Warren Buffet famously spoke of “economic moats” when investing in companies. The idea being there are “defensible” competitive advantages to that company which make it difficult for newer players to compete. An example would be the massive network effects of Facebook, or the warehousing, delivery and logistical capabilities of Amazon.
Morningstar, the stock rating agency, even uses “economic moat” as a way of classifying these characteristics of a company. These include:
- Network Effect
- Intangible Assets
- Cost Advantage
- Switching Costs
- Efficient Scale
In WCM, there have been a number of “economic moats” for quite some time, and some businesses survive on keeping customers within this moat even if the castle which attracted their customers in the first place burned down and sank into the swamp years ago.
(with apologies to Monty Python)
But, as the market changes, many of these former moats are drying up:
Switching Costs
It used to be the case that a WCM system entailed a massive investment in a number of areas; capital spend on the software itself (which had to be amortized), the investment in the implementation (often paying an agency) and investment in internal training costs and process development.
In the last few years, new technologies and methods have arisen to enable organizations to slowly transition over time, rather than incur all these costs in a single re-platforming event.
First, the advent of headless CMS means that “hybrid headless” capability has been demanded as a table-stakes feature in larger WCM platforms. This means that you can continue using your existing WCM platform, while also starting to take advantage of different front-end approaches to content, ensuring language and platform independence.
Second, tools like Gatsby and Next.js enable consistent frameworks, templates and plugins to speed time-to-market for many use case types (vs. building your own custom front-end against the API). Tools like Uniform from Altola also allow using an existing investment with more modern frameworks and methods.
So content is becoming far more portable, both because good headless APIs are tablestakes. but also because it is clearer in today’s multi-channel world that abstracting content from presentation is a good idea. Similarly many of the assumptions around content modelling are approaching something akin to a standard. While there is no actual standard for content modelling, and differences in systems do exist (Deane Barker’s new book Real World Content Modeling does a great job parsing these out) but in many ways key elements are starting to firm up (field types, relationships, output format, etc.)
Intangible Assets
In some industries such as pharmaceuticals or media, Intellectual Property (IP) makes up a good chunk of the value of a company. In WCM, there have been surprisingly few patentable inventions and to the best of my knowledge, none have successfully been deployed to prevent a competitor from introducing a similar feature. Most vendors simply take the approach of code being a trade secret and ensuring that those particularly interesting bits are properly hidden away (either in code obfuscation, or keeping it from view entirely by offering SaaS delivery of that service).
This isn’t a particularly bad approach, for two reasons – first, having large parts of your code available to customers means that they can easily extend it as necessary, which is a market advantage. Second, requirements change on a fairly regular basis, and more often than not are driven by external actual and de-facto standards. Almost every transformative method of building experiences such as JSON output, Progressive Web Apps (PWA), Accelerated Mobile Pages (AMP), JavaScript frameworks all came from either grassroots efforts or Google – and notably, not from WCM vendors.
If a WCM company patented, say, the ability to create an RSS feed, the world would simply move on and build a JSON version or something similar (though probably not after publicly flaming them on Twitter for stifling speech). Even without active movement away from a vendor implementation, the world changes approaches fairly regularly, meaning that innovation, rather than IP protection is the only product-focused way to maintain dominance.
So, what is the true intangible assets of a company. Well, certainly IP is a part of the puzzle, but only in the sense that a product or function can deliver differentiated value to a customer. But features can be copied, so more often than not, the differentiation delivering the value depends more on the people and processes they create in the background – for example, can they develop at a faster cadence, or invest in technologies and infrastructure to run with greater efficiency and margin? In this respect WCM vendors need to ensure they are keeping up to date with the latest technological and market demand trends, which requires significant investment in expertise to do so.
One area which is not a moat per se, but is more like a high-pressure firehose (in that it requires constant pressure) is that area of operational efficiency. This is where vendors like Acquia or WordPress would provide value against a value-added host like Pantheon – in competition with each other, they are deploying literally the same product, but are constantly working to provide a better service around that product (which is why this isn’t a “moat” than can be left undefended without constant continuous investment).
An exception…
Adobe has a massive moat that is kept full by the virtue of their near-monopoly in the creative department. As a result, any CMO is that “brand-centric” seems to have a weakness for Adobe messaging (and certainly they have done a great job with content marketing efforts such as CMO.com ) but the actual innovation in the AEM ecosystem (with the exception of integrations with other parts of their stack) seems to have waned slightly and some large clients such as canada.ca have been retreating to other platforms such as Drupal.
But I would definitely not count Adobe out by any means, they have a massive budget for M&A and have shown no reluctance in investing in other technologies to bring into the fold. I strongly suspect that other adjacent markets such as Content Marketing / Operations / Analytics platforms and agencies specializing in these functions would be inexpensive and highly effective additions to their portfolio.
Some moats that still exist:
Network Effect.
Some vendors (particularly those around open-source) have large developer and agency communities. These would include Automattic (WordPress), Acquia (Drupal) and Sitecore. It is extremely hard for new vendors to gain traction in a market without large numbers of folks who understand your platform, able to quickly implement on client demands.
As a result, I recommend that all vendors prioritize community-building and providing as much free training and code as possible. Any vendor that looks to training as a major revenue source will find themselves irrelevant and it’s clear that the newer players recognize this fact and are moving quickly to try to build as much expertise in the community and user base as quickly as possible, by providing training and numerous implementation examples.
Some new moats arising:
Cost Advantage
“SaaS native” vendors such as HubSpot, Wix and Squarespace, as well as the headless vendors such as Contentful and Contentstack have an inherent advantage to legacy platforms that grew up in an on-premise age.
If you look at the underlying costs for developing and running software, there are a few high-level items
- Infrastructure – SaaS vendors have the advantage of standardizing on a single install platform and may even pick and choose OS and subcomponents such as search or image processing (and can often swap these out without customers knowing).
- Development costs – most SaaS vendors are running on open-source stacks which are cheaper to run and maintain vs. those relying on commercial languages and databases.
- Technical debt – many of the issues with a legacy platform arise from tight coupling as well as the fact that back-end and front-end development was often tied to the same platform. Over the years, Sitecore has had to migrate from XSL, to web forms, to MVC to (additionally supporting) JavaScript frameworks as newer technologies evolve. Because SaaS vendors are loosely coupled or in full control of the page layout, they can avoid some of the trouble needing to support additional systems as they can be iterative and have no back-end dependencies.
- “Feature debt” – related to technical debt is the concept that often features themselves get orphaned, if only a few customers end up using it. SaaS vendors often don’t have this problem because there are fewer features to being with, but also because many major features can be created in an agile fashion (i.e. with clear customer demand and success analytics from usage that often on-prem vendors simply don’t have).
All that to say, many of the newer SaaS-native platforms have an inherent advantage in how the business and platform is structured and this tends to reflect itself in the pricing of those solutions.
To be fair, as I mentioned, some open-source based vendors such as Automattic and Acquia have also done a good job managing to keep costs down while running a value-added hosting business for their platforms as they can also take advantage of some elements such as relying on external contributors for features, or keeping development costs low as they have always been “LAMP-first“.
Conclusions
It’s a great time to be a developer, employee and customer in WCM – there are plenty of options and costs continue to fall based on competitive pressure and additional infrastructure options. It’s always been a damned fun space, but it’s truer now than it has been in many years.
For system integrators, it’s a good and bad situation. Many did very well by placing platform bets and skilling up a bench well-versed in those tools. That opportunity is going away as those older platforms become less competitive (both in software and people costs) and the newer bets are far less sure due to the lack of moat. In many ways, you are betting on the business and not the technology (yes, this has always been true – but the stakes are far higher now). However there is enormous opportunity in helping customers identify and build development approaches, rather than technology choices.
Companies such as McKinsey are already espousing this “digital factory” approach, but there definitely exists a market for partners who can speak to this at both a strategic and tactical level, aligning business processes and providing some pathfinding for an organization to take on more agile web and digital transformation projects.