Fifteen is an interesting anniversary. We tend to think about major anniversaries in ten-year increments with the five-year internode acting more as a gut check. Fifteen is close enough to the creation that all of the relevant parties are still around and most are still in place. But it’s also far enough in the rearview mirror to provide the perspective needed to make judgments. Salesforce.com is fifteen and celebrating it.
Salesforce was not alone in its niche fifteen years ago and if you recall the time you know that “dot com” was the watchword of the time. The Internet was still a novel innovation and companies were trying to figure it out as a business tool in equal measure with trying to get straight how to move their sunset manufacturing to ultra low wage places like China and, well, China. Maybe India too.
My story in relation to Salesforce picks up only fourteen years ago because, fifteen years ago there was nothing much except a business plan and a lot of code to write. It would take a year for the company to bring a product out. By happy accident, I joined the analyst firm Aberdeen Group fourteen years ago with a mission to cover SFA. My instincts have always drawn me to disruptive innovation and I had a notion that I was going to cover hosted deployment models that focused on SFA. How lucky was that?
I was just getting settled into my job when Salesforce representatives came to Boston to brief the analyst community as part of the company’s rollout. Having come from a technology sales and marketing background and having directed the development of an in-house SFA system in a prior life, I got it right away, especially the part about subscriptions and being able to access customer data from anywhere that I could get an Internet connection. I was an immediate fan.
But it’s important to understand that Salesforce was not the only game in town. There were lots of hosted services offering an SFA product, though today they have all either disappeared or been rolled up into larger companies. Only Salesforce remains as an independent first mover and it has become a force in the CRM industry largely because of the vision of a core group that includes co-founder and technology guru, Parker Harris and, of course, CEO, Marc Benioff.
Today Salesforce looks like a no-brainer but fifteen years ago it was anything but. It was going up against some Goliaths with a stripped down product in a market where its only innovation was not the product itself but its delivery and business models. If it or any other SaaS company was going to survive it would have to steal market share from Goliath. Not a pretty picture but the stuff of corporate lore and mythology.
It is my firm belief that absent Benioff’s genius for promotion and an iron willed determination to sculpt the future of enterprise computing, Salesforce today would be just more road kill on the (metaphorical) side of Route 101.
But Benioff and a team of believers pulled it off. He made storing data in the cloud not scary but sexy. He took on the dominant player in CRM at the time, Siebel Systems, much earlier than I thought practical, with a campaign that featured a little kid writing at a blackboard, “I will not let Siebel take my lunch money.” It was a brilliant summation of everything Salesforce and Benioff wanted to achieve at the time. Benioff wanted to deliver an order of magnitude improvement in enterprise software’s dismal cost curve while also making CRM an easy installation that even small and medium businesses could accomplish.
In the process, Salesforce became the primary industry promoter of the subscription model and started a whole economic model that resonates throughout the culture today. No they weren’t the only ones doing subscriptions, far from it, but Salesforce and Benioff made subscriptions hip and sexy and sexiness drove success.
Salesforce has undergone more self-reinvention than I can count over the last fifteen years. Actually I can count it. The company seems to reinvent itself every 2 to 3 years, a torrid pace but one that has brought it to a leadership position in numerous Gartner Magic Quadrants, and the verge of the Fortune 500.
If the company has an Achilles Heel it is the tendency that all rapidly growing companies have of reverting to the mean, becoming average. In other words how do you keep “La Revolution” going without becoming a self-parody or the Fidel of tech? Here Salesforce has had incredible luck not only with its serial reinventions, but have you noticed that the company’s reinventions have all involved building products that it needs internally that also happen to be what the market needs too?
Salesforce’s early customers were emerging companies like itself so they needed high quality systems that didn’t cost a lot but that would enable them to compete with the big boys. As the successful ones grew they needed better ways to communicate and collaborate internally to prevent the stasis and sclerosis that organizations with large populations and rigid processes inevitably acquire.
Salesforce delivered Chatter, its collaboration tool and workflow to automate as many internal processes as possible. It embraced the social wave with a bear hug that has enabled it to effectively communicate with customers and prospects and it has shown its customers how to use these tools to streamline their operations too.
The company has also paid close attention to IT and application development. Understanding the disruption that mobility is causing, it has moved to provide development, maintenance, and deployment tools that enable business systems to evolve at rates very close to their underlying business processes. Exactly what it also needs in its continuing evolution.
While the company might not revert to the mean while Benioff and Harris are running things, it’s worth noting that the mean is chasing Salesforce. Every major business software vendor, plus a cadre of innovators spotting niche opportunities, is hot on the trail of Salesforce’s innovations.
Windows is effectively dead as a place to run business apps except for its necessity for supporting browsers where most applications run today. Everyone has a cloud strategy today including all of the nay-sayers of a decade ago who finally gave up being wrong all the time. Everyone is trying to develop an App Store — a term Salesforce coined before Benioff gave it to friend Steve Jobs and Apple — on that, all I can say is that Benioff is not always right. Ditto for the emerging ecosystems of partners with plug and play applications.
The list goes on and as if that weren’t enough, there’s philanthropy to discuss too. Benioff has been one of the earliest and most vocal supporters of the 1:1:1 model of philanthropy that posits donating one per cent each of a company’s equity, people time, and profits to charity. The Salesforce.com Foundation has become a model in Silicon Valley and other companies have emulated it creating a new force in public giving. Benioff is also not shy about his $100 million donation to UCSF Children’s Hospital, which will certainly enrich San Francisco and the Bay Area for a long time into the future.
There’s more but it’s enough for now to say that Salesforce.com has made a significant mark on an industry, a region, and even on the way we think of business today. That’s not bad for a fifteen year-old.
There were many intriguing stories out of Microsoft Convergence 2014 in Atlanta and one that caught my eye was “Microsoft digs into ‘natural interaction’ technologies for touch-first Office” by Juan Carlos Perez. It was about a coming version of Office that will let people use gestures and voice recognition in Office products running on mobile devices. Just like in the movies. Can’t wait. This will undoubtedly add to people’s productivity and it will begin to liberate us from keyboards (a 1960’s innovation) to enable more natural modes of communication.
I am all for it and in my estimation, if you need an example of how we will reach the goal of humans and machines working together as envisioned in the recent best seller, The Second Machine Age, by Erik Brynjolfsson and Andrew McAfee, this is a foretaste. But of course there’s something missing and that’s what I want to talk about.
Bear with me but if the script runs true, Microsoft and other companies will release hardware and software products with sensors and the software the analyze their input that will drive these new activities. Microsoft has a ton of patents in this area, so good for them. It’s not hard to imagine this future, you can already play Xbox games where the computer senses your presence and movements and responds in kind. But the script also calls for us to be underwhelmed, confused, and dismissive of the new tools, perhaps because many older executives have not had the Xbox experience.
In a way, gamers and game developers are lucky — they have the context of a particular sport or activity for the sensors to work within. Golf? Hit the ball. Tennis? Hit the ball. Ok, there’s more than that but you get the idea.
Business? What’s the context? What’s the process? That’s a tough one and it highlights much of the reason for the hype cycle effects we often see when a market that ought to be a slam dunk shows signs of being underwhelmed, confused, and dismissive.
What the hype cycle amply demonstrates and what Brynjolfsson and McAfee point out in their book is that technologies take time to percolate through our culture at least in part because we need to find real life uses for them. Geoffrey Moore famously described the different phases in market adoption in his Crossing the Chasm series but I am no longer sure that the phases represent actual adoption. If adoption is more or less defined as a technology’s uptake by users, then I think that’s too broad a definition. Moore is more on target when he speaks of whole product, the escalating requirement for process, protocols, best practices and what not that make the core technology really fit into our lives.
People and companies buy things because they’re hot and not necessarily because they know how to leverage them. CRM saw this in spades as, according to my research, only about half of the early buyers actually had a clear idea of what they’d do with CRM once they got it. The other half bought because they didn’t want to be left out — if there was an advantage to CRM, they’d figure it out. Maybe.
Even today few people with a new and easy to use product like analytics bother to create novel analytic reports. They use whatever is pre-defined leaving that exploration for the next generation of users.
At first new technologies are seen as toys that we literally play with while seeking their true use and productivity and I see no reason that we won’t someday soon see Microsoft Touch Olympics played at some offsite meetings. But personally, I am becoming just a tad “underwhelmed, confused, and dismissive” with possibly a soupcon of bemusement at this ritual.
It would be great, if for once, we tried really, really hard to field test these new, new things and bring to market a limited number of realistic use cases that are by all means limitless in terms of what our creativity can add to them.
This really needs to happen too. Almost two decades after the introduction of SFA, for instance, half of our sales organizations still don’t have a formal sales process replete with playbooks and support from core SFA. Half the sales reps still wing it — you’ve seen this before in my writing but it’s true — and you can tell which half is which because the half that doesn’t use a formal process is not knocking down a big W2.
So my recommendation for the touch-civilization in the making, or whatever we decide to call it, is this time, let’s figure out the processes we at minimum want to influence, automate, and enable. Call it whatever you will. I just can’t bear the thought of the Instagram photos from an offsite depicting the drunken, midnight Touch Olympics.
All companies have to acquire new customers, make products and price them attractively without leaving money on the table. Also, once a product is purchased, a company needs to get the cash in house as quickly as possible. If you think of this as the order to cash process, you’d be pretty close depending on how far up the sales trail your definition of acquisition goes. But while these ideas seem familiar there are major differences between how they are implemented and supported conventionally and in a subscription environment.
Order to cash in a conventional company is relatively simple. A conventional company makes products, its sales team sells them and operations produces an invoice that finance tracks all the way to collection. A subscription company is just like a conventional company in that respect but it is different because the subscription company needs to reacquire its subscribers all the time. For a subscription company the sale is never complete because there’s always next week, next month, next year — you get the idea.
Subscription companies are always in acquisition mode, which means much more than always be selling or always be closing. Subscribers want a bit of rest from the acquisition process and they need to get on with life with the new solution they bought. So maintaining their interest moves down stream to things like being successful using a product and resolving issues — whether support or billing — efficiently.
So a subscription vendor, even in acquisition mode, needs to keep a weather eye for forming productive bonds with customers. Customers that bond well are more likely to tell others about their experience thus becoming an unpaid sales team for the vendor. Customers that don’t bond don’t advocate and may be more likely to churn, a subject for another discussion.
The difference between conventional companies pricing products and subscription companies couldn’t be more different. A conventional company has to sweat all the details — what’s included, how much does it cost, what are the terms and conditions, on and on. They have to because they rely on research, surveys, focus groups and more and even with all that they might not get it right. If they fail it’s a big investment wasted.
On the other hand, a subscription company can harness the power of the social crowd to accomplish the same thing and it can do all this proactively. By the time a conventional company gets a product to market, its information is weeks or even months old but look what happens with a subscription vendor.
Say the vendor analyzes aggregate customer purchases and discovers that customers that buy one service are likely to buy another. Why not offer a package containing both? The same analysis can also tell what the customers pay for the combination and from there the vendor might wish to make a price adjustment to promote the combination. With this approach the probability of success is much higher and if, for some reason, the idea doesn’t work so what? The cost of the effort is practically zero and you can always try something else rapidly. Try that in a conventional company. If you are a subscription vendor already doing this, give yourself a touchdown, you deserve it.
They have a word for billing in the subscription world — heartburn. Nothing generates more of it that trying to get the bills right in a highly fluid subscription business where customers can change their configurations as frequently as they need to. The heartburn comes from trying to process bills with a billing system that’s designed to support a conventional one and done invoicing and payments process because that’s not how subscriptions work.
Just as acquisition is a never-ending process, so is billing. As a matter of fact, it’s also ever changing. The secret to successful subscription billing is, like most things in business, having a system that supports the process you have and not the process some vendor wishes you did.
The other similarity between billing and acquisition is that it is another spot where customers subconsciously evaluate a vendor and make a subliminal decision about bonding with the vendor. Was the process easy, precise, and accurate, or did I spend half an hour on the phone again? These are the things that add up to customer bonding.
This is only the order to cash process; there are lots of other processes in which subscription companies engage with customers differently than their conventional peers. More than ever, these processes are governed by analysis of the data crumbs that become part of the customer record. It’s imperative that subscription vendors fully understand the differences between their chosen path and convention. Doing so will enable them to choose the right systems they need to support business on this new frontier.
Microsoft revealed rather slow growth for its Dynamics CRM products at the Convergence customer event being held in Atlanta this week. During his keynote address on Monday, executive vice president, Kirill Tatarinov, revealed that Microsoft grew its customer base for all Dynamics products including CRM, AX, GP, NAV, and SL by a combined 6.7% overall but only 2.6% for CRM alone.
The company has long been top heavy in ERP and those products had growth of AX (5.6%), GP (9.3%), NAV (8.5%), and SL (0) respectively. Why Dynamics CRM had such slow growth — equivalent to 83 new customers per month is a mystery.
CRM is generally thought to be a growth market. Last week Salesforce.com released quarterly and annual revenue numbers showing more than 30 % growth year over year.
Over the last two years Microsoft has made strategic purchases in marketing automation (MarketingPilot), analytics and social monitoring (Netbreeze), and contact center (Parature) and it has done a credible job integrating the new technologies with its core CRM. So, it has a lot to offer.
Dynamics ERP systems are aimed at different markets with AX, for example, targeted at larger companies while Dynamics GP is intended for the general market. But with only one CRM product, Microsoft should be aiming its sales efforts toward all markets and its ERP partners to sell the stuff, which is sorely needed by most companies.
The apparent disparity in uptake suggests that the market perceives Microsoft more as an ERP vendor than a CRM supplier. But New CEO Satya Nadella is looking to reignite growth in the company — and it looks like CRM could use a boost — and signs point to him mixing things up in Redmond. Yesterday Bloomberg reported the Nadella appointed political operative Mark Penn to the post of chief strategy officer.
Also, according to Bloomberg, “Tony Bates, who was passed over for the CEO job, is leaving the company, with Eric Rudder, the head of advanced strategy, taking over his duties on an interim basis, Microsoft said today in a memo to employees. Tami Reller, the executive vice president in charge of marketing, is also leaving and being replaced by Chief Marketing Officer Chris Capossela.”
Ok, change is good and all that but shuffling positions is a long way from developing strategy. It is true that you have to get the right people in place before you can make significant moves so this kind of house cleaning is reasonable. But moving a politician into a strategy position speaks volumes about direction and in my mind the message is not that inspiring. Penn has had some successes working for Hillary Clinton in 2008 and in developing the Microsoft “Don’t Get Scroogled” campaign.
But strategy should be about products and thought leadership and not so much about generating ads and campaigns, in my humble opinion — hopefully it’s in the pipeline. That stuff is called tactics and Microsoft does itself a disfavor by conflating the two ideas. Over the last few years the company has done great work building a single interface — “One Microsoft” — and it has branched out to product areas that keep it in the mix though far down on the leader board in things like mobile phones, social, search, and, well you get the idea.
The company is still way too fixated on its operating system past and reports that even Bill Gates was frustrated with the complexity of installing Windows 8 can’t be good. If Nadella really wants to take the bull by the horns and lead, then he’s got to engage in some creative destruction.
A good place to start would be to level with everyone in Redmond by saying, “Guys, we’re not in the OS business any more.” Sure, they sell a ton of it still and a computer needs one but on the scale of things, the OS has become commoditized. Android is free, so is OSX, and iOS, so is Linux, and you can download any of them and install them cleanly in no time. Windows might be a proud legacy but that’s all. It’s time to think anew about computing and that means thinking about the business processes that customers are involved in and how our increasingly powerful machines support those day-to-day activities.
There are many hopeful signs in Atlanta this week with partners showing off niche solutions and Microsoft hinting at others — even in CRM and ERP. They all need to become commonplace. Identifying the best of them and aggressively pursuing them, bringing them to market — and this is key — with new thought leadership about their place in machine driven, human mediated business processes, is the real strategy.
Two numbers to keep in mind: $4.8208 billion and $5.25 billion. The first number is the 2013 revenue reported by Nash-Finch. According to Wikipedia and Fortune magazine, the company is based in Edina, Minnesota, near Minneapolis. It is involved in “Food distribution to private companies, primarily independent supermarkets, and military commissaries; and the operation of retail stores,” according to its Wikipedia page. According to Fortune, the company was number 498 on its list of 500 largest American companies in 2012. In 2013, it ranked number 500.
The second number is the low end of the fiscal year 2015 guidance just offered up by Salesforce.com in a conference call with analysts and a press release from earlier this week. If you can do a little math and draw a straight line or two, this data would suggest that a year from now Salesforce will occupy at least the number 500 position in Fortune’s vaunted list. But keep in mind that there are other companies out there with similar stories.
So this is no time to estimate chicks by counting eggs in the incubator, if you know what I mean. But for armchair prognosticators, it strongly suggests that absent a major stumble, well, you know. One thing that bolsters the company’s chances even more than my simple assumptions is the amount of uncounted (but NOT unaccounted) cash on the books. According to the press release, the company has:
- Deferred Revenue of $2.52 Billion, up 35% Year-Over-Year
- Unbilled Deferred Revenue of Approximately $4.50 Billion, up 29% Year-Over-Year
These measures are a testament to the power of the subscription model and one reason I have been such a fan of it. Subscription revenues get recognized as they are billed or, if the revenue is deferred, each month when the bills go out, the customer’s balance is dinged (that’s a technical term). Deferred revenue refers to cash on the books and in the bank that will be dinged. Unbilled deferred revenue refers to cash under contract that has not been either billed or collected because it is accounted for in a future fiscal year. Think of it as ding-able in the future.
No matter how you slice it, Salesforce has a lot of momentum with most recent Quarterly Revenue of $1.15 Billion, up 37% Year-Over-Year, a forecast that is amazing, and lots of cash in the bank. These results and the forecast show what a good job the company has done in building a repeatable business and the power of the subscription model when done right. I don’t think there will be any escaping the speculation about the Fortune 500 this year, which might put a little pressure on everyone at One Market Street in San Francisco. But by now, they’re used to it.