The application ecosystem: ten lessons learned

Computer Industry Report, Feb 19, 1999 by Henry Morris

* The componentization effect. Successful embedded complementors combine ease of technical integration with product pricing scaled appropriately, relative to the leader's.

Lead vendors consider the cost of integration an important factor in deciding which complementary product to incorporate. Crystal/Seagate became successful by adopting a channel-ready focus via easy component-enabled integration coupled with attractive business terms to lead vendors such as Microsoft and PeopleSoft. The company started by embedding Crystal Reports inside Microsoft's Visual Basic; now, Crystal Info is embedded in Microsoft's BackOffice suite.

* The domino effect. A leader that fails to incorporate a major technology shift brings its complementors down as well.

Major technology shifts produce winners and losers not just among the leaders, but among complementors that stake their fortune with a single vendor to lead a solution. The remedy for a complementor is to hedge its bets where the outcome of a battle among leaders is still in doubt. Hence, component suppliers may be forced to support both ActiveX and Java for the foreseeable future. A complementor needs always to look at diversifying its portfolio of lead solution suppliers to minimize risk.

* The expanding-core effect. As market adoption of the leader's product moves to a more mature phase, the leader will seek to expand into complementary product areas, causing it to compete with or acquire its former complementors.

For example, SAP now views planning and optimization software as part of its core rather than as complementary software. This view puts SAP into competition with planning and optimization software suppliers (which write to SAP-supplied interfaces) such as Manugistics, Numetrix, i2 Technologies, or Red Pepper (PeopleSoft). This phenomenon will be played out in other complementary areas that represent the aftermarkets to enterprise applications. Application vendors can go back to their installed bases and sell a bolt-on data warehouse, supply-chain collaboration systems, Web-commerce applications, and more. The enterprise application leaders will resist at all costs being viewed as a transactional engine only and are thus moving aggressively to complementary areas such as analytic and collaborative applications.

FUTURE PROSPECTS: THE EXPANDING CORE LEADS TO CONFLICT

Ecosystem leaders, complementors, and packagers ignore the 10 lessons only at their peril. By developing a vocabulary for describing their roles and interactions, vendors can better understand market behavior and avoid repeating traps and pitfalls.

The 10th principle, the expanding core effect, is one to watch especially in the future. Boundary wars are likely to emerge. Ecosystem leaders will seek to broaden their cores to avoid commoditization, inviting inevitable conflicts with partners that have staked out a complementary market. The complementors have an initial window of opportunity before the leaders move in. Major battlegrounds in the boundary wars are analytic applications, Web-commerce applications, and supply-chain collaboration. IDC will use these rules to analyze the dynamics of these conflicts as they play out in the marketplace.