Trapped Value and the Technology Adoption Life Cycle

By Geoffrey Moore

Author – The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

For some time now I have been making the case that investment decisions, be they made by customers engaging with a new product and vendor or private equity firms backing a new technology and entrepreneur, should begin with finding the intersection between the innovation at hand and a pool of trapped value it can release, thereby creating the return on investment.? That said, one of the core principles of investing is called risk-adjusted returns, meaning that the greater the risk you take, the higher the return needs to be.? My expertise is in the risks related to technology adoption, where the risk factors change over the course of a new technology’s deployment.?? With that thought in mind, here is how the trapped value thesis needs to risk-adjust to adapt:

• Early Market: very high technology adoption risk.? The prize here has to be quite large indeed.? Typically it will come in one of two forms.? For B2B investments, it will be like an oil reservoir that, if tapped correctly, will produce a gusher.? Regulated industries have pockets of trapped value all over the place that fit the bill.? Also, industries like automotive and real estate, which are restructuring their relationships with dealers and agents, would qualify.? By contrast, B2C investments tap into trapped value that looks more like shale oil—no deep pockets, but incredibly broad presence.? Media, transportation, and hospitality have funded extraordinary returns for Netflix, Uber, and Airbnb, not because the trapped value was severe but because it was so pervasive.? The point is, early-stage venture investing needs to target home-run bets to warrant the risks it takes.? Same goes for visionary customers in B2B markets who are the early adopters of these technologies.? They are taking on significant risk so they need to be targeting outstanding rewards.
• Crossing the Chasm: high technology adoption risk, but readily mitigated.? The challenge here is that the technology has great potential for any number of use cases but needs some additional support in every case to achieve the desired end result.? The chasm-crossing playbook focuses on a single use case in a single industry and geography in order to create a killer “whole product” that nails the use case and to build a coalition of customer references and partner successes that will keep the market growing even as the technology vendor expands into other segments.? Here the trapped value should be intense but narrowly confined, designed to meet three critical success factors:1.?Big enough to matter (it should be able to generate 10X your current year’s billings target)2. Small enough to lead (if you crush your plans, you should get 50% segment share)3. Good fit with your crown jewels (if you win, nobody is going to displace you).As you can see, there is risk here, but it is manageable through market focus and disciplined execution, the key risk reduction factor being how compelling is the customer’s reason to buy.
• Bowling Alley: modest adoption risk.? The challenge here is to expand beyond your first “beachhead” vertical into adjacent use cases with the same segment as well as adjacent segments with the same use case.? Part of the source of reduced risk is that you have a working playbook from the first vertical.? Much of the source, however, comes from the emergence of local ecosystems of partners who complete the whole product solutions for each use case.? These partners make their living supplementing the technology vendor’s product or platform, and their extra talent, domain expertise, and segment focus represent a major risk reduction.? As a result, the trapped value rewards have a lower hurdle to clear to garner investor interest and customer buy-in.
• Tornado: low adoption risk.? The risk here is the opposite—getting left behind as the world embraces the shift to a new normal.? The trapped value that drives a tornado is released by “killer apps.”? These apps may not release the most trapped value, but they represent a sure winner to start with, making the buying decision a no-brainer.? The point is, if you want to get any traction in the tornado, you have to lead with a killer app, a no-regrets offering that delivers simple-to-consume rewards and gets everyone onto the new platform.? That means the trapped value must be easy to target and the value of releasing it must be obvious to all, especially to the end users who will be the prime beneficiaries.
• Main Street: very low adoption risk.? The primary adoption challenge here is converting conservative end users who simply do not want to switch to yet another new technology.? The trapped value now exists in nuisances, little bits of inefficiency that have workarounds but are annoying.? From the point of view of productivity, the cost savings from eliminating them are minimal.? But in terms of the user experience, as well as customer satisfaction, the impact can be substantial.? B2C enterprises spend most of their R&D here focused either on eliminating “hygiene” issues or innovating with new “delighters,” both of which can increase demand, the cornerstone for volume operations success.? B2B enterprises use six-sigma analytics to scout their value chains for bottlenecks that increase latency, something that adds risk without adding value, and frustrates even their most loyal customers.

The key takeaway is that there are different kinds of trapped value, each occupying a different sweet spot in the Technology Adoption Life Cycle.? As a vendor and potential leader of a go-to-market ecosystem, you must be crystal clear about the kind of trapped value you are targeting, the kind of risk-taking it warrants, and the kinds of solutions that will get the most traction.

That’s what I think.? What do you think?

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