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Is the rule of three in technology markets - a sign market has consolidated?

Given technology markets are so disruptive, how do some companies manage to survive and thrive?

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The Rule of Three expounded by Boston Consulting Group states - that in any free market, there are three major competitors. As an extension, the top five control 70 to 90 percent of the market. As an IT CIO or IT Manager, it is important to identify the leaders ,and engage with them. As an industry participant, it is is important to align your product portfolio and make alliances, if industry is consolidating. We will also analyse playbooks that come into play during such a situation.

Given the talk of Big 3 in automobiles, Big 3 in airlines, Big 3 in telcos etc, I gave some thought to the steady state market equilibrium in free markets, and what it means to the value chain from customers to suppliers. Given technology markets are so disruptive, how do some companies manage to survive and thrive? Is it a matter of strategy or accident?

Although the free market is dominated by top three, and there is fierce rivalry within the top five, does a mature market - fight for market share, subscribers, cost efficiency create a more fertile ground for competition. Although, I will be looking at the mature Printer market as an example, given some recent interesting events in the industry, the conversation still applies.

In 2002 Jagdish Shety and Rajendra Sisodia analysed 200 companies for this phenomenon. They found the top three vendors were full service providers and other major players (excluding top three) were speciality players. For an IT CIO or IT Manager it is imperative to identify the leaders to depend on for their IT vision. Additionally, in a competitive market you have to identify whether it is advantageous to use the same provider as your competitor, or an alternative within the top five based on your needs.

With consolidation in the air; firms either divesting/exiting their business, or focusing on a certain core, the issues for industry participants is broader. It raises questions: is the exiting business attractive or the new shell more attractive for a prospective suitor. 

The incumbent (number one) cannot acquire other assets due to regulatory issues. This raises intesting options. Some of the strategies that come into play.

  • Will a suitor emerge from an adjacent market (example Google for Motorola)?
  • Will other players in top 3 (#2, #3) bid for the target firm?
  • Will a smaller player acquire the target firm to build up share and technology in a bold move? Will a series of small acquisitions (rivals)  be necessary to take on the top three?
  • Will a private equity player deem the opportunity attractive and take the company private?
  • Will the new firm (after divesting a business) choose to align or acquire other target firms?

It will be interesting to see events play out in the Printer market.


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