Are your canaries still singing?

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In the early 1900s, John Haldane figured out that toxic gas trapped in mines was why coal miners were mysteriously dying. He recommended that miners bring caged canaries with them while they worked. A canary would die from the effects of a gas leak long before the miners, giving them time to escape. In business, there are also "canaries" of the non-feathered variety -- companies that serve as early indicators of major changes for those who pay attention.

“Don’t worry about us, John, you just built your business around too specialized a niche.” This comment came from Carl, my counterpart at one of the 100+ other mainframe computer timesharing companies in the market. I had recently realized that our business was in the end game of the product/market cycle. Carl’s business hadn’t yet started to see major revenue declines and I wanted to warn him of what the future held.

The timesharing of mainframe computers was first demonstrated as a research project in the early 1960s. By mid-1960, there were a handful of commercial providers of timesharing services. My company, STSC, entered the market in 1969. By 1973, customers could choose from 125 different service providers to utilize the complex and expensive computers. But by the early 1980s, customers could obtain comparable, cheaper access from inexpensive in-house systems and increasingly powerful personal computers. Commercial timesharing was no longer the best technical solution for most new interactive applications.

Carl was blinded by the fact that his revenues were continuing to grow. What he didn’t appreciate was that the growth came from existing customer applications. When those applications were decommissioned or transferred in-house, there would be no new applications to take their place. Carl’s timesharing business eventually died, just like mine. The decline just took longer to reach his niche.

My company turned out to be a canary in our market. We started to feel the "toxic" effects of the new computer technology before most of the other timesharing companies. In your market, which companies are the canaries? Identifying and watching them can provide you with an early warning of major market shifts.

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