Mass and Niche. Scale and Diversity.

Two Vectors of Change, Scale and Diversity, combine to define the shape of markets.

Pitching the Applied Futurist’s Toolkit around has put me in rooms with very smart people. And smart people ask smart questions.

Like yesterday, when someone asked if Intersections, our foresight tool, would be limited to recognising the future for the mass market and might be blind to different futures for more niche propositions.

I gave what I hope was a decent answer. But the question left me thinking. So I decided to use the lens of Intersections to examine it. And it turns out the answer is really interesting.

Intersections is predicated on the idea that here and now technology is the biggest driver of change. By ‘here’ I mean the UK, but it’s arguably true for any stable, democratic, developed country. By ‘now’ I mean for roughly the next twenty years, though we tend to focus on change effects over the next five.

Technology isn’t the only driver of change. And it isn’t the answer to everything: this isn’t about techno-utopianism. But it is the best starting point when you want to understand what is changing our world today, and how it will look tomorrow.

Technology is changing the world through five ‘vectors of change’: Diversity, Agility, Performance, Ubiquity, and Scale. The two we’re interested in to answer this question are Diversity and Scale.

The Diversity rule says that technology lowers the barrier to entry at every stage of the value chain. Simply put, technology means more of everything.

Part of that lower barrier to entry is a lower cost of operation. With lower costs, people can build profitable businesses in ever smaller niches.

So our niche player should expect to see more competition, even in their niche. From competitors addressing their market, or even subsections of it, with a diverse range of models and channels to market.

The Scale rule says that the friction is falling at the intersections between companies and markets. That means that it’s easier than ever to cross borders and address adjacent markets. But it also means that the structure of businesses is changing as it becomes ever easier to rely on external parties to provide chunks of your operational stack.

What this suggests for our niche player is that the market is going to look something like the diagram above.

Some of the mass market will be hoovered up by vertically integrated propositions who offer a ‘one size fits all’ approach to dealing with the most common needs.

The biggest challenge to these mass market players will come from an aggregation platform that helps people to discover the niche (or just smaller) players, and conversely, supports the niche (or small) players in reaching the market.

Finally, a small number of niche players will have large enough niches to maintain a direct relationship with clients and the market*.

Where this starts to get really interesting is when each of the players in this market — those actually providing services — start to stratify* their businesses and share common components horizontally. This would allow them to operate with a very low cost base and make small but profitable businesses out of very small niches.

Where are the two biggest opportunities in this market for super-scale businesses?

Firstly, to be the aggregation platform.

Secondly, to be the platform underpinning all of the niches.

The really smart companies? They will look to be both.

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*Note there’s always some generalisation here. No business, particularly in the service sector, operates in such a singular fashion. It’s always more fuzzy than that.
*Stratification is our framework for agile organisations, one of the principals of which is that the low friction defined in the Scale principal means that you can assemble businesses from building blocks, not all of which will be owned, with a lower overhead from ‘outsourcing’ than ever before.