The Middle (Where You Don't Want to Be)

3stooges One of the things they drill into you when studying strategy is never to be in the middle. The canonical example is the trade-off between being low-cost vs. high value / differentiated. If you are neither low-cost nor high value, you can't compete on price, nor can you deliver high enough value to customers to sell at a premium price. Samsung is a timely example of a company with a product line caught in this kind of squeeze – its smartphones are not inexpensive enough to compete with the multitude of cheap Android devices, yet not delivering the complete experience that Apple does at the high end.

Beyond the classic analysis, I find evaluating whether or not being in the middle of two strong positions to be a useful construct in general. You can see it in professional sports (h/t:Paul Sytsma), where some teams actively tank — hello Sixers fans! — to get the top draft picks to build championship teams, while other teams maintain mediocrity.

An illuminating example is the fate that befell Compaq when it was trying to compete with the Dell in the late 90's. Compaq, for those who aren't old enough to remember, had a very strong and successful channel model. Its supply chain was specifically designed for this type of model. Dell, with its direct model, leveraged the web to create a configurator that approximated mass customization. Dell's go-to-market took the PC world by storm, and grew quickly, jeopardizing Compaq's leadership in PCs.

How did Compaq react? By trying to add this direct-to-market model while maintaining its channel. I am aware of a number of consulting firms that were engaged in the late 90s to try to figure out how to implement some flexibility in Compaq's supply chain to address both conflicting approaches. As you can see from the results (a merger with HP, which is now being spun out into its own company), it was not a successful endeavor.

It wasn't just the supply chain, it was the business model and go-to-market itself. Compaq was unwilling to commit fully to the new world, which would upset its channel. The end result was a muddled mess, where it couldn't compete effectively with Dell online, yet its legacy partners were still upset.

Compaq was caught in the middle.

Being in the middle can seem to be a good approach for two-sided marketplaces. After all, they act as the hub and facilitator for transactions between two independent parties. That great... except for the part where it's too easy for the two parties take their transactions and interactions off-line. Once the parties meet, there is nothing to stop future transactions from happening outside the marketplace.

Consequently, those marketplaces started building up capabilities to become more sticky. But where do you start? The first is identifying who is your real customer. Is it the buyer or the seller? Consumer destination sites like eBay and Amazon Marketplace chose the sellers as their real customers - spending a lot of money and effort to create tools to make it easy to onboard sellers, create offers and manage their businesses.

Business marketplaces took the other approach - for example, the Ariba Commerce Supplier Network came bundled with Ariba's procurement solutions. They focused on big buyers where they had leverage to bring their own suppliers on the network. However, in the past few years, Ariba, now a part of SAP and calling its marketplace the "Business Commerce Network," has been trying to have it both ways - not only still selling buy-side solutions, but also jacking up supplier fees. Needless to say, this approach has been causing some consternation with the suppliers on the network.

Can Ariba/SAP have it both ways? It remains to be seen, but I'm doubtful.

So, how do you know if your product or company could be caught in the middle? What is really helpful is thinking about the tradeoffs you have to make for your products, operations and/or marketing. If a decision you make puts you in a place that does not satisfies any of the desired strategies or requirements — where one action that supports one requirement would be detrimental to another, or makes things more confusing — it is definitely worth stepping back to see if you are putting you, your company or your product in the undesirable middle.

In the end, trying not to be in the middle is all about having strategic clarity and focus. It's the business version of "you can't make everyone happy, so stop trying…."