Back in 2008 we started publishing extensively on the notion of Peak Oil and its pending and growing effect on business and life in general. Peak Oil is the theory (and theory trumps hypothesis or just plain opinion) that there is only so much oil in the ground and that you can only extract it so fast. When you reach a peak rate of extraction you need to figure out how to curtail consumption or pay increasingly high prices for anything related to the cost of petroleum.
Many people quit analyzing that last statement when they think about the gas pump but oil permeates every aspect of modern living from the rubber in the elastic waistline of your tighty whities to the fertilizer that grows your food. We reached Peak Oil in about 2006. Though we continue to find new oil reserves, however, older reserves continue to diminish so that the overall trend is stable and heading lower.
This article from the New York Times earlier this week might be reason for optimism but a knowledgeable assessment might only show reason for caution.
It’s widely believed by petroleum geologists and engineers that the planet still contains about 900 billion barrels of untapped oil (down from 2.5 Trillion bbl. in 1859) and some of it is either unreachable using currently technology or so expensive to get at that it will raise pump prices when it comes to market. The article cited above is a good example of oil that is now within reach thanks to modern drilling techniques.
Then, too, there is the issue of quantity. The Monterey Shale referenced above, whose untapped deposits are estimated at 15.4 billion barrels, is a case in point. Although the deposit seems like a lot, in a world that has an appetite for about 80 million barrels of crude oil per day, this whole deposit would last less than a year if you could get it out fast enough, and you can’t.
Most of the remaining oil on the planet is found in such small deposits, which adds significantly to costs because each deposit has to be found, drilled and brought to market and none of those activities are free.
This post has a VoIP headline and it is, indeed, about that though I needed to give you some context for why I think VoIP is important and why it’s just the hint of a big opportunity. Higher transportation costs driven by high oil prices are already causing people to change their travel patterns and it is reasonable to think such change will continue. Into that reality, VoIP with its ultra low costs and the add-on technologies that are also available makes a good deal of sense.
That’s why we strongly believe that technologies that make on-line video mediated meetings easy to do — without the intervention of a host — will gain in importance and could possibly become another part of the extended CRM suite. Today it’s voice over IP but that’s table stakes compared with what’s possible and what will be in demand in the near future such as whole conferences. Our advice is to keep an eye on all kinds of VoIP providers and their infrastructure brethren. If you can’t go to the business, the business might be able to go to you.
Sustainability and CRM
There was an interesting article in the New York Times last week, “When Flying 720 Miles Takes 12 Hours” about airlines but the subtext was all about CRM, or at least where CRM has to go. If you know me at all, you know I closely attend to macroeconomics and energy issues and they are all over this article.
The story documented how small regional airlines are having trouble in an economy where fuel prices are rising and there are fewer passengers willing to pay higher prices. The typical response you’d expect in such a situation is some combination of reducing the supply of seats and raising prices to enable the carriers to at least break even.
The article shows both but this is not a simple exercise from ECON 101. Higher prices and fewer flights signal stress on the economy because less business is getting done and that’s a downer economically speaking.
A few years ago a Forbes editor, Chris Steiner wrote, “Twenty Dollars a Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better” that postulated what might happen to the economy as fuel prices rise. We’re right on time with his predictions, but I think there will be much change and dislocation before we see the promised land.
With fuel heading for five bucks a gallon, we are seeing mergers and acquisitions of sick air carriers along with fewer feeder routes according to the Times article and Steiner. As prices continue to escalate we’ll see fewer short hops and fewer long distance routes as airlines try to hang on.
But also, Steiner thinks places that exist on the end of an umbilical cord filled with jet fuel — Las Vegas, vacation destinations (think ski areas and islands in the sun) — will see a decline in the traffic that brings tourists and their cash. The immediate fallback position is cars, but gassing up a car that gets 12 or even 20 miles per gallon has already gotten old.
The secondary default position will be to get serious about alternatives and since trains and new cars or especially more hybrids are an expensive proposition the next steep won’t be travel alternatives but conservation in the form of travel reduction.
Just a few weeks ago people were talking about the resurgence in U.S. oil production. We went from producing 4.95 million barrels of crude per day to pumping 5.75 mbpd and French champagne started flowing. But the sad reality is that we need 19.2 mbpd every day and while 5.75 mbpd is nice, even getting up to the 9 or 10 mbpd optimists predict would be nice but still leave us quite a bit short. And those are today’s numbers, they make no accommodation for growth.
Even worse, in 2007 just before the financial meltdown, U.S. crude demand was 20,680,000 mbpd meaning that the recession has done as much to reduce demand as drill baby drill has done for supply. I dare say reduced demand will be easier to come by than increasing domestic supply.
When we think we have spare capacity we lose track of the longer-term need for alternatives and we stick with what we know. That’s one reason we don’t have a more aggressive energy and transportation policy. But when we’re feeling sanguine about energy we’re also riding an economic roller coaster up and then down because higher prices inevitably choke off growth. So we find ourselves in a position where the economy gets a little better then a bit worse with the peaks never reaching the previous troughs and the moving average is ever downward.
Alternatives do not simply mean smaller cars or windmills. If you can find a way to do business with fewer energy inputs, you could call it conservation but in reality you are developing an alternative path to profits and that’s where CRM can add so much.
First off, the huge move towards social technologies is one example of using alternatives. Social (along with analytics) enables us to communicate with and understand customers without jumping on a plane or into a car all the time for a face-to-face meeting. But there’s more. We are rapidly approaching a time when the videoconference has to replace at least some face-to-face meetings. Video conferencing can be easily built into CRM applications and as a stand-alone it is a great way to communicate with people.
Some companies are using video conferencing to knit together enterprises strung together across time zones and supply chains. Others are embedding video chat into customer service — another good practice because it produces a more intimate interaction and improves the customer experience.
Companies are looking over unified communications solutions right now but few seem to have the interest in pulling the trigger. That’s to be expected. Big companies like ATT, ShorTel, Siemens, Cisco and Microsoft are offering solutions though I don’t know any CRM vendor with an eye on the subject just yet. It’s too bad because I think unified communication is where social was about 5 years ago — on the periphery but moving inexorably into the CRM suite.
Given unified communications’ upside and relatively modest down side it’s a wonder to me why more companies — vendor and customer alike — are not swarming this solution class already. Business is a game of thrust and counter thrust and everyone must be ready for change or risk being road kill. This is our next challenge and CRM is right in the middle.
If you are a regular reader, you know that from time to time I write about things that appear to be tangentially related to CRM — at best. My favorite alternative to straight ahead research and reporting on CRM is a strange sounding thing called Peak Oil.
For those of you not familiar with the idea, Peak Oil refers to a not so hypothetical ceiling on how much oil we can coax out of the ground daily. Indirectly it also refers to the fact that we have not found nearly enough oil to replenish supplies we are consuming and we never will. There’s only so much of it. While there is undoubtedly oil left in the ground to be exploited there isn’t enough in part because global demand and consumption keeps rising. That leaves a gap that now goes unfilled daily.
Actually, economics like nature, hates a vacuum and the gap is filled every day by several methods. First and most obvious is higher prices at the pump, at the supermarket, at the travel agent and just about everywhere else. As we were all taught higher prices depress demand and higher prices reach deep into everything. I read a while ago that it takes about seven gallons of petroleum to make a car tire. Have you bought tires lately? Rubber, plastics and anything made of a carbon polymer is affected by crude prices.
The second way the vacuum is filled is through clever substitution. The word “alternative” conjures up jury-rigged contraptions in old movies so I don’t like to use it but alternatives or substitutions can take almost any shape from walking or taking public transportation to eating local to avoid the cost of transportation built into meat and produce.
Economists like the idea of substitutions and they can spot their use in everyday life. For instance, if beef costs too much demand for chicken and fish might rise as people shift their demand patterns.
Switching from meat to chicken is relatively easy assuming you have a flexible palate. You store it in the refrigerator the same way as beef and use the same cooking and eating utensils, so it’s no big deal. You can say that your infrastructure costs for cooking are a wash, which makes the switching easy.
It’s not the same in business. When it becomes expensive to travel for instance, we tend to pay higher travel prices because switching to something else requires a more serious investment in infrastructure. But this switching cost drives so much opportunity for front office software makers, especially the cloud companies.
Customer facing applications are the chicken and fish of business for the foreseeable future. I’ve read reports and books on the subject that indicate the cost of a new energy efficient and alternatives based infrastructure would cost in the neighborhood of $20 trillion. I expect we will spend that money because we don’t have many choices but it will take years. It will be the work of a lifetime for people entering the workforce today just as technology has been mine.
If you go to this link you’ll see credible information that Peak Oil happened in 2006, it’s already in our rearview mirrors and it’s why we’re paying high gas prices. More significantly, the cost of energy is now the most significant determinant of economic wellbeing. Note that while fuel prices are declining now, so is economic activity. Energy prices hit a zenith in May, which put the brakes on. There’s significant latency in the economy but wait till the end of the year and observe. You won’t like what you find. There will be lower gas prices but also lower hiring rates and the signs of an emerging downturn.
Meanwhile, back to the alternatives idea. Some of the most credible alternatives I’ve seen for getting carbon and energy (and their costs) out of front office business processes exist in our industry. Whether it’s social media and analytics driven customer contact or Web conferences, VoIP or video used as a strategic marketing tool, all the solutions I know of hang off a CRM platform.
I take briefings every day from vendors who are new to the market and from seasoned veterans. They all have a basic blind spot when it comes to talking about their solutions. They’re great at telling me what they have and how it works but when it comes to the practical application of their wares, most are tongue-tied. I tell them that they need to include phrases that start with “So that you can…” as in so that you can save money while delivering on a customer need.
In the front office we’ve moved beyond the early adopter phase for most categories, an exception might be social CRM. Later adopters are a more conservative lot and tend to ask more often for the return on investment (ROI). Over the last forty years we’ve automated nearly every aspect of business and usually justified the cost of automation technology through headcount reduction. In the near future, I expect we’ll be justifying new purchases through cost avoidance related to energy.
What’s interesting to me is that almost all of the technologies introduced in the front office in the last decade will play a role but those roles were hardly envisioned by their creators.
Just posted a new white paper — The Interboom. As the name implies, it’s about a period of time between two economic boom periods. It’s based on my keynote at CRM Evolution in August, and it’s much more than a discussion of the recession. The Interboom is about what happens when three key economic drivers slow down, the reactions within the business world and what the front office software industry might be able to do to help us cope. You can download it here and I’d welcome your feedback.