In my last post, I promised a deeper dive into four of my favorite Industry Dominators–companies that have chosen to expand across an entire business process (usually source to settle) within one industry, or portion of an industry. Even though they are in entirely different industries, their stories are quite similar. These companies are:
- DealerTrack in auto retailing
- Medidata in clinical trials
- itradenetwork in food service
- Blackboard in education
DealerTrack initially focused on the online credit application process involved in buying a car. They then expanded to other finance and insurance transactions related to car retailing: registration, titling, and liens. DealerTrack sought to maximize the number of different types of transactions related to a sale that they could be a part of. They then expanded into almost every area where workflow was important to a car dealer–accounting, sales, inventory management–often through acquisition. And their latest acquisition, dealer.com, takes them into helping dealers manage their web presence. DealerTrack now offer car dealers a nearly complete solution from managing leads to making the sale. Their industry platform/ecosystem includes dealers, lenders, 3rd party information providers, credit bureaus, etc. It’s a great story. (One brought to me by Peter Goldmacher of Cowen.)
Medidata specializes in automating the clinical trial process undertaken by pharmaceutical companies for FDA approval of their drugs. Medidata began by automating just a portion of the clinical trial process–electronic data capture and clinical data management. Medidata expanded into trial design, trial execution, and patient management. The company eventually covered the entire process from trial design to site payment. It is now becoming an ecosystem for study sponsors, clinical research organizations, investigators, patients, care providers, labs, and other data providers. Growth came from a combination of organic investment and acquisitions.
itradenetwork’s history tells us much the same story in the food service industry. itradenetwork began by building an industry catalog for food service items that were always identified differently by each distributor and restaurant chain. From there, itradenetwork expanded to contracts and rebates and eventually covered all of the processes from sourcing to payment. Again, industry dominance was established through organic growth and key acquisitions, including a major competitor. Itradenetwork now has an ecosystem that includes growers, distributors, operators, and retailers. The company was bought several years ago by Roper Industries for about $500 million.
Blackboard began with tools for faculty and schools to publish the content related to courses, such as syllabi and other course content. Through acquisition, it added transaction cards used by students to track everything from financial aid to building entry permission. Eventually Blackboard expanded to web hosting, collaboration, and even emergency campus notifications. They are becoming a complete platform for everyone associated with a school–students, parents, faculty, textbook publishers, etc. While their software is aging and widely derided by students (my kids and their friends), they are making attempts to update their platform with a recently announced acquisition.
In the case of serial verticalization, the other way an IC can grow, the IC must be able to add people and companies who speak a “different language” associated with new verticals. This industry dominance strategy requires the ability to buy and manage tuck-in acquisitions as well as perhaps acquisitions of major competitors. This differing strategy carries its own set of risks. Merging transactional platforms and former competitors is never easy. Been there, suffered through that.
An alert reader, Peter Scott from Compusearch, an industry dominator in Federal procurement, pointed out that a variant of the industry domination strategy described above is to expand within a business process (e.g., contracting or sourcing) across an industry’s tiers rather than across business processes within a single tier. Itradenetwork has elements of this strategy. This is also possible in Auto, Aerospace, Electronics, and other industries that have complex tiered structures. Compusearch is doing this successfully between the Federal Government’s agencies, their prime contractors, all the way down to their subcontractors–wherever federal procurement rules apply.
If ICs can get big by focusing on just one industry and one business process, they are in really great shape. If not, they will have to take on one of these strategies to deliver the kind of sustained growth the market wants to see from SaaS plays.