Salesforce.com announced it was buying Buddy Media for nearly $700 million on Monday. In any discussion that’s a lot of money, maybe more than Salesforce has yet spent on any acquisition. What’s going on? As you might expect, I see economics playing an important role here and I think there are two issues to consider and they may even boil down to one — the cost of acquiring a customer.
In an economy that’s treading water and where the primary customer demand is low price, you can’t afford to spend a lot to acquire a customer because there’s no room in the margin for the cost of acquisition. You can say the same for servicing a customer and most vendors figured that out a few years ago, which accounts for much of the multi-channel excitement we’ve been treated to. Yep, rule one is leave room for profit and that means using technology to streamline everything else.
The world we inhabit is increasingly energy constrained. We’re not there yet but at some point north of $4 for regular the cost of visiting a customer will become prohibitive and the cost of visiting a store will be something you put off. So what happens? A company has to do everything it can to reduce and make constant its cost of customer acquisition and much of the heavy lifting will fall on technology’s broad shoulders.
That’s where this acquisition becomes important and it’s why, one way or another, the big front office software vendors are moving aggressively into marketing as in this case or into ecommerce as is the case with Oracle, NetSuite and others.
Let’s back up a moment to do some review. At the start of the CRM era, selling and SFA were what we meant when we talked about CRM. Eventually service and support became part of the mix and marketing followed but it played a decidedly minor role. Sales and service applications could be complex but in one aspect they were well behaved. They conformed to the standard of row and column database applications.
Marketing? Not so much. Marketing had programs and programs had attributes, which had results and consequences, some of which were calculations and scores. Marketing was different enough that the big vendors were ok with leaving it alone, for a time. Now time’s up.
Also, don’t forget that CRM evolved as one of many new market niches in a world where niches were seemingly being invented every week. The great thing about niches is that they fill up and then the fortunate innovators move on to the next play. But moving on means something very different today. Rather than moving on to the next big system, many entrepreneurs have discovered that the available niches involve writing two-dollar products for handheld devices.
At two bucks you need to sell, sell, sell before anything gets interesting. We’re talking retail here. That’s the nature of today’s vendor customer relationship. It’s retail, consumer packaged goods, where you need to know a heck of a lot about your customer if you expect to engage them and sell something because you won’t be there to encourage them when they make the purchase. And because we’re talking about a sale that ranges from two bucks to maybe a couple hundred, the engagement model can’t be more than saying hi and thanks for the order, if that.
So in this world the CRM suite needs a makeover. You need to get to know your customer through social channels and from aggregate attributes divined from analytics. For the return trip customer representation is the UPS or FedEx person’s face. In between, you need something cheap, fast and flexible to get your offers through social media like Facebook. That’s what Buddy Media is about and much the same can be said of Virtue, which was bought by Oracle.
But wait, there’s more. Business Insider had an interesting observation the other day in a piece titled, “Here’s the Weird Thing About the Buddy Media and Virtue Deals” . According to the article what’s weird is “who didn’t do the buying: The big Madison Avenue ad agency holding companies like WPP, Omnicom, Interpublic Group and Publicis.”
The article might have a point but I think it was a good decision to stay out. The time for media and advertising companies to take a bigger position in technology was about ten years ago or possibly more. Now there’s too much mileage to make up for outsiders.
In a related field, I think newspapers, who could have sold through the Apple Store and billed with Zuora faced a similar situation and made the opposite decision. I don’t have any fresh data on how the papers are doing but it can’t be a lot of fun developing and managing a subscription billing system while managing the conversion from presses and ink to electrons.
Now, I look for the big media and advertising companies to be some of Oracle and Salesforce’s biggest customers in a multi-tier offering in the cloud and without all the drama of building and maintaining software. I think they got this one right.
So, meanwhile most of us can’t agree on Peak Oil, Global Warming or climate change but it’s nice to know that when there’s potential for profit, business won’t let politics get in the way. Technology leaders have read the tea leaves and are well on their way to provisioning the software we’ll need when we’re driving less.