I recently talked about verticalization at an event. What verticalization means, why it happens, where it succeeds, where it fails and what's it's intersection with search. Here is a synopsis of the talk. And I will focus on verticalization (of needs), not segmentation (of users) even though there is some cross-over there.
Verticalization
If we look around us, we see examples of verticalization everywhere. From the cars we drive to sneakers we buy to television channels we watch. We used to drive a model T 100 years ago. Now we drive a sedan for general purpose use. We drive an SUV or a mini-van to carry our family around. And we drive a truck if we have to carry household goods around. We have moved away from watching only CBS, ABC and NBC to watching from hundreds of channels available with specific focus on science, news, history, travel, food and such. We can find analogies all around us if we pay attention...
So what makes this verticalization possible? Most paradigm shifts, most basic innovations center around building a single product, and a simple product that the mass market can adopt. And I use products to also represent pure web centric innovations. Yes, we go through the adoption curve where early adopters pick up our product first. We then go through the learning and fine tuning so the product is ready for early majority, ultimately finding its way to late majority and such. But in this process, we are trying to build a single product that serves the mass market needs. Now 3 things happen in the marketplace:
- As customers go through the learning curve and become comfortable with the product, they become more sophisticated and more demanding (they expect more from the product),
- A market develops for the product (from users perspective, from usage perspective and from revenue perspective) and
- Suppliers become more sophisticated and armed with the knowledge about customer usage and a developed market, they are in a position to introduce more vertical, more specialized products that are economically viable because the market is big enough.
So the 3 ingredients for verticalization are: user sophistication, a developed market and supplier sophistication.
The Search Economy
Now lets take a look at web search. It has come a long way in last 14 years. WebCrawler and Lycos were one of the first full text crawlers and they were used by only a few people. Today, more than 125M Americans use search engines. Search touches every facet of our life whether it is commerce, entertainment or education. We have all become very comfortable using search engines. And we have come to expect more from them, we have become more demanding. We use search engines and we get frustrated because we don't get what we need. This shows user sophistication. Take a look at the market opportunity: search generates more than 10 billion in revenue every year and is expanding 20%+ year over year. Now you can call it a developing market or a developed market depending on your perspective. I call it a developed market with a fantastic opportunity to grow further. Then you look at the supplier sophistication. We have developed a good understanding of consumers’ online behavior and their needs on one hand and a monetization model that is very lucrative for vertical applications on the other hand. Even more lucrative than a horizontal search. So we have a perfect blend of user sophistication or demand, a developed market and supplier sophistication that is screaming for verticalization. This in turn creates tremendous business opportunity.
So how do you go about verticalizing web search. Well, you look at a segment of consumer need that has deep pain or deep emotion associated with it, that has enough usage to make verticalization interesting and has a good economic model behind it. And you can identify these opportunities across commerce, entertainment and education. Then you build a product that offers tremendous value to consumers, a value that’s compelling enough for consumers to break away from their comfort zone and try your product.
When we started Retrevo, we wanted to make buying and using technology (products) simple and fun for everyday consumers. And we wanted to break two barriers that prevented a horizontal search engine from delivering such an experience. We knew that breaking these two barriers would unleash such a tremendous value to consumers that they will want to use an alternative. First - understanding the syntax and semantics of unstructured data that would allow us to summarize and simplify this information. We knew that this simplification was needed to make buying and using technology (products) simple and fun for everyday consumers. Second - breaking away from the current UI paradigm that offered a flat list of raw search results. We knew that in order to remove the complexity associated with technology buying and using, information had to be presented in a way that allowed consumers to search, discover, personalize and consume products and associated information, visually and naturally. And this recipe has worked well for us at Retrevo.
Verticalization is a fact of life. It has happened before in many industries and it will happen in the web economy. You need to pay attention to basic triggers, identify a need that requires a specialized product and go after it. May the force be with you!