Unless your name is Amazon, Apple, Facebook, Google or Microsoft, it is best to pursue vertical go-to-market and product strategies. Only the previously mentioned Technology giants have the requisite scale to take a horizontal approach. We provide examples of “Vertical Leaders” and “At-Risk Horizontal Players”.
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It is increasingly risky to pursue a horizontal strategy when the platforms giants – Amazon, Apple, Facebook, Google and Microsoft – are doing the same. For example, Apple invested $4.5 billion in R&D during the most recent quarter, Microsoft $4.6 billion and Google/Alphabet $7.2 billion. Quarterly R&D spend for these giants is larger than annual revenue for most technology companies.
Therefore, we believe the best growth strategy for young technology companies is to build industry vertical expertise into products, services, user experiences and everywhere that domain expertise may provide your company with a sustainable competitive advantage.
The companies listed in the “Vertical Leader” section below have leveraged decades of domain expertise into their respective product and services portfolios. This “verticalized” approach not only makes for good offense, it provides a natural defensive barrier against the large platform companies should they wish to move into any one of these verticals. For example, when Amazon decided to move into the Pharmacy Benefit Management (“PBM”) space, it did not build a vertically integrated platform from scratch. Rather, Amazon acquired Boston-based PillPack.
Vertical Leaders
Clarivate Analytics (tkr: CCC): Clarivate is a leading information services and analytics provider that serves three primary end-markets: life sciences, scientific research and intellectual property. Clarivate is led by Chairman and CEO Jerre Stead who formerly led IHS, including the period in which IHS merged with Markit (2016). Clarivate recently closed an offering of 27.6 million ordinary shares (including the 3.6 million shares underwriters’ option.)
CoStar Group (tkr: CSGP): CoStar is the leading CRE information services provider. Led by founder & CEO Andy Florance, CoStar has grown its product portfolio over the years through a combination of organic product development and acquisitions. Last week CoStar announced it had agreed to acquire RentPath. Read our recent PropTech report HERE (we maintain for recent deals).
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