Two Questions and Some Answers
There are two questions that emerging companies in the CRM space field when they face the analysts — when are you going public and why don’t you build out a full CRM capability?
The first question is easily and deftly handled by most executives and it must be. An IPO has its own cadence and the Securities and Exchange Commission is very keen to protect its turf even in an age when congress keeps tight control on regulators’ budgets. It takes almost no effort to fine an over exuberant executive for making statements about things that are not in the official filing or during the quiet period. So, smart executives stay very far away from those questions.
The second question is, or at least can be, a quagmire. There are many marketing software vendors who have necessarily built functionality that spills out of the pure marketing definition and that’s enough to keep some people wondering. A customer database is a good starting point. The argument goes like this: you already have a customer DB so how hard can it be to blow out another wall and add sales functionality and then, Voila! CRM.
That logic misses the point by a country mile and a decent customer service function, yet it doesn’t go away. But there’s more to it than even raw functionality. Why would any sane CEO of a fast growing marketing automation company decide to blow the budget and slow growth to build out sales and service in a market where the CRM niche is rather full?
My advice goes like this. Don’t do it. Don’t build CRM, there is absolutely no reason for anybody to build another CRM system. The niche is covered so move on. Take as an example the last decade-full of successful software vendors. Siebel didn’t build ERP and the reasons are the same. ERP was full, it was better for Siebel to focus on building out its CRM functionality and that’s what it did. Late in the game, before the acquisition, the company was working on master data management and making its client server solutions at home on the web. Siebel didn’t build ERP though many people asked why not, because the company was looking for the next big thing not the last.
Siebel got acquired and its independent plans were sidelined. But look at Salesforce and you see a similar pattern. Financial Force, Intacct, Zuora and many other companies sprung up to provide financial functionality to the fast selling CRM but Salesforce CEO, Marc Benioff, has been adamant about not pursuing ERP. He’s focused on building out a new interpretation of the front office that’s social, mobile, and customer experience focused. That’s called a Blue Ocean Strategy and I have written about it before.
The rest of the big players — SAP, Oracle, Microsoft — all have pretty good CRM and they all trail Salesforce according to Gartner’s recent rankings. Generally, while their products are good, they trail Salesforce by about a generation when it comes to leading edge front office ideas like collaboration, customer journey, and the like. They aren’t innovating so much as trying to be fast followers.
I think any marketing automation company that tries to build out CRM functionality would also be a fast follower. They’d trade in what they’re very good at to regress to the mean, the middle of the pack. Instead, here’s a question that they could profitably answer. How are economic and demographic changes affecting how people and companies buy and how does marketing fit into that changed environment?
People and companies have become comfortable and adept at shopping online and making decisions without the assistance of traditional sales people. At a minimum this suggests a winnowing role for traditional SFA. But it also suggests a rising opportunity for marketing automation defined as nurturing customers on their buying journeys.
It also suggests an expanding role for the call center, which might get smaller in the next decade while changing at least part of its mission. I don’t think today’s marketing automation has yet tapped all the possibilities inherent in that one observation, nor do I think that the incumbent CRM vendors have embraced the idea.
So, when I hear talk about new companies entering the CRM market, I cringe. CRM is robust and thriving but it is also consolidating. There won’t be five major CRM vendors ten years form now. The availability of good, fast, standards-based integration is high and products are getting better all the time. The next move in the front office is best of breed, not tightly integrated solution sets. The front office platform might be stabilizing but the apps that play on it continues to expand and they work increasingly well together.
The move for fast growing companies in the front office is in furthering the embrace of the customer through advanced tools and techniques that include social media and inbound marketing. No traditional ERP for sure and no CRM either and that’s becoming increasingly obvious.
End of the Beginning
In “IT’s Ethical Dilemma” I wrote about the challenge of having a new product and selling the old one. If the new product offers benefits of better, faster, and cheaper — and what new product doesn’t? — then how is it ethical to sell the older, less performant, and probably more expensive one?
Well, the answer is easy in a free market. First you cut the price, which is natural given the creative destruction that’s taking place thanks to your new widget. Then there’s the customer’s preference for the older, more trusted product. The older product is safe, it’s had the bugs knocked out of it and the customer perceives it as less risky. So selling the older product is actually pretty easy, in fact the customer buys it more than the vendor actually sells it. Sales people like that.
But there’s huge peril in that approach. I was reading “The Rise and Fall of Infrastructures — Dynamics of Evolution and Technological Change in Transport” by Arnulf Griibler on the plane the other day making my way to San Jose and SuiteWorld, and it made me think about our market.
Now, Griibler is not a household name and the book dates back to 1990 so there’s that to consider. But he writes about something that just melts me — the interface between innovation, entrepreneurship, and massive societal change. Call me what you want, it’s fun. Anyhow, Griibler’s book is about change in the transportation industry over centuries starting with canals and progressing to railroads, roads and things driven by internal combustion engines, and air transport.
He’s not always right. From today’s vantage point he got air transport only partly right as the next thing in transportation. He didn’t foresee the spike in energy prices and the funk that air travel has gotten itself into. He also didn’t see that the Internet would become the disruptor of air travel. You would have needed a pretty good crystal ball in 1990 to foresee that the ‘Net would spawn social media and that people would conduct meetings on it reducing the demand for air travel. But that’s the procrastination business, warts and all.
One of the very, very interesting findings that Griibler discusses is what happens to the standard S-curve near the end of a typical market trend. We are used to thinking of the S-curve of most trends as symmetrical around the inflection point (see picture). But in his research Griibler found that wasn’t the case. The waning side of the curve, the top half, is only about half as long (in duration) as the top. The later adopters accelerate adoption and cause the completion of the wave very quickly. He uses the term “seasons of saturations” to describe what Joseph Schumpeter observed decades earlier. According to Griibler: “Schumpeterian ‘gales of creative destruction’ (i.e., organizational readjustment processes like bankruptcies or intensive mergers), a lack of productive investments as a result of the saturation of traditional markets and uncertainty about the characteristics and investment opportunities of the new emerging paradigm prevail (Page 274).” Feels like today in many respects.
So, what does this have to say about the software industry and selling the old product or IT’s ethical dilemma? Simply put it says that we always have less time to convert from the old paradigm to the new one once we get to the second half of the curve. Part of the reason that things accelerate is that at mid-point we are in a transition state and markets hate indecision so they move quickly once the new pattern seems inevitable.
I wrote “IT’s Ethical Dilemma” because I could see this coming intuitively but Griibler gives us the empirical understanding. To net it out I think you can expect cloud computing to accelerate from here, even in markets that might not be prone to adopting it, like ERP.
Consider this press release headline that crossed my desk this morning from NetSuite as it gears up for SuiteWorld. “GARTNER NAMES NETSUITE THE FASTEST GROWING FINANCIAL MANAGEMENT SOFTWARE VENDOR GLOBALLY, Market Shift to Cloud ERP Fuels NetSuite’s Rapid Growth in the UK, APAC and the Rest of the World.”
So think about this: Cloud computing got started as SaaS and Salesforce and NetSuite are among the leaders of the rebellion still standing. For a decade no body took them very seriously. The other vendors did very little to move their applications to SaaS beyond employing browser front ends. Finally, they got some of the religion and today most are offering a hybrid solution that will run in the cloud or in the data center. There is also a thriving new industry emerging for infrastructure services that will run standard single tenant applications elsewhere to provide the illusion of a cloud.
If Griibler is right then the ten or so years that were the first part of the S-curve for cloud computing will be followed by a period that’s about 5 years long in which the late adopters consolidate their seasons of saturations. I figure the five year clock has been ticking for two years that have been recession tinged and so the five year play-out might be a bit longer.
My conclusion though is that one of the riskiest things you can do right now is to ignore cloud computing and by extension the social, mobile, and analytics waves that come with it. Once you’ve fully amortized those servers, things are going to change rapidly.
Twitter Links Break — Why?
Have you seen this? I’ve noticed lately that Twitter is suggesting I follow people who I thought I had been following for years. Seems the links break but why? It also seems like the incidence of broken links is rising. Something like this makes it difficult to treat social media, especially Twitter, like the industrial strength product it wants to be.
Economics Imitates Life and Life Has a Lot to Do with CRM
It’s been wonderful this spring being a part of all the vendor briefings now in high gear because in short but sometimes painfully dense bursts we get to know what each vendor has in store for the months ahead. It’s a lot and that’s a good sign. There seems to be a breakout happening.
One of the themes running through all the events like a kid on a tricycle is marketing. Everywhere you look marketing is making noise. Oracle completed the acquisition of Eloqua, Marketo filed for an IPO, Salesforce is putting significant resources behind its Marketing Cloud and, most importantly, marketers are in the ascent.
SiriusDecisions, an analyst firm, is holding a conclave this week in which it is discussing its new marketing waterfall methodology and marketers as well as associated vendors like Lattice-Engines and Full Circle CRM, just to pick two, are sending contingents to the event to see and be seen and to soak up the new marketing vibe.
Closer to home, I am attending HubSpot’s second (?) annual analyst day at its Cambridge offices. HubSpot became an early darling of the new marketing movement a few years ago when it turned marketing on its head and said, no, no, no, try this — which turned into inbound marketing — and was very successful.
Generally, when marketing kicks it up a notch, as it is doing now, there are a couple economic possibilities. Either we’re entering a new market/category/paradigm or the economy is showing signs of life after a recession and I think it’s possible both are happening right now. The recession is slowly ending and marketing as a discipline is the new paradigm.
In fact, and this is most interesting, the marketing upsurge started at the depths of the recession when austerity was big news and almost nothing was getting traction. But it was almost as if the crowd said no, we don’t buy it, let’s get the economy moving again. Let’s go on offense, let’s start marketing and selling again and we’ll spend some money to make it happen.
Here’s where economics imitates life — a couple of weeks ago, the economic ideas underpinning the austerity argument, which has devastated Europe and made the sequester in DC a bad word, fell apart. Two Harvard economists named Reinhart and Rogoff whose work had led the austerity charge were proved to have made significant spreadsheet errors. If there was an Oopsie Award they’d win it this year for sure.
The translation is that the Austerians (as Paul Krugman likes to call them) got it wrong. The math errors and erroneous assumptions of the Reinhart-Rogoff model were inaccurate and the data did not support their conclusions. Over night austerity is, if not stinking like a dead fish, at least sitting in the sun and beginning to decompose.
What’s interesting to me is that the general marketplace began reacting long before the fall of the Reinhart-Rogoff model. No one needed to be hit over the head with an old tire tool to change directions. We’re anything but doctrinaire in this country and when something doesn’t work we make little adjustments, regardless of what officials and supposedly smart people tell us.
That’s the beauty of our free market system. It’s distributed and as non-hierarchical as you can get it and it works beautifully in a pinch. In my own mind, I often compare democratic capitalism practices in the West with totalitarian capitalism practiced across the Pacific.
The Chinese have a great ability to marshal their people and resources to output great quantities of goods but they still operate in a hierarchical, command and control manner. Democracy and totalitarianism are political systems just as capitalism is an economic one. Politics and economics have to operate together, you need one of each.
I could never fathom how totalitarian capitalism could orchestrate the changes I’ve seen this spring. The very idea of individuals deciding for themselves what to do in a confusing market with a totalitarian political system — even with free market capitalism as the economic model — and breaking away from official thinking is hard to imagine.
To me that’s part of what CRM captures. It’s the chaotic and the spontaneous that CRM tries to ride herd on. Sometimes it works well and at other times it can fail. But CRM has made important leaps forward. Like economics and sociology or any of the soft sciences, it has come into its own as it has adopted many of the tools of soft science — the bell curve, crowd sourcing, big data and analysis, and, most of all, probability. There’s just no way a political-economic system other than what we have in the West could come to the same conclusion. It would be like asking a fish to invent fire.
