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.
The CRM world has been atwitter, to borrow a phrase, ever since Gartner released its CRM market size report on April18. Since I am not rich, I do not own a copy of the document but the table of contents provides some very interesting fodder. The top five, in order, are Salesforce, SAP, Oracle, Microsoft and IBM.
My world is buzzing with reporters’ calls seeking comment and colleagues at the Enterprise Irregulars offering up opinions. Here are a few things to think about that I have ruminated on.
- For some companies figuring out CRM revenue is easy. Just ask Salesforce about their revenue or read their SEC documents and Voila! But it’s not so easy to tease apart CRM from other revenue if a multi-product vendor like SAP or Oracle decides that apples is apples and doesn’t split out the different revenue streams — effectively asking the analysts, “How do you like them apples?”
- I can understand a financial analyst firm doing this kind of work but less so a technology or industry analyst firm. Sure, these reports make for fun reading but they are backward looking. Financial guys look backward all the time. Heck, I know some that haven’t seen the recession yet. But my peers ought to be looking forward. Imagine if ten years ago we were all saying SaaS and Cloud are the future instead of: On-prem forever! But I digress.
- When you don’t have hard numbers to deal with, and I strongly suspect that some of these vendors undoubtedly did not give the analysts dollars and cents results, you start having to triangulate. The vendor might say that their revenues were in the x to y range and a competitor or two might say they’re in the low end of the range or whatever. The result is that the analysts have to read tealeaves and do some math that is based on assumptions. When that happens, all bets ought to be off. Averaging everyone’s estimates just gives an error prone result if you can call it that.
- Ditto for the size of the whole market. About ten years ago I saw some work that looked like it took a long time to compile that said the CRM market had an absolute size of about $46 billion. We left that number in the dust a while ago and we still forecast $20+ billion in products and services per year and growing. Go figure, if you can.
- Then there is the matter of how you measure. Fiscal years differ, measurements differ — Seats? Dollars? Currency Conversions? Canasta? — the analysts have to rationalize it all so that we’re all talking apples. That’s hard to do.
A few years ago SAP was battling Siebel for the #1 ranking and according to financial analyst reports at the time, they were booking any revenue that was not nailed down as CRM. I still have the reports. I think SAP won the derby that year but the next year the analysts started counting the shelfware in major IT departments and guess what they found? Only about half of SAP CRM had been installed or was likely to be while Siebel, Oracle and some others consistently had about 25% shelfware.
Market dominance became important when Geoffrey Moore published Crossing the Chasm because his data showed that most markets consolidate into a three horse race with numero uno taking most of the business, due hanging on to keep uno honest and tre looking for a buyer. But each of the CRM vendors in the top five is a complex, multi-product company. Each sells CRM for its own reasons and one of them is surely to offer a complete product line that keeps competitors at arms length. The number one spot is still coveted for bragging rights but trust me, if the ranking disappeared tomorrow, very few CIOs would have trouble rounding up the usual suspects for an RFP.
So to net it out, take this all with a pound of salt. It’s a beauty contest at best and in my humble opinion not a representation of the best work that analysts — either of financial or industry variety — can do.
It hit me last week while attending Oracle’s Analyst World briefing. We convened in a conference center on the Oracle campus in Redwood Shores to learn about Oracle’s latest developments in hardware and software and to be briefed on the company’s future roadmap. How extensive was it? Let’s just say that my brain hurt when it was over and I had to sign a five-year NDA agreement to get into the building.
So what hit me? What ethical dilemma are Oracle and other enterprise companies facing? The very idea of ethics and the software industry may make for strange bedfellows for some people and I do not believe that we’ve ever seen an ethical dilemma like this before, though others might have existed as well.
Clay Christensen wrote elegantly about the Innovator’s Dilemma — that point in time when an innovator must decide to supersede a product or a whole line with something with greater performance characteristics and a lower cost profile, or risk having a competitor do it thus disrupting its established business. As Christensen showed, many, if not most, companies are pretty terrible at doing this. So the mini-computer makers completely missed the microcomputer wave, Kodak missed digital photography and the list goes on.
But this dilemma also breeds an ethical problem of the same order. Suppose an innovator is successful at transitioning from the old product line to the new and suppose further that the vendor continues to offer both the old and new product lines. Which one does the vendor lead with or push through the sales force? Typically, the sales force is comfortable with the old line and, having made a good living from selling it, the team is not very interested in selling the new stuff, which is why compensation plans get adjusted to incent the right behavior.
This is not far fetched and is, in fact, what happens all the time. More often than not there are also financial incentives for the customer that make the new solution so appealing that the decision about which product to buy never rises to the level of a dilemma, ethical or otherwise. But this time is different. Typically, the new solution offers better price performance characteristics and that’s enough to get the new product adopted by the market.
But now, here’s the rub. The new generation of hardware and software that Oracle and others are introducing might run well in a private data center, but their full benefits come through in cloud configurations. In fact some customers will find the cost considerations work out best when they use the new devices in cloud configurations. In the cloud, as we all know, it’s not necessary to own the stack. Cloud vendors typically own the stack and sell it incrementally to customers on a periodic basis. I think this is one of Oracle’s long-term plays.
Oracle, SAP, Microsoft and others — except Salesforce, which set up camp in the cloud a long time ago — are now in a straddle position offering new technologies to old markets or hybrid configurations for companies that might be changing over slowly.
The question is what do you lead with? Is there a duty for a vendor selling to a traditional on premise data center to point out the obvious? This is what I consider the ethical dilemma.
I think there’s an obligation to inform customers that the choice between on premise and cloud computing is no longer at best a toss up. There are significant benefits and consequences to be considered. The market’s direction is clear. Data centers are consolidating into the cloud and delivering major benefits including lower costs and greater reliability and better security. If, after informed consent is obtained, thee customer still wants to invest in the data center, that’s fine. I also recognize that these decisions are not as simple as my example. That’s why it’s a dilemma.
At some point in the not too distant future though, it will be impossible to justify on premise computing for routine business application work. Therefore, when customers are considering new purchases, sales people today have the responsibility to inform them — and to capture informed consent — that the direction of the market along with cost benefit considerations now favor cloud computing. A purchase of a solution that uses cloud oriented “hybrid” architectures might be a palliative approach to dealing with the conflict between premise based and cloud solutions, but the subject has to be broached.
“Oh, you want to refit your in-house data center with a new generation of technology? Ok, are you aware of the significant advantages of cloud computing? Are you aware of the market’s movement in that direction?” These and other questions now need to precede the standard, “Sign here. Press hard. The third copy is yours.”
We have this idea of modern computing that is closely tied to social media and rightly so. Social media is a kind of glue that ties us together in new and bigger configurations than our own human capabilities can. But it is also the unspoken issue in the Yahoo brouhaha over working from home; the idea whose name shall not be spoken. How else to explain the ultra retro edict — anachronism, really — that all Yahoos must report to the brick and mortar in person rather than “telecommute” another anachronism implying the possibility of only a simply bi-directional interface between the individual and the mother ship? Bi-directional? How quaint.
Why is the whole discussion about, and pardon me here, another anachronism that jumps right out of an episode of “Mad Men”, the “water cooler” conversations that pit people face to face sharing information? The pundits and press revel in the Yahoo situation and the “need” to have people report to the job to share their precious ideas. Have they never understood social media? We must presume that the denizens of one of the great pioneering companies of Silicon Valley have a passing notion of what social is all about, which makes this situation all the more perplexing.
But have they not heard of the Dunbar Number? The maximal number of people that each of us has brain power and time to interact with on something like a serious basis? That number is somewhere between 150 and 220 relationships and it is the basis, derived through trial and error, of human associations from army companies to medieval monasteries. After that? Forgetaboutit.
Actually, after that, is what social media was made for.
It is eye opening and somewhat disheartening that the press and punditry have saluted Yahoo CEO, Marissa Mayer’s, old school idea and edict and one cannot help but wonder how far it sets back the social enterprise. On one hand it says, yes we are a leading edge Internet company, but no, no, no, even we won’t eat that dog food.
James Surowiecki of New Yorker fame and author of “The Wisdom of Crowds” makes the point in this week’s edition, that the Yahoo campus is a ghost town on Fridays and that the company has a need to bring its fraying threads back together. Fair enough. That there is need for greater collaboration at Yahoo is no surprise. Quick, name the most recent Yahoo innovation! Time’s up. I can’t either. But saying that all or even most errors will be corrected, no check that, saying that anything will be made better, from the olly, olly oxen free of touching home base is to confuse cause for effect. It is also to turn one’s back on the progress that’s been made in social collaboration software in the last decade.
The best we can hope for from this Dracon-ization (not to be confused with polyester-ization) is that there was a transparently obvious method to the madness lurking all along. That after a period of pain and shakeout — and downsizing — some workers might again be allowed to work free of the campus tethered by nothing more than a wireless Internet umbilicus through which they can collaborate and share ideas via modern collaboration technology. Or not. It is doubtful in the short run that the collaboration gains accrued from face time will outnumber the resentment, RVs and resumes building up in the San Jose corridor.
And what about the future? There will surely come a day when daily commuting, already burdensome because you simply can’t afford to build roads wide enough to accommodate rush hour, will become prohibitively expensive from fuel prices. Then the social commuting productivity techniques and business models that could have been learned from an intensive effort at righting the S.S Yahoo will be revealed by their absence as another missed Yahoo opportunity.
In lieu of that it would make great theater for a company like Salesforce.com or Microsoft’s Yammer or any of a dozen other collaboration vendors to take Yahoo under its wing and do a makeover a la “Restaurant Impossible”. Yahoo is, at this point, “deliciously low” as Professor Higgins might say. A corporate Eliza Doolittle waiting to be discovered and taught only the rudiments of modern corporate communication before re-emerging from its doldrums changed for the better and ready to engage the world.
A great opportunity is being wasted here and opportunity, more than anything else, is a terrible thing to waste.