Innovation Tools Markets: Resisting the Itch
For a Forrester-ite like me, market forecasting is often top-of mind. Sizings and forecasts represent perhaps the most powerful research tool at an analyst’s disposal — in some cases, forecasts are both our bread and our butter. Thus, when I launched coverage of the innovation management tools market this past spring, the question of how and when to forecast and size the market was a key part of my planning. Indeed, a market forecast can often “make or break” a coverage area for a Forrester analyst — especially a nascent one ripe for analyst buzz.
Nonetheless, in recent months I’ve become convinced that — for now — I should firmly resist the forecasting “itch.”
Already, this position has caused me considerable grief. For months, multiple parties have been clamoring for me to publish a market forecast — parties including vendors, buyers, and even some of my own colleagues at Forrester. Case in point: Three separate vendor CEOs have privately asked me about my (apparently forthcoming) market forecast. One went so far as to send me his own company’s forecasting framework, suggesting that I should follow suit. Another CEO proactively provided me with sales data and market projection numbers — in another not-so-subtle nudge.
Nonetheless, I have no current plans for any upcoming (although much-desired) market forecast. This begs the question: WHY do I resist the forecasting itch???
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First, I will take a step back and address the itch itself. I contend that it stems from three needs: a) satisfying the market’s short-twitch desire for clarity about the future; b) satisfying vendors’ needs for a “rigorously quantitative” marketing prop; and c) furthering my own short-term ability to build a successful analyst career.
The crux of my current “itch resistance,” however, rests on looking past these proximate, in-the-trenches motivations. Instead, taking a bird’s-eye view of the marketplace, I see four clear reasons why an innovation tools market forecast doesn’t make sense right now:
1. Sell-side immaturity. As I have argued in both reports and teleconferences, the provider landscape for innovation management tools is clearly still nascent and immature. The technologies are overlapping, vaguely marketed, and undifferentiated; i.e., the sell-side value chain has not yet congealed. Only several years ago, this market had been fragmented into other domains such as Idea Management and PPM, and so everyone is still getting used to the competitive landscape. Further, only one pure-play is a public company, and
to my knowledge none of the vendors have yet cracked $5 million in annual revenues.** Thus, any forecast that uses supply-side data would rest on at most only a few years of historical data, and in a provider landscape that has shown considerable churn in recent months. Further, assuming that the market does “take off,” the mere fact of its impending success will likely change the game signficantly — rendering any pre-takeoff forecast extremely unreliable. Today, the provider environment is still far more of a jungle than a playing field.
2. Buy-side immaturity. After interviewing several dozen business executives at Global 2000 companies, I have noticed a consistent theme — the best practices of innovation management are not yet established. In fact, even the most “innovative” companies in the world have divergent views on what “innovation management” actually means. And in comparison to these industry leaders, most companies have their heads deeply buried in the sand. Despite very strong determination to “embrace innovation,” most companies have very little sense of how to do it well — and even less ability to do so with skill and aplomb.
3. Marketplace immaturity. What happens when a marketplace brings together an immature sell-side and an immature buy-side? In a word, confusion. Innovation management vendors today often persist in claiming that their solution or offering will power all innovation needs for all time (or some other such ridiculous claim). This is a case where the vendors are not yet sure where to sniff for their core differentiation, because significant fragmentation and gaps persist in the marketplace, along at least two dimensions: a) the technology environment (isolated product silos that are not yet integrated into a functional ecosystem); and b) the product landscape (both competing and non-competing offerings that have only just begun to form into rational partnership dynamics and clear competitive structures).
4. Highly chaotic externalities. Furthermore, most would-be innovation tools buyers are tackling multiple decision factors at once — many of which (e.g., the looming global recession) are inherently unpredictable, even for world leaders and top economists. As a result, no one on either the buy- or sell-side seems quite sure of what decisions they should make. Some buyer companies seem likely to “double down” on innovation spending; others seem ready to cut back drastically. A firm’s choice on this will depend on myriad factors that cannot easily be aggregated into a neat-and-tidy forecast for the entire marketplace. Simply put, today’s environment is chaotic. Unfortunately, sizings and forecasts assume predictable patterns upon which to build core assumptions. Forecasting broad market trends in a chaotic system is akin to mixing oil and vinegar. For a brief moment, it appears to work…but then it falls apart.
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For these reasons, I believe that a market forecast is still unwise. At today’s level of early-stage development, we are still dealing with a market and a value chain made of molten lava. Until the magma cools and we can take it into the lab and more rigorously analyze its chemical composition, quantitative forecasting studies are more folly than courageous vision. And given this backdrop, creating the gold-rush mentality that a bold market forecast often triggers would be downright irresponsible of me. This is how vicious boom-and-bust cycles get started.
Many have intimated — or directly informed me — that my failure to publish a bold market forecast is a clear sign of weakness. Perhaps, they say, I don’t have the necessary nerves; or perhaps I need more courage; or maybe I simply lack the requisite chutzpah. I couldn’t disagree more with such preposterous suggestions.
My own goal as an analyst for this space is to *resist* such direct pressure — a challenging task that requires both nerves AND chutzpah. In the broader view, I firmly believe that this “itch resistance” is by far the best way to serve the true needs of the innovation management tools marketplace — especially for those vendors that depend on a healthy market for their continued existence.
In closing, I want to make sure that my general views are clear: market forecasts are often extremely useful and valuable. Indeed, it is quite likely that I will at some point publish a market forecast for the innovation tools marketplace — perhaps as soon as 2009. But it will happen only when I am convinced that the real-world maturity of the market justifies a rigorous quantitative analysis of its growth potential. Currently, I remain thoroughly unconvinced.
For everyone’s benefit, I plan to take it one step at a time. If we get too far ahead of ourselves, we become Icarus confidently flying into the sun, only to perish for our foolishness.
** (1/1/09) Two vendors have since come forward to correct this statement, which was false as originally stated. In FY 2008 ending March 31 2008, Imaginatik’s revenues were somewhat higher than US$6m. Additionally, a privately-owned innovation vendor has disclosed to me in confidence that the firm’s previous-year revenues were more than US$10m.