Two Questions and Some Answers
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.
End of the Beginning
In “IT’s Ethical Dilemma” I wrote about the challenge of having a new product and selling the old one. If the new product offers benefits of better, faster, and cheaper — and what new product doesn’t? — then how is it ethical to sell the older, less performant, and probably more expensive one?
Well, the answer is easy in a free market. First you cut the price, which is natural given the creative destruction that’s taking place thanks to your new widget. Then there’s the customer’s preference for the older, more trusted product. The older product is safe, it’s had the bugs knocked out of it and the customer perceives it as less risky. So selling the older product is actually pretty easy, in fact the customer buys it more than the vendor actually sells it. Sales people like that.
But there’s huge peril in that approach. I was reading “The Rise and Fall of Infrastructures — Dynamics of Evolution and Technological Change in Transport” by Arnulf Griibler on the plane the other day making my way to San Jose and SuiteWorld, and it made me think about our market.
Now, Griibler is not a household name and the book dates back to 1990 so there’s that to consider. But he writes about something that just melts me — the interface between innovation, entrepreneurship, and massive societal change. Call me what you want, it’s fun. Anyhow, Griibler’s book is about change in the transportation industry over centuries starting with canals and progressing to railroads, roads and things driven by internal combustion engines, and air transport.
He’s not always right. From today’s vantage point he got air transport only partly right as the next thing in transportation. He didn’t foresee the spike in energy prices and the funk that air travel has gotten itself into. He also didn’t see that the Internet would become the disruptor of air travel. You would have needed a pretty good crystal ball in 1990 to foresee that the ‘Net would spawn social media and that people would conduct meetings on it reducing the demand for air travel. But that’s the procrastination business, warts and all.
One of the very, very interesting findings that Griibler discusses is what happens to the standard S-curve near the end of a typical market trend. We are used to thinking of the S-curve of most trends as symmetrical around the inflection point (see picture). But in his research Griibler found that wasn’t the case. The waning side of the curve, the top half, is only about half as long (in duration) as the top. The later adopters accelerate adoption and cause the completion of the wave very quickly. He uses the term “seasons of saturations” to describe what Joseph Schumpeter observed decades earlier. According to Griibler: “Schumpeterian ‘gales of creative destruction’ (i.e., organizational readjustment processes like bankruptcies or intensive mergers), a lack of productive investments as a result of the saturation of traditional markets and uncertainty about the characteristics and investment opportunities of the new emerging paradigm prevail (Page 274).” Feels like today in many respects.
So, what does this have to say about the software industry and selling the old product or IT’s ethical dilemma? Simply put it says that we always have less time to convert from the old paradigm to the new one once we get to the second half of the curve. Part of the reason that things accelerate is that at mid-point we are in a transition state and markets hate indecision so they move quickly once the new pattern seems inevitable.
I wrote “IT’s Ethical Dilemma” because I could see this coming intuitively but Griibler gives us the empirical understanding. To net it out I think you can expect cloud computing to accelerate from here, even in markets that might not be prone to adopting it, like ERP.
Consider this press release headline that crossed my desk this morning from NetSuite as it gears up for SuiteWorld. “GARTNER NAMES NETSUITE THE FASTEST GROWING FINANCIAL MANAGEMENT SOFTWARE VENDOR GLOBALLY, Market Shift to Cloud ERP Fuels NetSuite’s Rapid Growth in the UK, APAC and the Rest of the World.”
So think about this: Cloud computing got started as SaaS and Salesforce and NetSuite are among the leaders of the rebellion still standing. For a decade no body took them very seriously. The other vendors did very little to move their applications to SaaS beyond employing browser front ends. Finally, they got some of the religion and today most are offering a hybrid solution that will run in the cloud or in the data center. There is also a thriving new industry emerging for infrastructure services that will run standard single tenant applications elsewhere to provide the illusion of a cloud.
If Griibler is right then the ten or so years that were the first part of the S-curve for cloud computing will be followed by a period that’s about 5 years long in which the late adopters consolidate their seasons of saturations. I figure the five year clock has been ticking for two years that have been recession tinged and so the five year play-out might be a bit longer.
My conclusion though is that one of the riskiest things you can do right now is to ignore cloud computing and by extension the social, mobile, and analytics waves that come with it. Once you’ve fully amortized those servers, things are going to change rapidly.
Rank
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’s Ethical Dilemma
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.”
Data, Data — Yadda, Yadda
I take a lot of briefings — more than one per day every one of the 250 or so work days in a year and it’s not unusual for me to not remember a company when they call up six months later asking for a quote for a press release. Would you? To be memorable the briefing has to have something that sticks in my brain and, hopefully, that something is a good thing or why bother.
There is a science to briefing analysts and it involves repetition. The more you are in our faces the stickier your messaging is. Three or four times per year — if you have something to say — is a good metric. Salesforce understands this and has always been one of the better companies at leveraging its relationships with analysts. It works for them too because they get a lot of free publicity. Lots of companies start the year off strong but fail to follow up in three or four months and many conclude erroneously that briefing analysts is a waste of time.
Many of the briefings and phone conversations that I have had lately have involved big data and social media though not necessarily together. In one of these briefings I had a revelation that I want to share. Too often vendors use slides and demonstrations to show me how they manipulate data as if data manipulation was an end in itself, but it’s not.
They might show how much data they can corral or how much data they can deliver to a user but the demos usually show more and more people manipulating data without results. The demos remind me of feeding a one year old. Just because you put food in front of them doesn’t necessarily mean the food will get inside where it can do some good.
But data is only useful when it is consumed as information and the surest indicator of consumption success is if in retrospect a user can say, “This is the data that provided the information I needed.” Very often that need is for decision making and if you think about it that little scenario has been the hallmark of the whole information age in which we live. Turn data into information and use it to make better, faster and more numerous decisions.
This all has a practical point. In market research that Esteban Kolsky and I did late last year (and we’re going to repeat it this year too) we asked about hindrances to adoption of social media in business. Know what? Top of mind for most people were issues relating to use — How do we use this stuff? What business processes should we be applying this to? And very interestingly, the vendors at the time and even today don’t answer the question. When they demo they provide scenarios that show data being shared but not necessarily being consumed by doing something valuable.
Again, value is created when someone makes a decision based on the data that social and other technologies churn up. This scenario tells me that full adoption of social and big data ideas won’t take place as long as CEOs see demos of employees manipulating social data but not landing the plane by making good decisions because these scenarios are indistinguishable from watching employees “play” with social media. They show people doing something that isn’t exactly work and not arriving at the decisions that would normally make it all worthwhile. That doesn’t inspire a lot of CEO confidence.
So the big take away? Ironically, most social and data tools I see demoed — and I see a lot — have the capacity to demonstrate decision making but they don’t. It’s a bug not in the product but in the marketing and it can be easily fixed. Without that fix, though, I’m afraid that all the data! data! screaming we’re doing is just so much yadda, yadda.
