Howling Winds and Herfindahl

The wind was howling last night in the East Woods – it sounded like a 747 coming in for a landing as the wind whipped the trees back and forth. After a minute or two the gust would subside, until another came roaring through a moment later. If there was anything else making noise last night, it was drowned out by the big blow.

This situation is similar to some of the life science markets which are dominated by a few large companies, making it difficult for anyone else to be heard above the din they create. Additionally the strength of several large companies holding sway on the marketplace does make it challenging for new market entrants.

If we look in more detail at the research products marketplace, there are ten companies that control over 60% of the action. Being analytically inclined, I decided to calculate the Herfindahl Index to see the actual concentration of the market. This gives a quantifiable sense of the concentration and is actually what the anti-trust guys use to determine if an acquisition or merger is bad for customers (decreases competition too much.) So I calculated a value of about 16% which is “moderate” concentration.

So what does it mean for you? If you are looking to bring new products in to the market there are a few things to consider.

• The place to start is the segmentation. Though the overall market may look like a tough nut to crack, there are some segments that are not well served or are undergoing big growth. These are places to attack.

• Second is to leverage the noisemakers. You can build products and services that take advantage of the installed bases of the large companies. These can be add-on products, sample prep, software or services using the popular products.

• Another is to piggy-back on top of the big vendors. These strategic relationships take time to develop, but can pay big dividends. When your products are brought to the customers by a Thermo or Agilent salesperson, you are in great shape.

• The final suggestion it to create something totally new. You will have few rivals and will be under the radar of competitors for a while. Easy to say and hard to do, this can be a lucrative approach, assuming you can fund the enterprise (but that’s another story).

Though the roar of the wind does drown everything out, you still can break through the noise. Take a close look at the marketplace and come up with your own unique approaches. After all, the wind eventually will die down, leaving you a chance to be heard.