As markets mature, they trend towards oligopoly or even outright monopoly. There isn’t much difference because an oligopoly has several members instead of just one. Examples include electric power generation, an oligopoly made up of vertically integrated monopolies in most areas, and the airline industry, an oligopoly where there may be many airlines but they have monopolies in regional hubs. As monopolies and oligopolies gain strength, it becomes increasingly difficult for new comers to enter a market.
I think CRM is trending in the direction of oligopoly which might not be bad but it also signals market maturity. I also think the IT industry generally is moving toward becoming a utility—an information utility. Utilities form when a monopoly or oligopoly gains enough market power to dominate a market and set artificially high prices to the detriment of consumers.
The ultimate regulated monopoly was the phone company prior to the court ordered breakup in the mid-1980s. That decision opened the flood gates to innovation in products, services, and business models that had been held back by what was a regulated monopoly. This article asks where CRM is on the continuum ending in monopoly.
Is CRM a good business to be in? It’s a question rarely asked and I don’t actually know if I’ve ever seen an answer or even if I’ve personally considered it.
A good business by my definition has to be one that makes money and does some social good. Cigarettes make money but their social good is highly suspect. Many organizations that do some kind of social good might be characterized as non-profits. Social good, or making a positive contribution to society, makes sense as a differentiator. Making car tires fits that definition in ways that cigarettes can’t.
In addition to making money and providing a social good, as a technical point, I’d say that a CRM business ought to be in business on its own and not as a part of some larger entity. Lots of software companies have a CRM component though their roots are elsewhere.
The reason is simple. A business owned by a larger organization could lose money but that might not matter if, for instance, the overall organization turned a profit. For instance, a few years ago Oracle bought Sun Microsystems for about $4 billion if memory serves. I don’t think Sun was making money at that point and today it doesn’t matter. Sun provides a vital hardware component in Oracle’s drive to produce autonomous enterprise software.
So, a CRM business might be a loss leader—something that a company needs to sell to maintain its chops as an enterprise software vendor. This one-stop shopping strategy might be designed to keep competition at bay. Again, using the Oracle-Sun example, Oracle can provide order of magnitude performance advantages using its hardware and software over competitors like IBM, which could supply hardware to run Oracle apps and databases, or Amazon which competes in database.
Also, for this purpose, when I refer to CRM it’s CRM as an integrated, soup to nuts, 360-degree view of the customer, solution set I’m thinking about. Lots of companies in the CRM space today offer a call center, help desk, analytics,
sales, marketing or other single solutions. But unless they have superior integration capabilities, it’s difficult to make a case for some of them. More likely, the full-suite vendors provide the integration which always begs the question of how much better an independent vendor needs to be to compete.
I think you can tell a lot about a market’s health and age by the number of free-standing businesses it includes. Early in a market’s life there are numerous similar solutions competing for space. Twenty years ago, there were lots of independent companies, most offered one or two CRM elements, but that situation was unsustainable because customers found integrating disparate solutions way too hard. That resulted in a wave of consolidation; companies bought others by swapping stock and some lost their shirts.
Before CRM you could observe the same dynamic in the database industry which shrank the number of competitors as the winners got bigger and bigger. Before that minicomputers went through the same dynamic until there were none. Interestingly, the minicomputer makers all developed and maintained their own operating systems. Imagine the technical issues surrounding any integration.
Mainframes were no better. There were numerous mainframe vendors including IBM, Control Data, Amdahl, Burroughs, and others and there were more mainframe operating systems than there were mainframe vendors.
So where are we now in CRM? Every category I’ve studied that was based on a disruptive innovation followed a typical path from a proliferation of similar solutions to a big industry controlled by a small number of successful vendors, an oligopoly. It’s much as Geoffrey Moore described it in “Crossing the Chasm.”
CRM has reached an oligopoly stage today. The oligopoly members, in my opinion (we can differ) include Microsoft, Oracle, Salesforce, SAP, Sugar, and Zoho. That’s big for an oligopoly which Moore said might contain three vendors when mature but it’s early yet.
Of these companies, half—Microsoft, Oracle, and SAP—are multi-line software vendors of front and back office apps with solutions that work on-premise and in the cloud. They all have database businesses as well and only Microsoft does not use Oracle database products.
It will take time but it’s obvious that the world is moving to the cloud and the vendors want to wind down their on-premise business models because the cloud is so much more efficient and potentially profitable. Also, it’s hard to run two very different business models profitably. For example, the financial community is impatiently waiting for Oracle to show better earnings numbers as it necessarily straddles two worlds.
The other half of the list, Salesforce, Sugar, and Zoho is exclusively in the cloud and oriented toward the front office. Salesforce has a huge partner program, AppExchange, that expands its reach to most application areas including the back office and it offers good networking and a platform that enables partners to build products to the same standards as the core CRM making inter-application cooperation easy.
Sugar was recently bought by the private equity firm AKKR which will enable it to invest in things the company couldn’t sufficiently do with available resources, especially marketing outreach. That’s vitally important because while the company has been around a long time, it didn’t catch fire earlier for many reasons including its original business model.
A mature market requires a lot of marketing spend and this acquisition gives Sugar that opportunity. At the same time though, the company needs to figure out its long-term niche. Its most likely approach going forward will be an acquisition as a branch of some larger vendor with some form of synergy but there are few software vendors that don’t already have CRM. This leaves us to speculate about tangential markets which again requires Sugar to declare its intentions.
Zoho is interesting because it is cloud native and has thousands of lower cost developers, primarily in India. The company initially focused on the SMB market and didn’t limit itself to the front office. Today it has about 50 apps aimed at all parts of a business and it is moving up market. It is definitely worth keeping an eye on given its resources and direction.
Lastly there’s Salesforce. This company invented the cloud computing industry and it continues reinventing the space and itself. Rather than developing multiple apps, such as the back office, it invited others to build solutions. It developed a platform for partners to use, and the AppExchange to make it easy for customers to find and buy solutions. Salesforce’s continuing success comes from constantly surveying the market looking for new trends. It is currently focused on opportunities that are not directly technology focused including training and philanthropy. That sounds strange but Salesforce is taking a long view.
The future CRM oligopoly could condense in several ways. Salesforce, Oracle, SAP, and Microsoft could maintain their holds on their customer bases while taking market share from the others and each other. That’s logical and there’s a certain amount of that zero-sum back and forth going on right now but it’s not a likely final outcome.
Sugar and Zoho could establish solid niches. Zoho has a global SMB business with ambitions to grow and Sugar, which has its annual user conference in Las Vegas beginning October 9th, could articulate a strategy of its own to claim some undiscovered market niches. Time will tell.
Alternatively, many of the businesses in the Oracle, Microsoft, SAP orbits have legacy on-premise solutions that are over a decade old. When those customers decide to rethink their software deployments, they will, in all likelihood, not just think about moving to the cloud; they’ll also consider which vendor offers the best solution and value today. Salesforce could be a big beneficiary in this given its cloud residency, platform, AppExchange, and history of working with large and small enterprises.
There’s also dark matter to consider. According to some keynotes at Dreamforce the average enterprise customer has over 1100 cloud apps already running, so some amount of refactoring and simplification might be on the minds of customers as they move their primary computing to the cloud.
My two bits
Beyond basic cloud computing, a good deal of the future competition will focus on things that are somewhat intangible like ease of use. That’s not the old idea of an attractive and logical user interface but a more expanded concept that embraces business flexibility and adaptability that enables a business to chase smaller opportunities because it can reconfigure its business supported by applications, quickly.
By these criteria it’s hard to rule any company in or out of a shrinking oligopoly but you might begin attaching probabilities. In any event the six vendors listed are worth watching. Every move they make from here will be much more important than those that got them here.
There’s an emerging theme in sales and marketing that I expect will be important for a while and could influence some of the messaging associated with upcoming events like Salesforce’s Dreamforce and Oracle’s OpenWorld. Each company will have lots to say about security, analytics and machine learning, IoT and blockchain but what’s under the radar is the practical application of much of this to marketing and sales.
So far smaller companies have been leading the charge in using analytics to identify prospects very early in the sales cycle but it’s a crying need. Both B2B and B2C vendors have been back on their heels for many years because of the improved access to information allowed by the Internet. Unfortunately, conventional marketing approaches tread the same rut marketing was in before automation.
For about two decades, vendors have been competing with themselves by posting information that eliminates the need to speak with sales people. They don’t really have a choice since their competition does the same but it’s a commoditizing move. With all that information available online, customers just need pricing to make decisions and vendors find themselves competing on price alone rather than configuration expertise and service which can often help justify slightly higher pricing.
Recent research by CSO Insights, part of the Miller Heiman Group, prove the point. In “The Growing Buyer-Seller Gap: Results of the 2018 Buyer Preferences Study” researchers found that buyers would go almost anywhere else to get information to solve business problems than a vendor’s sales people. Importantly, this is even though almost two thirds (61.8 percent) say that sales people meet their expectations. According to the study, “Less than a quarter (23%) of buyers selected vendor salespeople as a top three resource to solve business problems.”
That’s a very various problem for vendors because if a customer won’t reach out to its sales people they can’t sell the value of their products and absent that they fall into the miasma of price competition.
Lately a small group of mostly startups has entered the market with analytics tools designed to identify prospects very early in their purchase processes. That’s hard to do and sales people have tried and tried over many years to be there at such moments. Unfortunately, the signals can be so early that they can either be missed or they can end up antagonizing potential prospects proving again that being early can be as bad as being wrong. But if vendors could get it right more often than not using impersonal automation to do some of the work, the dynamic could change.
Today a long list of vendors can contribute to the upfront process using modified CPQ and more. They include Atlatl, Configit, Tacton, In Mind Cloud, Model N, Apttus and many others. Also, not to be overlooked, Versium, LiveRamp and LifeData all in one way contributing to getting inside the heads of buyers even before buyers get into the market.
Just recently Salesforce became more active announcing completion of its purchase of Datorama, a cloud-based AI-powered marketing intelligence and analytics platform for enterprises, agencies and publishers. It’s worth pointing out that there’s a big difference between catering to B2B segments and B2C. For instance, Datorama caters to global agencies and brands like PepsiCo, Ticketmaster, Unilever and more. It’s questionable how useful Dataroma is in its current state at helping nail a B2B deal for gears and sprockets.
The point is it’s a big marketplace and there’s no clear leader from what I can tell. Consequently, this is just the kind of thing that vendors will want to highlight in their big tent shows this fall because these new wrinkles can help drive adoption of other components of these very large solution sets.
Office printing, a key part of any business’ IT strategy, is slowly declining mostly due to better printing options. Better, higher capacity printers, networked throughout an organization are often cited for small declines in printing activity in part because taking printers off desktops causes people to consider whether a printout is worth a trip to a printer.
That’s more or less organic decline and the question is why print at all? Are there ways to avoid moving information from computer to paper only to return new information back to a computer?
Keith Kmetz, program vice president, IDC’s Imaging, Printing, and Document Solutions research says, “Print remains a huge and very relevant piece of an organization’s overall IT strategy,” which seems to imply that printing will be important until it isn’t. In other words, the emphasis still seems to be on printing but printing more efficiently when the need is increasingly to avoid printing all together.
Strategies for avoiding printing, like locating printers away from users so that they have to walk to pick up their papers, are qualitatively different from moves to eliminate printing completely through process redesign. The latter can have bigger impacts on a business beyond savings in printout supplies.
Business processes that avoid printing are different in that they remain in the digital realm rather than committing information to paper. Digital processes operate at computer speeds while the same process involving printed matter becomes a prisoner to the speed of manual transport.
For instance, a process that captures a signature, perhaps through the mail, is relegated to the speed of the postal system. In contrast, the same process mediated by an eSignature paradigm operates much faster even when considering that such processes are often asynchronous meaning the people on each end of the transaction are not necessarily waiting around to receive a document.
So why print at all when digital processes are so attractive? There are many reasons, some social or psychological but none of them stand up.
- Force of habit. Some employees will just print documents regardless of whether they have more efficient technology at hand. For them a walk to a printer might be a motivator for changing behavior.
- To have a “hard copy” in case, you know, the system goes down, or just to have. Advances in IT have made this reason obsolete when compared with the costs of printing.
- To take to a meeting. Lots of people still print documents for evidentiary purposes but the arrival of good, fast corporate Wi-Fi and portable devices from phones to tablets to laptops, means any document can be available anywhere in the building. And for meetings at remote locations, often the same is true but certainly sometimes people just need the hard copy. But using hard copies should be much rarer than it is today.
- Some employees lack the necessary software to access and save documents electronically or to circulate them for signatures.
The last item deserves some comment. Document management or productivity has long passed the point where it could be considered optional in a host of industries that live on documents like healthcare, insurance, and finance. While virtually all employees in these industries have access to office productivity software like word processing, many still lack access to document management systems. The irony is that these employees can create documents, but they can’t effectively manage them once developed. So, the papers grow.
Organizations determined to do something about their printing consumption find that they can’t simply press a button or flip a switch. There’s a bit of process re-engineering to do before the business can change paradigms. Usually change management is one of the most important jobs associated with changing the print paradigm. But the effort is highly worthwhile.
Businesses that implement document management for all find they can recoup the cost of their new systems based on drastically reduced printing costs and improved employee productivity and morale. Just imagine how much more productive anyone can be without taking trips to a remote printer. And even if one has a printer on the desk, avoiding printing means higher productivity, lower costs, and more engaged personnel.
There’s never been a better time to fully engage in document productivity. Even businesses that bought productivity systems decades ago are finding that costs of automation are now much lower and that it’s practical to ensure all employees are covered by the technology.
The key to successfully transitioning isn’t simply picking a software or hardware vendor any more. It’s picking a vendor that understands change management and that can put a plan in place that automates your specific processes and gets your users engaged and active. There will still be employees that prefer to print but they make up a small percent of your population. Over time even they will see the benefits of working digitally over dealing with printers and supplies.
I was on vacation when the news hit that Keith Block would become co-CEO of Salesforce with Marc Benioff and that Parker Harris would join the board of directors. I’ve already written about Block and for some reason always assumed that Harris was already a board member so the news came as a surprise and a gratifying one at that.
Parker Harris is a real Renaissance man with a background in the humanities (BA, English Literature, Middlebury College) as well as the chops needed to develop multi-tenant computing way back when Salesforce was emerging. That’s an important distinction and you could dwell on it for a bit.
It’s my observation that at the beginning of a disruptive innovation there are no experts in a field just talented “amateurs” to fill the need. Go as far back as you like and you see a stable pattern. Bill Gates dropped out of Harvard as did Mark Zuckerberg. Steve Jobs did just a year at Reed College. Wilbur and Orville were bicycle mechanics and spent a whopping $2k from their business on their experiments to invent heavier than air flying machines. Henry Ford? He was largely self-taught learning about steam engines on the job while taking a few bookkeeping courses. Finally, there’s Edison. This self-educated inventor and business man might be the greatest of all time with 1093 patents to his name. He took a few courses.
If you’re interested in learning more about how invention and discovery favor the talented amateurs, I suggest “The Structure of Scientific Revolutions” by Thomas Kuhn. He’ll take you even further back throughout history to see even more of the pattern.
But for now, congrats to Parker Harris, one of the great ones.
So far, the trade war is limited to actions and reactions related to durable things that trade throughout the global economy—cars, steel, and aluminum for instance. Add bourbon and Harleys for good measure. But will that remain the battleground or should we expect greater contentiousness around services, specifically software as a service and CRM in particular?
America does hefty business with the rest of the world in services which can span things like banking and finance, insurance. Right now the retaliation seems to be against areas that went for Trump in the last election but there’s nothing that says the pain can’t be spread around to services.
Current target industries and their workers might not provide sufficient leverage that other nations need to put the genie back in the bottle. Some of the people who make bourbon and motorcycles or who grow soybeans are vocal about their politics and form part of the Trump base. But their actions seem mostly limited to reactions not initiative. They’ll support a Trump policy but they haven’t been out front advocating.
On the other side of the coin—and I accept that this is a simplification—the tech sector is, by definition, entrepreneurial and able and willing to initiate action. So attacking subscription providers by foreign nations could, in theory, motivate more reaction designed to stop the trade war. There’s a lot of potential leverage there because the US has a dominant share of the software as a service economy and the subscription economy generally. While US companies have been stepping up efforts to locate cloud data centers in many countries to support data residency requirements, their services could still look like imported services and thus be subject to tariffing.
You might buy a used Harley rather than a new one or switch from bourbon to rye temporarily but how do you go without data? Not very well. That’s why I think the services industry could be a big loser in any trade war. Data and information make the world run and many companies are only at the start of their cloud translations so retaliation against subscription vendors could cause real damage.
The tech sector is also vociferous, both pro and con on numerous political issues. For every Marc Benioff advocating for progressive ideas there’s a Peter Thiel supporting the administration. But the progressives might have the numbers if only because so much of the industry is based in California. So there’s all the more reason for foreign governments looking for leverage against American tariffs to target the tech sector and especially software.
So, US dominance in SaaS and the cloud generally is a dual edge sword. US companies have dominant positions but for this reason it would be easy to target the industry with, say, 50 percent tariffs. As with other industries, tariffs could be expected to slow growth and adoption and possibly cause some vendors to set up production in other countries as Harley-Davidson is.
Once a path is set and investments are made the shape of any industry could be permanently altered. It will be hard for any business to abandon sunk costs in other lands once a trade truce is agreed to. So we’re possibly looking at a generational or even secular shift in the shape of the cloud and its industries should a trade war infect tech.
A trade war could be a driving force that sends clouds scattering to the corners of the earth. That could be good for some businesses but bad for individuals whose jobs would be put in jeopardy. It would be an acceleration of the natural commoditization cycle with one key difference. There won’t be many new job openings for displaced American tech workers whose jobs depart for parts unknown.
When the idea of a trade war first surfaced about a year ago, some prescient commentators suggested that there would likely be unforeseen consequences. No one has perfect visibility into the heart or actions of an adversary regardless of the analytics used. But retaliating against what an adversary does well is an old story and it wouldn’t surprise me to see tariffs on cloud computing services should cooler heads not prevail. Those tariffs will have follow-on effects that we can only guess at right now but it’s doubtful that those actions will improve US’s standing in tech.