Information tech sellers urged to think vertically
December 27, 2002
By Robert Mullins
With information technology spending expected to be lukewarm again in 2003, sellers of technology have to try to make the best of a bad situation. One way is to focus on a few industries to sell into rather than trying to sell to everyone.
Silicon Valley sellers of information technology were advised at a November forum in Santa Clara hosted by IDC to pursue a vertical markets strategy - rather than trying to sell horizontally across all industries.
IDC, a technology research firm based in Framingham, Mass., forecasts that worldwide IT spending in the enterprise market may grow as much as 5 percent in 2003 after declining 2.3 percent in 2002. However, there are a number of variables. If the overall economy continues to lag and if the United States starts a war with Iraq and it becomes protracted, 5 percent might be too much to hope for.
Also, some industries may be more inclined to spend on information technology in 2003 than others. Understanding the needs of each of those particular industries will make the IT sale easier.
"IT vendors are trying to get more intimate with their customers," says Meredith Whalen, vice president of U.S. vertical markets research for IDC. "In a situation where IT budgets are being cut back, IT vendors understand that business problems vary by industry. Therefore, the vendors themselves need to have a vertically oriented strategy."
For instance, Ms. Whalen says, the aerospace industry is expected to spend more in 2003 because of the expected uptick in defense spending by the U.S. government to fight terrorism and Iraq, so it might spend more on IT. On the other hand, the financial services industry is expected to spend less on IT because, given the generally bearish stock market, many traders are staying on the sidelines so commission revenue is depressed.
Pursuing a vertical markets strategy requires understanding the "pain points" of the different industries. In an era in which IT budgets are tight, customers only focus spending on the problems that need to be fixed right away, says John McNulty, chairman and chief executive officer of Secure Computing Corp., of San Jose.
Paraphrasing a Carly Simon song lyric, Mr. McNulty says, "They only have time for the pain."
Secure Computing makes technology that protects computer networks from intruders such as viruses or hackers.
One of the verticals Secure sells into is health care, an industry that represents about 19 percent of the U.S. gross domestic product, but which is surprisingly poorly automated, he says.
Hospitals may have elaborate MRI machines, but doctors offices still store stacks of paper files and clerks still work on computers running DOS.
New pressures are mounting on the health care industry to automate, Mr. McNulty says. The federal Health Insurance Portability and Accountability Act requires that health care providers and insurers digitize patient records but protect the privacy of those records.
That is going to create a market for IT in health care that hadn't been there before.
"Health care was not on our radar screen three years ago," Mr. McNulty says.
IT companies pursuing a vertical markets strategy need to take the time to better understand the pressures that an industry might face, Ms. Whalen says.
If, for example, a company is selling to the airline industry, news of the Chapter 11 bankruptcy filing of United Airlines earlier this month would be important information to have. United is not the only airline with financial woes, a condition that would affect technology spending of many of them, she says.
Even companies whose technology could easily be used by any company also would find it wise to focus on just a few industries.
Veena Gundavelli is chief executive officer of Emagia Corp., of Santa Clara, a seller of cash flow management software for businesses, a product that should have wide appeal.
"Most companies want to fix this problem," Ms. Gundavelli says.
But Emagia is focused on selling to a few verticals for now. The two-year-old company sells to high-technology manufacturers, such as Solectron Corp., of Milpitas; retailers; and pharmaceutical companies, she says. It may expand into other verticals later.
It is wise for smaller firms to focus on a few verticals when they are just starting out, says IDC's Ms. Whalen.
"You may just want to go into just one vertical, gain some expertise in that industry and then, as you expand and grow your company, move into maybe a second related industry," she says.
ROBERT MULLINS is a member of the Business Journal's technology team.
