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.”
Old pal, Chris Kanaracus (who covers enterprise software and general technology breaking news for The IDG News Service) has a story in InfoWorld yesterday which is very interesting in that it describes the current dynamics of the enterprise software business.
Just to convolute things, the article is about a recent report from Forrester Research, which describes the lackluster adoption of Oracle Fusion Applications. I get the impression that Forrester is telling a cautionary tale and getting ready to, um, “put out the fire and call in the dogs” where Fusion is concerned. But, really, what were they or anyone else expecting? Take a look at the opening paragraphs:
“Oracle spent years developing its next-generation Fusion Applications and finally put them into general availability nearly a year-and-a-half ago, but some new evidence suggests that it’s been less than successful at enticing customers to move up.
Two-thirds of 139 Oracle applications customers surveyed by Forrester Research said they had no plans to implement Fusion Applications, while another 24 percent said they didn’t know whether they would, according to a new report out this week.
The article goes to great lengths to document how customers are more or less standing pat on their existing systems and waiting for someone else to make the next move.
Well, what did we expect?
The thesis of the report (which I have not seen) seems to be that customers are not flocking to the new, new thing and that therefore Oracle messed up — must be marketing’s fault (Louie, round up the usual suspects.). Much the same critique could be levied on SAP but I am not going there right now because most of what I have to say applies there too.
Rather than being some aberration, this is exactly what you’d expect in a mature market. Think of it from the customer’s side. The old saw that companies spend money for only two reasons — to make more of it or to save it — applies here. Existing customers have the older model of the non-Fusion Oracle applications and they are installed, running and paid for.
In the recession that we’re still dealing with there are many ways to save money, notably by not hiring or laying off workers, that don’t involve spending new bucks to replace what’s already working. There are also precious few ways to make new money and the record corporate earnings gushed over in the financial press stem largely from penny-pinching — layoffs, reduced head count and not investing in the future, which is exactly what Oracle is facing in its customer base. But this is typical mature market behavior even in the best of times. In order to get someone to buy the new thing, your new offering has to be much, much better than what’s already in the barn or nothing happens. So, no matter what Oracle does to promote Fusion, it’s facing an uphill climb.
We don’t have to dwell on the mature market though and the Forrester Report unintentionally shines a bright light on why it’s so important to innovate not just within a product cycle but way beyond it. Our pathological obsession with quarterly results makes it very hard to get out of the box and go beyond the product cycle but that’s what the idea of Blue Ocean Strategy is all about. Dell is a great proof point for this given its recent effort to go private.
Another great example, if you’re not tired of hearing about it, is Salesforce.com. They’re not in the replacement business except for replacing Oracle and SAP legacy systems with their cloud offerings. More to the point, Salesforce has an elongating history of Blue Ocean thinking, of not simply trying to replace old functionality with new stuff that does the same thing but a bit cheaper.
Salesforce still has issues with market adoption of its newer offerings. But notably, customers are trying to figure out how to best apply them, which is very different from whether or not the new items can pay for themselves with cost savings. When companies discuss Salesforce’s Blue Ocean products they’re having very different discussions about what the future holds and how they will encounter it.
So while I don’t think the Oracle Fusion news is very remarkable, I do think it’s time for them and just about every other enterprise software company to do the same — to think about the future and build a bold vision. Their last bold visions are now aging products, today’s legacy systems. Time to saddle up.
Salesforce held its winter Cloudforce meeting in San Francisco last week. For many the meeting seemed like a reiteration of Dreamforce and to be fair there was some overlap but each time they tell the story, the company adds new wrinkles that cause people like me to pay attention.
What caught the attention of many analysts was the emphasis on enterprise computing, the continuing roll out of the social enterprise strategy and two new products Salesforce Site.com and Salesforce Rypple. One at a time.
We really should talk about the social enterprise first because it drives the broader enterprise discussion. It appears from the rich videos presented at Cloudforce that the social enterprise envisioned by CEO Marc Benioff is alive and flourishing. We heard from Burberry’s, NBC Universal, Kimberly-Clark, HP and Toyota about how adopting social business techniques has changed their businesses by giving them greater interface with customers and the chance at greater profits.
Though the language and the videos were mostly from Dreamforce, each customer company was represented this time by its CIO who testified that the effort and company direction were real. The difference was that at Dreamforce we heard from CEOs about their social enterprise strategies.
What’s interesting is that Salesforce is not trotting out examples of companies that are much smaller than it is. Just the opposite. In every case, the customer company is equal in size to Salesforce or much bigger which only bolsters its case. Salesforce has identified a need and is delivering a different, and by the testimony of the CEOs and CIOs a better, approach to doing business. This approach appears to be becoming the social enterprise standard for the early part of this century.
At a press and analyst Q&A after his keynote, several of us asked about the pronounced emphasis Benioff’s keynote had on enterprise computing. In his on stage discussions with CIOs, Benioff had observed that these customers also use SAP or other enterprise solutions and he’d asked the CIOs about their experiences bringing SAP back office systems together with Salesforce. Those experiences were generally positive, though at least one CIO stressed that simplification was still his goal.
Benioff observed that no company of any size at all buys from a single source. “These companies like what we have in the social enterprise,” he observed. At the same time they are committed to their back office investments. “They’re telling all of us that they want us to work well together and that’s been our strategy.”
So now it appears that a new round of rapid adoption of the social enterprise has begun in some of the largest companies on the planet. If this is a typical ramp up we should expect to see a stampede in the next year, which will only make Benioff’s self-appointed job of becoming a ten billion dollar company easier to reach.
Bring on Sustainability
Back in the Clinton administration, the president, at the urging of his vice president Al Gore, invited an assortment of politicians to the White house for a conference on the environment. The Kyoto treaty was up in the air at that point (the U.S. never signed it). But there was an urgency in many quarters to attempt to get something done for the environment by reducing CO2 emissions. It shouldn’t have been controversial because the approach was along the same model as phasing out chloro- fluoro- carbons, which had caused the famous ozone hole over the Antarctic. That effort had been led by the first president Bush.
Regardless, the meeting blew up. Rather than accept the administration’s leadership, conservatives took to the opposition as if it was any other issue that they needed to oppose and the environment has been a contentious issue ever since. This has plenty to do with what comes next.
I am not a global warming denier refusnick (the double negative is intentional). I believe the preponderance of the evidence and just to keep this moving, if you are on the opposite side of the discussion, please indulge me.
It struck me during Cloudforce that regardless of the political stances, businesses are hardnosed and they do what’s best for them financially. With fuel prices again rising, the marketplace is demanding less expensive and therefore less carbon-intensive approaches to executing their business processes and vendors are beginning to respond. That translate to travel avoidance through the use of surrogate technologies like embedded video and bi-directional communication and that’s what the Salesforce demos offered.
At the Q&A, Benioff reiterated the importance of being able to address customers through a multi-channel approach, to meet them where they are. There was no crusading involved, just the solid business logic of satisfying customer demand and leveraging all technological possibilities to do it affordably. That’s when it became clear for me that this is how the free market handles challenges like the environment. Regardless of what the pols on either side think or do, sustainability is now crossing the chasm and becoming a business imperative. It’s subtle but it’s happening.
The new news form Cloudforce was not highlighted that much but it is important in its own right. The company announced availability of Salesforce Site.com and Salesforce Rypple. I’ve written about Salesforce Rypple, the socialized employee management tool elsewhere.
Salesforce Site.com is also interesting. The next iteration of its Sites solution, this product is a cloud-based content management system (CMS) that is part of the platform and capable of helping organizations to quickly develop social websites.
As a user of an earlier generation of CMS I can attest to how powerful it can be to define a page and let the software figure out how to fill it with content at run time. Moreover with the social platform as an integral component I expect that the websites that Sites.com generates will enable a more engaging level of interaction with customers. It’s also possible that with Heroku as another part of the family that what defines a website is about to be expanded significantly.
Finally, Cloudforce also filled a necessary spot in the ongoing marketing conversation. Microsoft Convergence is happening this week and other vendors including SAP and Oracle will be having events in this quarter so it was important for Salesforce to raise its profile. OF all the things you can say about Salesforce, you should always be mindful that this is a very good marketing organization.