Harvard Book Store: Competitive Advantage Speakers: Geoffrey Moore

Geoffrey Moore is the bestselling author of Inside the Tornado and Crossing the Chasm. In his latest book, The Gorilla Game (with Paul Johnson and Tom Kippola), he guides us through the fast-paced, risky, and extremely rewarding world of high-tech investment.
Geoffrey Moore is chairman of The Chasm Group in San Mateo, California, which provides marketing strategy consulting services to Microsoft, Hewlett-Packard, Cisco, Oracle, Sun, IBM, and hundreds of other high-tech companies.

Geoffrey Moore spoke at our Competitive Advantage Breakfast on April 15, 1998.
Mr. Moore began his talk by going over the basics of shareholder value and how to manage it. Shareholder value, he said, requires profits in excess of the cost of capital, accessibility of capital, and a profitable marketplace. Managing shareholder value requires good strategy, more than anything. The four steps of such a strategy might be: accumulating market power, understanding market capitalization, transforming market power to market capital, and sustaining market capital.
He then went on to describe the life cycle of technology adoption -- in other words, how a new technology is accepted and adopted by "techies" and subsequently by the general public. The first group of people to adopt a new technology are the Innovators, who are generally techies. The next group of people to adopt are the Early Adopters, or the visionaries, who see the potential of the new technology. Next come the Early Majority, or the pragmatists, who figure they might as well use it now since they're probably going to have to do so eventually. Then come the Late Majority, or the conservatives, and finally, the Laggards, who are skeptics. Moore asserted that the Early Majority is the most important group in deciding a new technology's fate, because they follow the herd mentality -- they create the biggest market. When they all buy in at the same time, they create a "tornado" of demand. When everyone wants to buy from the same vendor, that turns the vendor into a "gorilla" -- for example, Microsoft.
Mr. Moore illustrated a market development model in these four stages:

The Early Market -- made up of techies and enthusiasts
The Chasm -- the transition phase (the Early Majority hasn't bought in yet)
The Bowling Alley -- the Early Majority (the pragmatists) buy in niche markets; market power is localized
The Tornado -- happens when a mass market is created

When gorilla power is created, the gorilla sets the standards in the market -- such a company is able to do this because of their technology's proprietary architecture, and because the costs for customers to switch to another product are high. A gorilla company impacts the market through having supplier power over customers, value-chain power over its partners, and market share power over its competitors.
In a market where there is a gorilla, Mr. Moore explained, there are also chimps and monkeys. A chimp is a market challenger in a tornado market -- the architecture of its technology is incompatible with the gorilla's architecture. An example of a chimp would be Apple, with the Macintosh operating system. A monkey is a market follower and usually clones the gorilla's architecture -- many of the PC manufacturers are monkeys. Depending on the field, the power play between these three kinds of companies has different structures. In the field of enabling technology (like an operating system), gorillas dominate the market, and chimps can't win. In the application software field, though, gorillas still dominate but not as much. Chimps do well, especially in niche markets, and there are no monkeys.
Gorillas can't exist outside of tornado markets, but tornadoes can exist without creating gorillas. Tornadoes where there are no gorillas happen when there is no control over proprietary architecture -- for example, the modem market. This situation creats kings instead of gorillas. Kings are like gorillas except they don't have control over proprietary architecture. Because of this, princes -- the equivalent of chimps -- have the ability to overthrow kings, and the monkeys can be very aggressive.
Mr. Moore concluded his talk by discussing how visualizing market capitalization can help us capitalize on a tornado market. By understanding how tornadoes are created, and how to recognize gorillas in the making, we can become more savvy -- and more successful -- high-tech investors.
Return to the Competitive Advantage Breakfast Series page.