A fragmented industry refers to one which is broken or being broken down due to redundancy or technological advances. Many industries have become non-existent or redundant because of how quickly technology is shaking up industries and changing the way that we do business. Many big companies in long standing industries can’t adapt with that kind of innovation, hence their failure after years in existence.
The way that consumers buy and interact with businesses continues to evolve with technology, which has resulted in a few industries falling apart and the emergence of new industries. Two perfect examples of this include the music industry and the movie industry. Those industries have dramatically changed over the past 20 years or so due to innovation in technology.
In the music industry today, many artists are unable to sell physical copies of their albums because consumers are listening to everything in a digital form now. On top of that, there were websites like Napster, giving music away for free causing the music industry to lose revenue. This was devastating to record labels and even more so record stores. You can hardly find record store today.
This was a fragmented industry with a great opportunity for a company to dominate the digital music space. Apple saw that opportunity and won big when they created iTunes. They sold songs at a really low price to satisfy consumers’ wants while still allowing the record labels and artists to share royalties. Each song is sold at a collectively high volume, profiting Apple enormously.
In the movie industry, specifically movies that are no longer in theaters, a lot has changed in the past couple of years. Just a few years ago, Blockbuster was a massive company and the leader in movie rentals. They no longer exist because of how technology has altered the landscape of the industry.
Similar to changes in the music industry, consumers had shifted from physical copies to digital copies and Blockbuster failed to meet that need. At that time, Netflix was on rise as they found a way to sort of curate movies, TV shows and documentaries into a really easy to use, monthly subscription service. Perhaps if Blockbuster had seized the opportunity to go digital, Netflix might not be as successful as it is today. They saw the opportunity in this failing industry to meet consumers wants by offering their favorite movies in digital form.
When an industry breaks down, it is usually due to some sort of outside innovation or neglect of the consumers. In many cases, industries have fallen apart because they failed to rise to the occasion to advance as technology was advancing but there is also the case of businesses failing to listen to and meet the needs of their consumers. If a business is focused on what it wants to do versus what the consumer wants them to do, it will eventually fail because consumers create sales and sales are what keep businesses afloat.
To spot opportunities it helps to understand why your particular industry is fragmented. The answer could include market factors such as inability to cost effectively scale, low entry barriers to compete, few to no opportunities to innovate, to political or social factors such as government prohibitions.
Consider, (as with any business opportunity), the risk and reward ratio. Analyze and ponder the cost of operations/logistic, whether margins are attractive, and if increased size of your operation will benefit long-term profitability of your business.
You know there is an opportunity to go into an industry when you see unsatisfied customers. Why? Well because in business, all that really matters is that customers are happy. A business cannot last for too long if the majority of their customers are unhappy with either the product or the service.
Of course, if you discover a "perfect storm", a combination of timing and taste, where there is limited or no competition, then that is always a perfect opportunity to start a business and dominate just like Apple and Netflix did. In essence, the ground work is already there if you can identify what customers are want but don’t already have.
It isn’t always easy to spot great lane for business in fragmented business landscapes , but when you do it can be extremely profitable. The main point to remember is that businesses don’t determine their success, consumers do. Businesses that fail to understand this will eventually fail. At the end end of the day, what matters is whether your business adds value to the community and greater good.
Academy of Management Review. (1990, April 1). The Evolution of Collective Strategies in Fragmented Industries [Article]. Retrieved from http://amr.aom.org/content/15/2/266.short