DSI Newsletter

THE LEADING EDGE: BECOMING A SAVVY EARLY ADOPTER OF EMERGING IT
Keep up with the hot new technologies without getting burned

As the Information Technology sector emerges from the shackles of the "bubble aftershock" of the last two years, new waves of innovation are beginning to blossom again. Managers and investors are facing a vast array of emerging Information Technologies, including real-time analytics, Web Services, Universal Messaging, Voice over Internet Protocol (VoIP), Enterprise Wireless LANs, and Utility computing. Many of these emerging areas have been touted for years as "high impact" or "disruptive" technologies. But will they be? With each new technology on the horizon, the question is: Is it the start of a serious boom or just another bubble? Given the uncertainty in predicting the winners, does it pay to be an early adopter of new Information Technologies?

In a study of a set of emerging technologies in the IT space, we have classified them as "contenders" or "pretenders" in terms of their market success. Through this retrospective view, we will explore more robust, scenario-based frameworks for integrating Emerging IT into a longer term strategy without getting burned.

The traditional S-shaped diffusion models for new technologies don't take into account the impact of cycles of hype and disillusionment that are often a part of the adoption of new technologies. These impacts distort the S-curve as shown in Figure 1. Hype-driven early adoptions create a bubble, which then subsides as the reality of shortcomings in the technology surface. In many cases, the setbacks in acceptance are temporary as improvements overcome shortcomings and complementary technologies mature. After a brief lull, the emerging technology takes off again, but on a delayed acceptance curve. This is the case for e-commerce where the 1999 forecast for 2002 has been achieved 2 years later in 2004 [1] .

In other cases, however, the short-comings and failures prove to be insurmountable, such as for broadband satellite. Titanic failures on related projects, Globalstar and Iridium, as well as the glut of high-bandwidth fiber around the globe, were like anchors around the neck of this nascent technology, once thought to represent a $9 billion market, now hovering around $200 million today [2].

Even experts have a difficult time differentiating the winners from losers. Looking at a range of examples in the emerging IT space, it becomes clear that predicting the market success of these technologies is a "crapshoot" at best. Some examples of pre-2000 forecasts and current market sizes are shown in Figure 2. CRM Applications and Third Generation Wireless (3G) would fall strongly in the category of "underachievers". The have fallen well short of initial expectations. Yet both have a strong possibility of achieving the once-expected market success at a later date with a second wind. Wireless LAN Technology (WiFi) and Linux would be classified as "sleepers", far exceeding the expectations of mainstream analysts.

Since even experts in these areas have such a dismal record in spotting the winners and losers, what hope do others have in identifying and backing the winners? To address this question, we need to look a little more closely at what separates the underachievers such as CRM from the sleepers such as Linux.

Why did CRM applications hit a wall in terms of market acceptance at the end of 2001 when over 50% of Enterprise CRM Implementations were considered failures? [5] There were several key factors which are common to most underachievers.

Hype drove the expectations to irrational levels. Brand-name CRM platforms became a "must have" for executives as they saw others flocking to the technology.
Technology dependencies were immature or lacking. In CRM's case, this was primarily the lack of real-time, centralized data sources for supporting comprehensive, current views of each customer.
One-size-fits-all approach did not scale. Many customer segments have unique product and service configurations and channels. Early CRM platforms were unable to customize easily to meet these needs.
Early failures created backlash and risk-aversion. Lots of money was spent with little to show for it in the case of CRM deployments.
Unforeseen replacement technologies. New CRM solutions from billing vendors, niche application vendors, and even an outsourced CRM model became viable, offering lower-cost options versus large platforms.
Lack of solid success measurements. ROI was tried as a metric for CRM success, but models for translating customer satisfaction to revenue and profit were slow to develop and existing systems lacked the supporting data.

How did WiFi slip under the radar of most IT pundits as a serious broadband wireless technology? Let's looks at the characteristics of sleepers such as WiFi that helped drive their unexpected success:

Confluence of technologies and environment. In the case of WiFi, it happened to be the 802.11X set of standards, low-cost wireless device manufacturing from cellular/PCs, increase in two-PC households, and displacement of PCs with laptops.
Major event has happened to drive the technology out of the lab. DSL was in the lab for over 15 years, but was not deployed by the Baby Bells until cable broadband services entered the market as a new threat.
Not on the radar screen of the gatekeepers. The expectations remain low until a technology has been identified as a major growth opportunity, so WiFi flew under the radar.
Shifts in customer attitudes and business models. The acceptance of open-source software solutions (such as Linux-based products) and outsourcing of mission-critical business applications (like Salesforce.com) were unthinkable 5 years ago.

We need to keep an eye on technologies as they shift from underachievers to successes. A great example of a technology that underachieved in its first market introduction but is now gaining success in its second market launch is Voice over IP. The first wave of VoIP solutions provided horrible call quality due to the lack of end-user bandwidth and quality of service control within the Internet. Also, our expectation level as phone users was still set by high-quality Ma Bell wireline voice as the standard. The recently launched services in VoIP by companies such as Vonage and Skype are experiencing great success due to the confluence of broadband internet access availability, quality of service control methods for Internet-based services, a strong vendor/distribution model for low-cost IP phones and adaptors, and a reduced customer expectation due to increased cellular usage (Cellular has much lower quality than wireline voice). This same effect will likely repeat itself for 3rd generation cellular and Voice over WiFi as they evolve.

Given the significant uncertainty and complexity in the emerging IT space, how can decision-makers choose technologies to adopt? The natural behavior is to become extremely cautious and conservative, especially for those that have been burned before. But this course of "inaction" leaves opportunity on the table for your competitors and new entrants.

Most of the time managers think about these technologies by focusing on evaluating the individual technology itself. A better approach is to make decisions on adopting new technologies using a disciplined framework to sort through the uncertainty and identify technologies which are likely to succeed under different scenarios. This addresses the technological uncertainty as well as other uncertainties such as changes in consumer behavior that might make the technology more or less valuable even if the technology itself works perfectly. Scenario planning provides a framework for identifying high-impact forces and developing multiple distinct futures as a lens for evaluating new technologies. [6]

Some of the interesting, potentially disruptive forces in IT include rogue standards like those being developed in China for wireless and compression technologies, cyber-security threats and legislation, and the transformation of Peer-to-Peer (P2P) Networks to support mainstream services (telephony, access, other). These and many other forces can be categorized into trends and uncertainties to develop scenarios. DSI is developing scenarios for the future of IT that will create a strategic framework to help spot the alignments that could cause sleepers to awake or dampen the rise of underachievers. This perspective adds discipline to early adoption decisions for emerging IT.

If you would like to learn more about our work in this area, please contact us at: snyder@thinkdsi.com or 610-717-1000 ext. 119.

Business 2.0, March 2004
Pioneer Consulting, 1999
Aberdeen, 2002 – Modified by DSI
DSI Market Research, Various analysts including Gartner, Aberdeen, Yankee Group.
Gartner, September 2001
Paul J.H. Schoemaker, Profiting from Uncertainty: Strategies for Succeeding No Matter What the Future Brings, New York: The Free Press: 2003.