow
a plethora of new products. Kudos to
Angiotech for trying that
recently. QLT seems to be struggling
to do the product extension thing.
Neither of these companies had a platform technology
that enjoyed massive, sustainable market share, but both
made their earliest investors very happy along the way.
was just acquired which is good for the acquirer,
looking to extend the products in its portfolio.
was interesting. It had the
potential to be gargantuan because it changed the game
in the printing industry. It looked
for a while like a platform company, a la RIM.
and others caught up on the innovation curve and as much
larger companies, could afford to kill
Creo on price and make it up
selling the printing plates (which
Creo did not do until too late).
Meanwhile, it had product extension capability.
It was creating products in its skunk works that
could have taken it into related markets.
Before it could successfully become huge by
building and launching its own innovations, Kodak
acquired it to extend its own line.
Ballard had a platform play… it just hasn’t
materialized… now their survival depends on product
Sierra Wireless, PMC-Sierra and MDA are all active
examples of how to build through product extension.
They all do this via acquisition and innovation.
Sierra Wireless had a product family that started
to really sell in 2000 but had to extend to survive the
downturn. They almost cratered when
one of the extensions into the
smartphone business flopped.
But they have been on a roll of late.
PMC-Sierra grew out of MPR
Teltech and shot to the moon on one product
family as well (like I said, you have to get big on one
thing and then stay big by extending).
Recently they have acquired and innovated their
way into many new but related markets.
The storage market is starting to bear
substantial fruit and they are picking up steadily.
few years ago, everyone in the analyst community
questioned what the heck Dan
Friedmann was doing with all of these seemingly
unrelated ventures under the MDA banner.
What had been a satellite and
geomatics company was now
buying land databases, looking at e-commerce and doing
big software implementation services for government.
What looked like disjointed efforts is now
growing feverishly and looks very smart
Can MDA continue to acquire and innovate into a giant?
Among our local companies, this one looks the
most capable of becoming gargantuan…
They have a wide enough market opportunity (Information
products and information systems seems very broad) that
their extension story is very promising.
the extent that we can have a massive company in BC, is
to the extent that our biggest players can successfully
spread into new markets before they themselves get
bought up. Much easier said than done!
Meanwhile, lurking out there might be the
platform company that gets gargantuan on its start-up
guess we’ll see… Your comments are
What Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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