As a result of this column you and your organization will: As MCI demonstrated, know emerging providers can easily innovate and take market share from an incumbent. Understand incumbents are typically looking for higher margins and willingly give away the lower end of the market. Be able to target customer segments not served, over served or underserved by current offerings. When AT&T dominated the telephone market, they were not interested in serving price-sensitive customers who did not need all of the functionality in their “one size fits all” business model. The result was that MCI created a low-end service targeting AT&T customers…and they led a telephone service provider revolution that continues to this very day. If you’re at the head of the pack, technological innovators are always trying to eat your lunch. If you’re new on the block, willing to use technology and hungry for business, there are huge companies just waiting to be exploited. Old or new, here is what to do.

• As MCI demonstrated, emerging providers can easily innovate and take market share from an incumbent.
• Incumbents are typically looking for higher margins and willingly give away the lower end of the market.

Incumbents have learned, much to their dismay that ever emerging providers continue to gobble market share.

Even when an incumbent does resist, their hearts just usually aren’t in it. Perhaps the reason is that the battle means life or death to the new company and very little to the dominant player. “It is not the size of the dog in the fight. It is the size of the fight in the dog.”

For example, banks used to originate and service all loans. Unfortunately today, with the help of technology, specialist providers now own a large piece of the “credit market” and are servicing new markets with lower costs while adding new complexities daily. The recession of 2009 is, in no small part, a result.

Once upon a time, the print newspaper industry was the only source of “help wanted” advertising. Then, along came monster.com, followed by craigslist.com and others. Newspaper classified advertising space has shrunk. Due to Amazon.com, traditional bookstores are no longer the only place to buy the latest best seller.

In every case, the incumbent was aware of the technological threat and eventually reacted to it with a “me too” version.

• Classified newspaper ads are now available on line.
• You can purchase a book from Barnes & Noble electronically.

But is it too little, too late? Only time will tell.

In the 1990s, IBM sought to leave networking equipment in order to focus on higher-margin services. Cisco saw an opportunity and captured the market. In the meantime, Dell took advantage of the modular nature of the personal computer industry. IBM, a behemoth, old, integrated company, gave up a fast growing market …forever.

• What jobs are customers in your industry trying to get done?
• Are there some customer segments not served, over served or underserved by current offerings?

What “bundled” products or services, like the newspaper or AT&T, can be sliced and diced by your using technology to capture a profit center?

Can you, as monster.com did, just take a specific portion of a larger process and do it more cost effectively and efficiently? Can you “fly beneath the radar,” and eat a dominant player’s lunch.

If you’re the “AT&T” in your industry and marketplace, don’t assume that your “MCI” threats are insignificant. Look for ways to be first in innovation and be willing to give up “fat margins.” Be unwilling to cede the low end to new entrants and insist on new business models that are lean so you remain profitable.

As an incumbent, acknowledge that your strengths may also be your weaknesses. Failing to do so will put you in a position of ultimate failure or acquiring the winning firm to stave off ultimate destruction.

Technology will change the landscape for every industry on the face of the earth and always pose threats to the current leaders and great opportunities for new entrants.

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