The dairy genetics marketplace is becoming a “big” deal. The introduction of genomics has changed the game for many Artificial Insemination companies. While it was first thought that this would provide opportunities for the smaller A.I. companies, in the end it may be what puts them out of business.
Hearing rumors from semen salesmen is nothing new. Almost as old as Artificial Insemination itself, semen salesmen have been a great source for the latest industry news and gossip. Unfortunately, the “hottest” news lately has been the rumors about who is going bankrupt or what big A.I. company is purchasing what small A.I. company. While there is no question that often the rumors have a way of getting blown out of proportion, more often than not there is some level of truth at the heart of the story. That seems to be the case with the rumors about smaller A.I. companies.
Cash is King
While many thought that breeder’s ability to test their own sires would allow for more not fewer A.I. companies, the results have proven to be the exact opposite. As was pointed out over two years ago, that is happening because the key issues in the A.I. world are distribution, cost of production and the cost of sire acquisition. (Read more: Why the Ability for Breeders to Test Their Own Bulls Will NOT Change the World). These three areas have been the most significant challenges for many smaller A.I. companies. Most have had to invest large amounts of capital, while trying to compete with the larger A.I. companies in each of these areas. As a result, three of the five hottest small A.I. companies now find their futures under a cloud. Some are having cash flow challenges and others have become acquisition targets of the large A.I. companies.
As a small A.I. company, the challenges are real. You need to be able to have a large enough distribution network that you can compete but, at the same time, you must keep your overhead low enough that you can stay afloat. This is really what has separated those smaller A.I. companies that are still viable from the ones that are having trouble. Two examples of this viability are St. Jacobs ABC and Dairybullsonline.com. Both companies have taken very different approaches. St. Jacobs ABC has leveraged a mutually beneficial relationship with Genus/ABS Global, where they leverage the distribution power of Genus/ABS to get their semen exposed to the world. This partnership is also beneficial for Genus/ABS Global as they then get an extremely strong brand in the high type market segment that is an area they typically do not focus as heavily on. Dairybullsonline.com has taken a different route. Not having a large A.I. company to partner with, they too have focused on keeping overhead as low as possible and on choosing a niche to focus on. While St. Jacobs has focused heavily on bulls from top show families, Dairybullsonline.com currently has the strongest polled sire line-up in the world. (Read more: Stud Wars: Episode II – April 2014).
Both strategies are pretty impressive for companies with only three employees each. Therein lies the key factor. Both of these companies have intentionally stayed small while leveraging technology (www.dairybullsonline.com) and relationships (St. Jacobs ABC did so in order to get greater distribution). When we look at the smaller A.I. companies that are at the heart of the rumors these days, this is one of the key differentiators. The ones that are finding their futures in jeopardy are the ones that have significant overhead invested in sales staff and marketing. The cost of having sales staff on the road is not cheap and, if this is your distribution model, it can be very challenging to maintain cash flow. (Read more: Are There Too Many Semen Salesmen Coming In The Lane?) These are two key areas where tools like social media and the Internet can help keep operating costs down. (Read more: Dairy Cattle Marketing).
Are we headed to a Oligopoly?
As the ability for large A.I. companies to differentiate themselves from each other becomes increasingly difficult, we are noticing that more and more they are looking at new ways to do so. For some of these companies, this may come from the acquisition of smaller niche market A.I. companies. As the large A.I. companies start to see these smaller competitors struggling, it opens up an opportunity for them. They can come in and cost effectively acquire the smaller company’s unique product offering and, in some cases, the sales force as well. In so doing, they are able to fill a gap of their own. Larger A.I. companies are finding it harder to differentiate their genetic products and need to ensure that they can offer the greatest value to their customers. (Read more: What the Experts Won’t Tell You about the Future of the A.I. Industry and A Wake-up Call to All A.I. Companies)
This is not the first time we have seen this large-swallowing-small scenario in the agriculture industry. The plant seed industry provides a telling example. Where once there were many medium sized competitors now there are only a few very large ones. Interestingly it was technology, Genetically Modified Organisms (GMOs) that changed the plant seed industry, in the same way that Genomics has changed the dairy breeding industry.
The Bullvine Bottom Line
I am sure that observing the coming changes will set off alarms for some breeders as to what the future holds. Less competition typically means higher prices and less selection. However, in this case these decisions are smart ones as far as the large A.I. companies are concerned. As noted they have very limited ways to differentiate themselves and they need to use their large distribution networks and cash flow/reserves in order maintain their position in the marketplace. (Read more: Why Good Business for A.I. Companies Can Mean Bad Business for Dairy Breeders) Genomics has changed the game, not just from a technology standpoint but also from an A.I. company operations standpoint. Get ready. Over the next 2-3 years, we will more than likely say goodbye to at least half of the smaller A.I. companies that are in the world today.