commoditization

  • April 2, 2019
  • We’re roughly 20 years into the CRM trend and it’s worth asking where we go from here. Grandview Research recently estimated that the market would be worth $81.9 billion by 2025 (1) and Gartner and others publish annual reports indicating the market’s vibrancy.

    But you can hide a lot within a dollar amount, not for any sinister reasons but simply because we don’t know the future and product values decline over time. For instance, there is a long-term commoditization trend ongoing in CRM. Few people now recall that at its inception, CRM was just another on-premise client-server solution set running on networks of PCs or Unix devices. The price was about $2,000 per seat, plus implementation and other services—just for SFA.

    Cloud computing ushered in the era of SaaS, or vice versa, which caused significant commoditization not only in CRM but more slowly in back office systems too. Commoditization means lower costs for the customer which enlarges a market but at the same time, it also means shrinking margins for vendors who constantly need to rethink how to efficiently and effectively get their products into the hands of customers.

    CRM is far from alone in this, commoditization and price erosion are the economic way of the world. But CRM has also been very good at reinventing itself so as to offer new products and services. CRM has grown to encompass nearly all aspects of the vendor-customer relationship. However, even that trend will have its limits and the further out into the future we care to look the more these macro trends will figure in how that future rolls out.

    Therefore, it’s vital to have a framework or a filter through which we see the world if we’re going to do justice to our predictions of what will make up that $81.9 billion or however much it turns out to be. Here are mine.

    1. There will be consolidation in the number of primary CRM vendors as developers align with platforms. The platform is rapidly becoming the basis for CRM because no single vendor can supply solutions in all of the proliferating CRM niches. Platforms make it far easier for customers to select best of breed solutions that integrate with core CRM functionality from one of the majors. The major CRM vendors will likely include Salesforce, Oracle, Microsoft, and SAP plus one or two others that can build credible platforms.
    2. The overall number of CRM vendors and solutions will likely increase. Emerging and mid-range CRM vendors are already selecting their preferred CRM partner based on platform and very importantly based on ecosystem. A primary or major CRM solution will be known as much for its technology platform as for its ecosystem and the services it provides to help smaller partners to penetrate their markets.
    3. A great deal of new CRM growth will come from industry CRM aimed at vertical markets like healthcare, finance, insurance, manufacturing and the like. These solutions will come from small or emerging vendors working on a major platform. This two-tier solution will enable those with specific vertical market expertise to do what they do best while avoiding the chores that generations of software vendors once had to endure and pay for. This includes buying and operating a computer room full of gear and software like operating systems, databases, and middleware.
    4. The CRM majors will less resemble their former selves, i.e. CRM companies, and take on the aspects of platform providers responsible for franchising operations with partners. At the same time the original CRM applications will increasingly resemble demonstration projects for others to emulate. The strong possibility exists that these platforms will spawn and support whatever the next iteration of enterprise software turns out to be.
    5. We are entering an era that will turn conventional IT into a public utility. Cloud computing is a necessary first step. At the same time, the issue holding back utility formation for the moment is integration. Many schemes exist for integrating disparate systems but they often produce brittle systems that fall apart. What’s needed is an equivalent of SQL for integrating systems. The solution is not a programming language like SQL but API based tools and integration facilities. API integration is another driver for reducing the number of primary CRM providers and accentuating the importance of platforms because platforms will take on the majority of integration work. With good integration facilities developers need not be as concerned about picking one platform and being frozen out of deals.

    With that premise we can now ask what the CRM market will look like at the mid-point of the next decade. Here are some ideas.

    1. The AI and machine learning trends will top out. They won’t go away but they will reach points where their particular landscapes are blanketed. This means that chatbots, recommendation engines, next best offer facilities will begin approaching their asymptotes. In other words, progress will slow as niches get covered and the easy problems get solved. Being a competitive business at mid-decade will mean having all of these capabilities down pat as well as things we’re not discussing like communities and customer journey mapping.
    2. There will be two kinds of CRM user plus several types of technicians. Customers will be the primary users as AI and ML get good enough to do rote customer interactions. Scheduling appointments, arranging returns, triaging service and analyzing market trends and opportunities will all function through bots at least for the first level of response. The second type of user will be employed by the vendor. This user will come in several flavors from administrator to techie and thus will overlap with the types of technicians. CRM systems will support vendor employees’ efforts to perform one of a kind jobs and to help customer facing employees to help customers. Finally, we’re already seeing technicians in various jobs doing things that require no coding, some, or traditional code development. That will continue and likely accelerate.
    3. As noted above vertical market or industry-oriented CRM will continue to advance. There is a great deal of white space in CRM to be claimed and this will be where humans will add the greatest value as we continue to bring CRM to businesses that were once completely manual.
    4. There is a healthcare revolution beginning in which CRM will play an outsized role. Conventional healthcare solutions that deal with patients and their treatment (not insurance systems) are huge repositories that were designed to capture and deliver data to highly trained physicians for interpretation. But as healthcare responsibilities devolve and, in an effort to curb costs, people who are still highly trained but less so than doctors, will need and get assistance from systems that look a lot like CRM. Systems of engagement built on CRM platforms and layered over traditional systems of record will greatly aid in this transition and improve service.

    For example, call center technology will be used by providers including HMOs and other styles of plans as well as pharmacies and tertiary providers to proactively check in with patients to, for example, ensure that people take their meds on time. This will all be in the service of a new healthcare paradigm aimed at wellness rather than recovery.

    1. Blockchain deserves a special call out. Its great strength is its ability to track and trace events such as the provenance and lifecycle of drugs such as opioids. Creating a blockchain for prescriptions will aid in wellness and prevention and help cut down on misuse of drugs. Blockchain and platform technology will accelerate the integration of front and back office systems to support business activities that start with raw materials and end with profits.

    Conclusions

    The next half decade is full of promise and opportunity but they will be different kinds than what greeted us at CRM’s inception. Tomorrow’s CRM will be highly specific, niche oriented and technically demanding. The key challenge today is to get current CRM into the hands of young people so that they can learn and become CRM natives. Large analyst firms are already predicting that, in addition to CRM’s forecasted revenues, the industry will influence at least a trillion dollars’ worth of business activity in that time frame. It goes without saying that you can’t use it if you don’t know it so education should be the first order of business throughout CRM.

    Published: 1 year ago


    Disruptive innovations change our lives for the better. They expose long-standing needs and signal that there’s a solution at hand. Moreover, the solution involved is usually less expensive than the status quo. The lower cost aspect makes adoption inevitable and therefore disruptive.

    Document management is like that. Decades ago for many enterprises the cost of capturing documents as electronic images vastly improved on the costs of managing file cabinets. Labor and printing costs still make up a significant cost for some organizations but generally, as document management becomes ubiquitous, a business saves a lot of money.

    But disruptions don’t remain disruptive, they commoditize and become mainstream and on the way they become less costly and even more ubiquitous than their inventors had expected. Really successful disruptions follow this path to ubiquity without skipping a beat but other times vendors try too hard to extract value from their old disruptions. This still works when customers are deeply invested or it’s hard to convert to the competition. The term “walled garden” was coined to describe such situations.

    In a walled garden you might expect a vendor to tightly monitor license use and to oppose commodity licensing options like site or corporate licenses. Some vendors have gone so far as to audit use within a client enterprise and to charge back for uses assumed but not necessarily verified.

    These policies might work when a disruption is fresh and a vendor wants to penetrate an organization. But later both the customer and the vendor have an interest in making the solution ubiquitous because all or nearly all people in an organization can benefit from the solution. Those who can’t benefit won’t use the solution and for them a full license doesn’t make a lot of sense.

    Walled gardens can fail, especially when conversion isn’t as hard as the disruptive vendor might think. Further, as time goes on the principal attribute that a vendor displays has much less to do with wiz-bang technology because the competition has caught up. The reason dominant vendors remain so is because they’ve managed to engage with customers and engagement drives loyalty.

    In my experience, which includes writing books on the subject, keeping customers for the long term begins with engaging them on all levels with your whole product, a term from a few decades ago that’s still valuable. Whole product includes the core product but also all of the policies, procedures, service interactions and more that tell customers you care about their success.

    In “Stop Trying to Delight Your Customers” a 2010 article from the Harvard Business Review the authors say, “…loyalty has a lot more to do with how well companies deliver on their basic, even plain-vanilla promises than on how dazzling the service experience might be.”

    The essence of that delivery is simplicity, which includes the user experience as well as the experience with the vendor’s policies and procedures. But in multiple situations we see the opposite of simplicity today, which some customers view as hostility. The best example of this is the software audit.

    Whether it’s database companies or document management companies, auditing customer use of a product, along with hefty chargebacks is becoming a bone of contention between customers and vendors. No doubt vendors think audits are necessary but as a customer engagement strategy it lacks a lot.

    My two cents

    At some point in the commoditization process the driving force of the vendor-customer relationship transitions from the awesomeness of a product to how easy a vendor is to work with and that’s the whole product wrapped up with a bow. The user experience, the buyer’s experience, technical features and pricing all have a role to play in the whole product description. Vendors who forget this may find that after many years customer attrition becomes a problem and at that point it might be too late.

     

     

    Published: 3 years ago