It’s mud season here in New England that time of year when everything merges into an amorphous mess. The grey sky merges with a grey landscape made into slop by continual rains and dirty grey melting snow. It’s hard to tell where one thing ends and another begins but eventually the sun comes out and dries everything, the sky becomes distinct from the horizon, plants bloom from the firming ground and order is restored. What better time for Amazon and Salesforce to announce another partnership?
I have to say I read the press release and articles from Tech Crunch and ZDnet several times in order to separate things because I was confused. The announcement from Salesforce and Amazon today said that Amazon Connect and Salesforce Einstein would work together to provide an intelligent service offering to Amazon’s service customers. Ok, I get it, but why?
Amazon has been climbing the value chain in cloud computing for some time. Initially its AWS service provided infrastructure as a service that enabled legions of businesses to ditch the computer room and run their operations in the cloud. Additionally, the company ate its own dog food by building a customer service cloud offering that not only supports its internal needs but increasingly supports third party customers, the most recognizable among them include, GE Appliances, communications company Bandwidth, and AnswerConnect.
Amazon has other CRM components as well and relationships with Zoho, Zendesk, Freshdesk, and others. Today’s announcement pairs Salesforce’s Einstein AI tool with AWS Connect to produce a savvier version of Connect. There are and will be more integrations of multiple solutions across product lines, for example both Salesforce and Amazon have IoT offerings and we can expect more news on them in the near future, I think. But there’s a part that I still don’t get, a part that makes me think of mud season.
Historically, Amazon has pushed into new industries and markets with economies of scale, its ability to deliver something at lower cost than others in the space and consolidate market power. AWS was and is a great case in point. Unfortunately, the strategy is also one of accelerating commoditization in which only a few survive and the trend is to make a living on razor thin margins and, once the market is consolidated, reduce innovation. I understand commoditization, it’s a facet of capitalism but innovation has to have a place too.
That’s why I see mud everywhere. Can a company that started as a retailer spin off so many tangential businesses and continue to dominate all of them? Can CRM dissolve into a Salesforce-Oracle-Microsoft-SAP-Zoho and now Amazon soup of similar offerings and still offer differentiation?
My cautious answer is yes and not because of anything that Amazon is doing but because Salesforce is in the mix. Salesforce has a smart and notoriously short attention span with which it innovates a new idea and just as the rest of the market picks up on it, moves on to another object that it shines up and spotlights. Salesforce did this with social, mobile, IoT, analytics, and now its artificial intelligence offering, Einstein. With this strategy Einstein could end up powering a lot of customer facing solutions in service, sales and marketing.
This approach seems to be what Salesforce needs right now. As it is approaching $10 billion in revenues, it is, I think, also reaching a ceiling on what it can sell by itself and truth be told, it has been in this spot for some time. Selling through partners does two important things. It greatly enlarges the number and quality of its revenue streams but it also leaves Salesforce more or less free to do what it does best.
Salesforce has rapidly become the innovation engine of the industry. Its ideas drive markets and its technology is in many cases first among equals (check out the Magic Quadrants, I am not making this up). As long as it can maintain this position as the high value innovator through core technologies like its Salesforce1 Platform, Salesforce can be the exact opposite of Amazon. Where Amazon goes for the low cost commodity position, Salesforce captures the high-margin ground of innovation.
Is that a sustainable business model? Ask Thomas Edison.
This is part of a series of posts on modern approaches to customer loyalty aimed at improving it through customer engagement. A fuller discussion is available in my new book, You Can’t Buy Customer Loyalty, But You Can Earn It.
The third of four attributes of customer loyalty programs is contextual interaction and it might not be obvious because it can mean different things depending on the circumstance. Dealing with customers in context can equate to personalization as many people define it. Also, it can refer to enabling customers to jump out of a largely automated customer-facing process to deal with a company representative. xxx, but it can additionally mean getting down in the weeds of some hyper-specific aspect of a customer’s issue.
Personalizing the interaction
A lot depends on what the vendor and customer are trying to accomplish. In a high-end setting where the customer is spending a good deal of money, regardless of whether the situation is B2B or B2C, there is a reasonable expectation that the vendor will have details on the specifics such as the customer’s exact use situation, preferred buying and payment approaches, delivery needs, and a lot more.
In a situation that involves fewer dollars and a commoditized solution the opposite might be true. For instance it takes a lot more understanding of the customer’s context when that customer is buying a room full of servers than when the same person is buying smartphones for all employees. In the latter case especially, the context might come down to design, ease of use, intuitiveness, online tutorials or similar things that deal with a more generic situation.
Changing the process
A vendor might on the other hand, have a business process that can be managed completely through automation in the vast majority of cases. But it would still be necessary to have a graceful way to opt out of the automation to get more targeted help. For example, a hotel guest happily consuming services via a smartphone application might need to interact directly with a human for something unforeseen. In today’s environment that could include a gluten-free menu for room service or some similar situation that has just started trending.
The key to success here is in having some preprogrammed way to connect with a non-machine resource and a good example is the Amazon Kindle’s Mayday button, which users can press to access tech support. According to this article from TechTimes.com, “One person called Amazon for help on an Angry Birds level. Apparently, this person has been stuck on it for over a week, and frustration forced the individual to press the Mayday button. In addition, a group of friends pressed the Mayday button just to ask the tech advisor on which way was best to make a peanut butter sandwich.
Some Mayday tech advisors even got asked out on dates, while others had to sing happy birthday to some customers.”’
This suggests that context is largely in the mind of the customer, but no matter. These incidents tell concrete stories of customers actively engaged with their vendors and behaving in loyal ways. Critics might say that these customers haven’t bought anything and they’d be right. But what they miss is that out of a large customer base consuming this kind of interaction, many will buy more because they are engaged. And even customers that don’t buy more will have a positive association with their vendor and are more likely to act as advocates for the brand.
All of this contributes directly to the idea of the fat pipeline in which automation, proactive personalization, contextual interaction, and journey mapping Contribute to keeping more customers in play than traditional actions that focus on particular groups deemed more likely to transact. These groups can include new sales opportunities, cross and up sell targets in the installed base, and customers in danger of attrition.
The fat pipeline approach doesn’t wait until potential for attrition exists for instance. It looks for and provides solutions for any opportunity that can engage a customer in a moment of truth thus contributing to future sales and developing brand advocates. Importantly this approach is very light on offering rewards in the form of discounts leaving the vendor with happy customers and healthier margins.
Contextual interaction plays well in a community setting but you don’t need a community to make this idea work. In You Can’t Buy Customer Loyalty, But You Can Earn It, I profile Sungevity, a provider of solar panels and services to residential customers. Their contextual interaction strategy is mostly arranged throughout their automated sales process. But it is so successful that once involved with the company, it’s hard for motivated customers to opt out because their needs are so well taken care of.
However you define it, contextual interaction is a boon to automated customer-facing processes because it provides an optimal amount of service exactly where the customer needs it making the most efficient and effective use of resources for both parties.
It always happens this way. A market erupts or transitions to something new or it goes the way of the Dodo and you miss the key turning point. But looking back you can always spot the telltale signs of disruption. People like me, who try to forecast these great events, have the reliability of a dartboard. Nonetheless, I feel like doing it again.
I think, and am declaring, that CRM is in the early phases of a major transition because business is making that transition and CRM has to keep up. The change I am watching moves CRM from supporting transactions to supporting business processes. Now, reasonable people can disagree on this and many will say what about the Sales Process or the Marketing Process, and the Service Process we already have. Transaction, Transaction, Transaction, I say.
Vendor supported processes all focus on the transactions at the end of the real processes that can involve many steps and require interaction between vendor and customer. My rule of thumb is, not surprisingly that vendors think about transactions but customers think about processes. True! Nobody woke up this morning saying, “I have to buy this or that today” unless they woke up yesterday or last month thinking, “I have this problem or this need, how am I going to solve it?”
We’ve been up and down the customer experience tree for more than a decade now figuring it was going to be the answer to how we get along with customers but we still have a hard time defining it. I think that’s because too often we imagine the experience ending in a transaction for goods, services, money, or information. And why not? That’s the way CRM has always worked but there’s a crucial point we have ignored — an experience orientation implies something customer driven. As I said last time, vendors have had no problem interrupting customers with offers for a very long time. But the era ahead will be all about customers interrupting vendors with the consequence that process will be paramount.
CRM was born at an unusual time when markets were exploding and everybody needed to get their first — you can fill in the blank here — mobile phone, computer, personal electronic gadget, software system, and on and on. You and I know those times as exponential growth and they are times when vendors take orders and engage in transactions as fast as possible, hence CRM’s transactional bias. But exponential growth is rare and short in duration.
Take a look at the exponential growth curves of the last few decades and you see that many have long since keeled over from their vertical rises and look suspiciously S-shaped today. Some, for instance PC’s, look like ballistic missiles returning to earth. In this environment, vendors chase very picky customers who need to be courted in processes.
So look at the marketplace right now. Amazon really nailed the transition, probably unintentionally, when it introduced the Mayday button for Kindle Fire help. The Mayday button is the tacit admission that, for now at least, we’ve made our products as simple and intuitive as we can and that henceforth there will be a growing need for good old hands-on, in the moment, no waiting around, customer service. As the Amazon site says:
“When you tap the Mayday button from Quick Settings, you can connect to an Amazon Tech advisor who can guide you through any feature on your Kindle Fire by drawing on your screen, walking you through how to do something for yourself, or doing it for you—whatever works best.
That, my friends, is a blooming process. It is also not unique.
Not to be outdone, Salesforce.com this week announced a private beta for its SOS button/functionality for its mobile product. Now, through functionality built into the Salesforce1 Platform, developers can embed service into, wait for it, business processes mediated by tablets and smartphones.
Interestingly, these business processes will be primarily business-to-business in orientation and not Amazon’s B2C approach. Look for lines to blur quickly though. This is by far not the first example of embedding service. I wrote a story a few years ago about EA Games embedding service into their massive online games so that people could get assistance without getting out of the game experience, for instance.
But the Mayday and SOS buttons are something different. If you begin assembling all of the parts and pieces of modern CRM you quickly realize that well beyond data integration within the traditional silos, there are capabilities like content management, analytics, workflow, collaboration, and social that add up to a facility for updating CRM to support almost any business process — as a process and not a transaction — that you can name.
So from my observation point, customers are demanding more process orientation in their vendor relationships and the CRM vendors like Salesforce are providing the tools to make all this happen. It’s now up to the business community to accurately interpret the writing on the wall and move briskly into a new era.
Will it happen? Yup. Will it be brisk? Hard to say.
For many businesses this change might require a significant CRM replacement at a time when ERP systems are looking a bit dowdy and competent cloud based replacements are showing they have significant chops. But the good news is that platform-based ERP and CRM solutions offer tremendous flexibility to enable businesses to stage a rolling replacement using best of breed solutions for the front and back office all plugged together through the platform. The idea of a major rip and replace a la 1999 is not on the cards this time.
Instead, market share is up for grabs and the winners will be the businesses that can best deploy customer focused business processes that are customer-interrupt driven. The old notion of a vendor driven transaction process is sun-setting.
I like everything about Mayday and SOS buttons but their names. The monikers imply a panicked reaction to a disaster — after all, SOS was coined as an abbreviation for “Save Our Ship,” as in, “We’re going swimming with extreme prejudice. Help!” That’s not the case here and if I were a software vendor I would prefer to accentuate the positive using the word, “Concierge” to describe the button. That’s more like what this functionality is all about. A concierge is someone who steps in to provide expert assistance only when asked, leaving the customer with an elevated feeling of success and gratitude. If you are building customer centered business process support that seems like the goal, to me at least. Let’s wait a year and see if I’m right.
In a move that surprised me, at least, last week Amazon announced that it was lowering its fees for on-demand infrastructure by as much as eighty percent. Should we be rejoicing or is this a sign that something is amiss?
Back around the turn of the century something similar happened in at least two situations. The first was that telecommunications companies and cable companies buried enough fiber optic cable to satisfy demand for a long time. It became known as dark cable because there was no light going through it implying there was no demand either. That was right. It took years for the marketplace to absorb all that fiber and in the mean time some companies that bet large on fiber anticipating immediate returns, crashed and burned. Their dark fiber became a shrewd investment at bankruptcy for others with deep pockets and a long time horizon.
Around the same time there was also the ASP boomlet that fizzled like a wet firecracker. Much like todays’ infrastructure-as-a-service (IaaS) vendors, these guys tried to sell computing capacity with or without conventional applications delivered over a VPN. It was a Rube Goldberg-like device, in retrospect a lead balloon, and the idea suffered an ignominious demise.
Fast forward to more recent times. Infrastructure providers told us this time would be different. Advances in server capacity, dirt cheap storage capacity, and applications that no longer ran in the client-server paradigm but instead used HTML and REST computing would make the idea viable. Then last week happened.
So the question is which is Amazon’s announcement more like — over abundant dark fiber or a lead balloon? If the latter, can we expect that this idea of IaaS will ever fly?
I really dislike it when a discussion comes down to splitting the difference — it’s both! A floor wax and a dessert topping, as the old SNL skit has it. Tastes great and less filling! Please spare me that. To me splitting the difference is too often the product of fuzzy logic or lack of creative understanding. That’s why I reluctantly come to this conclusion based on my analysis of the announcement.
First, the eighty percent reduction was for something called dedicated instances within the same region, which is equivalent to the old ASP model. One customer, many seats, and dedicated computing power for all of them, I get it. However, and this is where it gets more interesting, the discount was only thirty-seven percent for dedicated on-demand instances, which I think means shared resources. Maybe not multi-tenant databases but a big compute-storage farm that serves customers and keeps the data separate like not letting the peas touch the potatoes on the plate. I get that too. So what’s going on?
Perhaps, and I don’t have enough data to say definitively, the demand for old style ASP is just not there. That would be a good thing because it would indicate that companies realizing that they need to go to the cloud also believe that moving the data center without doing anything else to their computing architecture is a non-starter. If so, good.
The dedicated on-demand instance discount tells me a different story. It says there isn’t even enough demand for moving legacy applications to a shared environment and that included buying net new legacy apps and just putting them in the cloud. It tells me that if a company seriously contemplates moving to the cloud, it is also re-examining its approach and opting to use more modern technology that is cloud native. This means scrapping the old premise-based ERP and CRM and taking a fresh look at companies like NetSuite and Salesforce. Both companies do seem to be adding customers and they have to come from somewhere after all.
Moreover, companies making these switches are likely being persuaded in part by the ecosystems surrounding successful cloud companies. Since they have the hood open they’re not content to just change the oil and check the fluids. They’re doing a tune-up, which requires new parts — social, analytic, and mobile — that come from the ecosystems. This should all be good news because it says that companies are investing (and lowering their costs at the same time) anticipating further economic expansion.
Of course, I can be wrong. There’s only so much you can conclude from a simple announcement, though a price cut, especially a significant one, tends to indicate a vendor is going in a new direction, in part because the old direction may not be working out. Microsoft has also been cutting prices on some Dynamics products, the Surface tablet, and the Surface operating system for instance. In that situation, though, I suspect the company is trying to find its level and not having a fire sale because those products are all the latest and greatest from the company and software inventory is a bit of an oxymoron.
Time’s up for theorizing, we’ll have to wait for the next quarterly reports to understand how these adjustments are working out.
One of my favorite Mark Twain quotes is, “History doesn’t repeat itself, but it rhymes.” I thought of it again last week when I read about the price war going on in the infrastructure as a service space. Larry Dignon made the clever observation that he paid more for electricity in January than it cost to get IT infrastructure now that Microsoft and Amazon have decided to double down on the infrastructure game.
Call it Profit as an Option or PaaO. The whole cloud computing trend reminds me of the history of the application service provider (ASP) market a dozen years ago. Back then, applications were all client-server which meant that just about every mouse click and keystroke had to be echoed back to the host. Networks didn’t want that much traffic and servers bogged down from all the packet handling. I get tired just thinking about it. Of course, the entire system went to hell in a hand basket because no body could fit enough users on a server with acceptable performance to eek out a profit.
Today’s cloud computing is different. It has degenerated from multi-tenant, shared software and common infrastructure to paying by the drink for IT services that support conventional applications. The part of history that repeats this time is that with more Web friendly applications you can make a profit from hosting users on a server farm — if you want to.
The part that rhymes is the direction each of the major vendors is taking with regard to pricing. If they cut their prices for long enough they’ll be able to go out of business like their ASP forebears. But since we’re talking about two very large companies that know how to generate cash, that won’t happen in your lifetime. I have to wonder aloud if this kind of competition is legal. Didn’t J.D. Rockefeller do this?
The other possibility though is that someone in the executive suite will decide that not making money is just not as much fun as its opposite. If that happened one or both vendors could end up pulling the plug, which might cause a few of us to cry foul. That’s the rhyme for me, the end is the same as with ASPs but the path we traveled to get there was presumably more scenic.
Why do we do this? There are so many serious customers out there trying to make a buy decision by examining cloud computing with a microscope to ensure their precious data won’t be corrupted or stolen and the supposed adults in the room are engaging in a game of chicken.
Price wars are a common facet of business when supply is relatively high compared to demand, especially if all vendors want to increase the size of the market. They could also decide to stop flooding the market with product so that the excess capacity wasn’t burning a hole in their pockets. It reminds me of a Ron White line about being arrested on a drunkenness charge, “I had the right to remain silent, but not the ability.”
Lower prices probably will bring more companies into cloud computing, especially small companies trying to figure out a smart strategy for competing in a tough market. So that’s good. But as soon as profit flies out the window, vendors start looking for ways to lower costs and cheapen the product. That typically means less service, more self-service and the loss of who knows what — things that were once standard in a service completely gone. It will become apparent that we’re headed in that direction when Amazon and Microsoft start hiring executives with airline experience.
The thing that no one seems to get in this picture is that while IT services have become a commodity, they can’t, or at least shouldn’t, be commoditized because the switching cost is significant. IT services will for a long time be less like a true commodity and much more like a regulated monopoly or duopoly of possibly several vendors. For almost a century that’s what the phone company was — so were airlines and in many places so are electric utilities today. Ever hear of a rate setting commission? The Texas Rail Road Commission?
The regulated monopoly model might not deliver the lowest prices or choice of vendor and the style of service might seem homogenized in a regulated monopoly. But these types of organization aspire to a higher good — uninterrupted service and a fair price across a wide swath of the population.
So in my mind this price war is simply indicative of a nascent market and my bet is that in the future some form of regulation that protects customers from the downside of reckless pricing schemes will come into play and the vendors will be forced to make a profit. ASPs never got that far so that’s the real rhyme in Twain’s idea.