All Those Announcements

Some weeks there’s just more to write about than other weeks.  It’s like the weather — sometimes there just seems to be more of it than other times.  Take last week for example, just north of Boston some communities received as much as 19 inches of rain — more than you’d get from a hurricane and resembling the rainy season in the tropics.  That was a lot of water and for a while some of us thought of changing the name of our state to something more appropriate, like Panama.

The last few days in CRM have had the same kind of “when it rains, it pours” character to them.  Consider what’s happened: RightNow bought Salesnet, Salesforce.com further expanded the definition of the on-demand market, and NetSuite began taking on SAP.  Let’s take them in order.

RightNow and Salesnet

RightNow has bought Salesnet and another early promoter of the software as a service industry ceases to be independent.  Salesnet went through all of the transitions in a market that was once known as ASP.  Like UpShot before it, Salesnet had the disadvantage of trying to compete with Salesforce.com and the genius of Marc Benioff. 

Part of Benioff’s brilliance was the way he ignored the companies with whom he was logically a competitor to fix his sights on much bigger prey, Siebel Systems.  While UpShot, Salesnet and several others seemed to be competing for primacy in what was then a small market Salesforce.com was loaded for bear and trying to grow its share by growing the market.  But perhaps main reason Salesnet is being bought was the tactical error of remaining true to an SFA only vision. 

There is no doubt that there is plenty of demand in CRM for SFA only solutions but capturing many of those opportunities requires a broader understanding and integration with other parts of CRM like marketing and service.  Salesnet realized this late and in linking up with RightNow, the company will be able to realize a vision that is more broadly encompassing of the front office.

For its part RightNow strengthens its offering which has been heavy on the service side and, at the same time, it captures 2500 additional installed customers who might very well need SFA at some point.  As mergers go this one looks pretty straightforward.  Salesnet becomes the Boston office for RightNow which gains a valuable footprint on the east coast.  All in all, this was a good deal that brought together complementary product lines and cultures.  Stay tuned on this one.

Salesforce.com and AppExchange OEM

Speaking of Mr. Benioff, he’s at it again.  This time instead of revamping the CRM market, his project is to revamp the entire software industry.  This week he announced what might be the last step (for a little while at least) in the roll out of AppExchange and his vision of how the software industry will operate in the future.

For my part, let me say that I am broadly on board with AppExchange and many of Salesforce.com’s recent announcements.  Back in 2004 I wrote a white paper (which is available at www.BeagleResearch.com) that predicted this evolution.  Please treat this as disclosure and only a little bragging.

At any rate, Salesforce.com announced a new program that will enable software developers to develop and deploy applications on the Salesforce.com platform and resell those applications under their own labels.  Essentially, this completes a trifecta of sorts by Salesforce.com which placed on-demand computing on a par with traditional licensing.  Furthermore, it gives end user companies the ability to use the technology and platform to develop their own in-house solutions, and it supports third party developers who might use the platform just as they would a database and tools.

Two questions arise from this.  First who does this challenge competitively and second, where is the biggest bang for the buck for Salesforce.com?  Here are my guesses. 

Benioff has made no secret of criticizing the likes of Microsoft and Oracle (Is he ever going to pick on someone his own size?) over what he characterizes as their old-fashioned application development approaches which includes licensing tools and databases and issuing traditional licenses to customers. 

Benioff’s vision has been to take as much of the capital cost out of software development and deployment to make the services that software provides more accessible to more people.  In this he is not unlike Henry Ford whose great invention was not the automobile (that came much earlier) but the assembly line.  The line enabled manufacturers to dramatically drive down costs and standardize on everything from components to finished products.  Because of the assembly line, cars became cheap enough to make the transition from luxury to necessity.

In asking where software can make a similar impact on life as we know it, we come to my second guess concerning where Salesforce.com can get the biggest bang for the buck.  I believe that will be in the healthcare market.  Many of us who have studied healthcare might think of it as a large opportunity for software vendors, but it is really more like Australia in some ways.

Australia is a huge island continent that because of its location and aridity is home to only about 20 million people — much less than California and about the same as Canada.  The healthcare market is really the ultimate long-tail opportunity.  There are only about 5000 hospitals in the US and while that might seem like a lot, there are numerous software companies competing for that business.  Think of it this way, Siebel alone had well over 3000 client companies when it was acquired and while it was the biggest CRM company there were many other competitors that were doing well. 

So why should Salesforce.com enter the healthcare space?  The reasons are fairly simple.  Healthcare software is expensive and built on old technology and many of the processes we take for granted in business are still manual and expensive in healthcare.  Worse still, there are loads of areas that have not been automated yet.  Documentation is important in healthcare and many doctors spend as much as half of their time doing paper work instead of seeing patients — and it’s real paper too.  Ever wonder why there is no such thing as a globally accessible electronic medical record?

This really deserves a separate column but suffice it to say that there is huge opportunity in healthcare for on-demand applications.

NetSuite takes on SAP

Then there’s NetSuite and curiously, I thought that Benioff’s shadow loomed over the NetSuite announcement.  Maybe there is something in the water in Silicon Valley that makes small companies take on the big guys.  Salesforce.com was successful against Siebel and now NetSuite is trying the tactic against SAP.  Many of the variables are remarkably similar in the two confrontations that have pitted on-demand upstarts against the entrenched market leader, in this case, SAP.

Now, I like NetSuite and I think they have good products but you couldn’t help notice that their attempt to take on SAP lacked much of Marc Benioff’s panache in his anti-Siebel salad days.  The NetSuite announcement used the word “Teutonic” in a pejorative manner twice by my count.  Say what you want about the merits of the products (and there are plenty) but we don’t need this kind of blatant ad hominem in business.  Save it for politics — the prime exemplar for why we shouldn’t tolerate this kind of stuff.

Ok, the sermonette is over.

NetSuite has a sizable technology lead over SAP in the on-demand space and since SAP is trying to enter that market a certain amount of competitive push back is to be expected.  I think SAP does not understand the difficulty of transitioning even part of its model to on-demand.  It’s a matter of transitioning from a complex systems model to a volume operations model.  The alternative is to let the upstart run with it and seek out new areas where their expertise in complex systems can be best put to use.  For the best general discussion I have seen on this topic, check out Geoffrey Moore’s new book, “Dealing with Darwin”.

Meanwhile NetSuite should make plenty of headway in the small to medium market with its integrated on-demand front and back office suite.  They seem to be putting the right emphasis on addressing the verticals where they can best play and their continued focus on management and metrics should provide smaller companies with the automation assist that many could never afford from a traditional vendor.

It has been a very interesting ride this week and it bodes well for the on-demand market and the software industry in general.  To me the unifying aspect of these announcements is that everything is new again and that means lots of new opportunity.  What’s not to like?

Demand and CRM

Remember demand? It was always seen with supply and it was used to make markets until some wise guys told us that the two could go their separate ways. If you keep all things constant except for supply you can run the table, or so they said.

It reminds me of the old joke about the poet, the engineer and the economist stuck on a desert island and down to their last can of beans. The three hungry people take turns strategizing how to open the can – naturally they have no tools – and the story goes something like this. The poet suggests using a rock to try to dent the can and thus get it partially opened. The engineer begins calculating how he might heat the can in a fire causing it to explode, but each idea is quickly shot down as being potentially wasteful of the precious contents. When it is the economist’s turn he starts with, "Assume we have a can opener…"

Not to belittle the dismal science and its practitioners, but that kind of over simplification has been around as long as there have been, well, economists. To tell the truth, it wouldn’t even bother me much except that I’ve been reading the iconoclastic economist Paul Ormerod lately and that’s pretty much his view too. According to the cover of his book, "Butterfly Economics," economics needs to, "…become a science more like biology – less dependent on "laws" and "forces" that provide mechanistic predictions, and more open to the idea that people are influenced by what others do."

The reason for over simplification is that economics tries to hold up a mirror to reality which is very complex and dynamic and the only way to do the job is to simplify it down to a single point in time when you can make an observation or a prediction. It’s sort of like the social sciences’ equivalent of Heisenberg’s uncertainty principle – you can figure out the position or the speed (or something like that) of a sub-atomic particle, but not both. Assuming demand is constant and that supply is what matters is one of those little fibs we tell ourselves to enable us to make any sense whatsoever of the real world, but it fails badly.

Sometimes I think that CRM as it is constructed today is nothing but a supply side overlay of a demand oriented world. Think about it, the middle word is management, which is a vendor word and it is used because vendors need a way to keep control of a situation in which they have figured out supply by taking some educated guesses about customers’ needs and now they have to stoke demand. That, I think, is what people like Shoshana Zuboff have in mind when they write critically about mass production and mass marketing.

In point of fact, control on the part of the supplier is at best an illusion and that illusion went out the door when the Internet made information ubiquitous. Without a vendor’s ability to arbitrage information, the customer (the demand side) rules, and so the question becomes, why is CRM so focused on supply? Perhaps you disagree with this, but most of marketing that I see is about promoting what you have, not asking what the customer needs. The same is true of sales and the call center in the majority of organizations hardly, if ever, makes outgoing calls to gather information about future needs.
The situation is changing though. The CEO of one company that I follow which is completely focused on helping companies capture the voice of the customer tells me that business is up 150% year to date. The same is true for other companies that focus on nurturing leads rather than slamming them closed and companies that tailor collateral content and marketing messages.

I think it’s obvious that we are seeing a change in the marketplace, but the change is not an incremental one. By virtue of their improved access to information, this generation of customers, which is richer and better educated than any in history, has been calling a very different tune for some time now. These people are us and in addition to being smart and wealthy, we’re also time starved and consider ourselves unique. All together that makes us sometimes rather cranky and prone to abandon a transaction for any reason or no reason; if things aren’t perfect we keep looking.

All this places many new pressures on CRM and in the market I am seeing lots of five year old companies emerging that have a very different view of the world – the customer’s view. As a result, they focus on things like the customer experience and their processes go far upstream from the transaction to engage the customer on the pre-cognitive level. Many of these companies have figured out ways to engage customers on higher levels, to conceptualize the experience long before it happens, and to be ready for whatever demands come from the customer.

One reason my CEO friend is experiencing great growth is that her company is selling to very large companies in a classic early adopter scenario. No one save a cranky analyst or two is calling a top in the supply side revolution but tops are so hard to spot without hindsight. Nevertheless, tacitly, early adopters are voting with their feet and repositioning to get a better handle on demand. In truth, you need both supply and demand but that rediscovery is still in the future. Right now, demand has been so neglected for so long that I am betting that it will have a pretty good run before it’s all over.

Building Credibility in Marketing

I wish every software marketing statement — especially in CRM — was as good as what they used for toothpaste when I was a kid. Thanks to Madison Avenue and having only three networks on broadcast TV, I can almost repeat verbatim the tag line about Crest from memory. "Crest has been shown to be an effective decay preventative dentifrice when used in a program of oral hygiene and regular professional care."

What was so powerful, and true, about that statement was the acknowledgment that dental health involved a program, a series of interlocking steps that have the goal and end result of a healthy smile. Too often press releases for software companies sound like snake oil promotions in comparison. A few years ago, Al Reiss and his daughter Laura wrote "The Fall of Advertising & The Rise of PR" and their thesis, as you can gather from the title, was that PR works best, in part because it builds credibility better.

Reaching the Reader

I am not sure that is strictly true that PR is better at building credibility or if it might just be that we have all grown too accustomed to filtering out advertising; if the latter, then we stand to hit the same wall with PR at some point in the future. I see signs that PR might be getting stale. For example, modern PR uses three primary devices to try to convince the reader to pay attention and buy something. If credibility is the goal, PR might be falling short.

First there’s market share, for example, "XYZ company, the leading supplier of wet blankets for left handed smoke signals…" It has been well documented that people like to buy from the market leader and that in many cases, they will even pay extra for the privilege, and hence every company tries to be first or the best at something when it comes to its positioning. There’s nothing wrong with that unless you are over-differentiating in a crowded market. Claiming leadership assures potential buyers that you are a safe choice, that lots of others have made the same decision and lived to tell about it. Nevertheless our incessant quest to be a leader makes for fragmented markets.

Then there’s the statistical claim that seems to show a desired improvement despite the fact that results are at best circumstantial. The other day a draft release crossed my desk in which a new company claimed its product could increase the number of leads per sales representative and as proof there was a quote from the VP of sales at a company beta testing the solution. There was no mention of the long standing relationship between the new company’s CEO and the beta tester. I am not saying the claim was false, just that it lacks rigor and the ability to be validated. The quote was certainly credible but the claim can’t be backed up.

But the favorite device that I see companies using is what I call, "We can do it all". It’s a variation on the old snake oil salesman’s shtick. Got a problem? The cure is in the bottle. Back ache? It’s in the bottle. Digestive trouble? It’s in there too. You get the idea.

Thinking It Through

One of the challenges that emerging companies face is turning a good idea into a product and often first versions are more or less put out with the hope that the market place will validate the use or figure out something novel. It happens all the time, early adopters take a half baked idea and further incubate it, playing around with the idea until it jells.

Taking a half-baked idea to market does not bother me, but I think there would be more success for innovators if they thought a bit more like toothpaste ad copywriters. The toothpaste guys never claim that their product does it all, or that lots of people use it, though they do like to show happy, pretty people using their products.

The strength of the toothpaste ad and the weakness of so much software marketing and PR is that the toothpaste ad integrates the product to a larger vision of a solution. I have not seen very many "system" products introduced lately. By system I mean CRM, ERP, SCM and the like. There are no new system products because most of the systems niches have been taken, at least for now. We’re in a process of back filling, improving by increments, which is all the more reason for vendors to position their new solutions within a larger context.

The Human Condition

A new product may very well be able to help sales representatives improve lead flow, but it will not likely do that on its own, so why pretend? It will work with specific marketing and sales strategies and solutions in specific markets where people buy a certain way. Nailing down that kind of specificity is not only good for the customer, it helps conserve valuable resources that emerging companies especially need to focus on their best prospects.

We’ve never stopped using the phrase, "Caveat emptor" and I don’t think it’s because everybody still studies Latin in high school. I think it has more to do with the universality of the idea and the human condition.

Sage Software speaks with (and listens to) its resellers

For decades Sage Software, Plc has focused on the mid-market and SMB space selling a variety of accounting back office and CRM oriented front office applications around the world, but the company has always been something of an odd duck in the business software market.

For starters, Sage has been through a number of name changes – it was known in America at least as Best Software for a while. More importantly, unlike the vast majority of vendors in the business software market who sell through massed armies of direct representatives, Sage has made a science out of selling through a of militia resellers – a channel that many other vendors, now suddenly interested in the lower end of the market, overtly covet.

With a little cash, some training, and a lot of hard work, people with entrepreneurial drive can become resellers of Sage products, carving out their own niches in a market that still rewards ambition. It is simply, the American dream, updated to the 21st Century. Sage has not always had the most up to date technology, for example, the contact manager ACT! relied on a flat file system until a couple of years ago, but no one seemed to mind. The product delivered needed functionality at a price point that was attractive to millions of small users and that seemed more important.

Nashville cats

Last week, in Nashville, Sage held its annual meeting with partners (and press) that was part reward for jobs well done last year, part motivation (Stephen Covey gave a keynote), and part schmooze as 3000 people convened to listen to Bill Cosby one night and go out on the town another.

Beyond all that there were numerous announcements worth paying attention to. For instance, the company, which is still better known for its individual products (MAS, PeachTree, AccPac accounting and ACT!, SalesLogix, and SageCRM for the front office to name a few) than its corporate brand, announced global revenues of nearly US $800 million in the first half of the fiscal year.

Impressive results

Perhaps even more impressive was the announcement that the company now has 5 million customers – not merely deployed seats but actual companies that have put down cash for its products. About half the customers are located in North America and on a global basis that makes this company that sells multiple business software products through a reseller channel one of the biggest business software companies on the planet.

The channel strategy may be Sage’s secret sauce because while many other vendors might want to emulate Sage’s success, the cold reality is that channels are not built overnight – without partners, channel strategies unfold slowly. Partners evolve at their own rates based on individual resources and ability to take advantage of channel incentives. So there is tremendous cohesion in a partner channel due to the costs involved in switching. To net this out, Sage has a channel that many other vendors would love to woo away.

Loyalty effect

Most important to my eyes and ears, was the messaging that infused the proceedings. More than any other vendor I have seen to date, Sage appears to have internalized the idea of customer-centricity on levels that include not only their direct customers but their customers’ customers as well.

While almost anyone with a pulse can talk about loyalty these days (and confuse it with satisfaction), in his keynote, Sage CEO, Ron Verni, spoke knowingly about net promoter scores and quoted from books by some of the experts in the field like Fred Reichheld (The Loyalty Effect, The Ultimate Question). Not bad at all.

Perhaps due to the nature of Sage’s multi-tiered business model, the company has experienced earlier and more deeply the importance of alignment with its customers. Many companies that have sold through only one tier for years are only now waking up to the fact that loyalty is a long term commitment not simply the upshot of the last interaction, which is really all that satisfaction boils down to.

Looking ahead

If it steers the right course, Sage may now find itself in a very convenient position relative to the market. The reason is that the company is among a small few – another would be NetSuite – that has both front and back office solutions in its arsenal. Unlike NetSuite, which makes much of its pre-integrated accounting and front office solutions, Sage’s portfolio is still a mix of individual front and back office solutions that its channel partners might integrate at various levels. Nonetheless, one of Sage’s strengths is the depth and variety of its back office solutions which some will prefer over pre-integrated but less varied choices.

The number one job for Sage today should be in providing integration technology so that its customers and resellers can select from among its front and back office products to arrive at "just-right" solutions that integrate end-to-end business processes. Given the positive sounds about customer-centricity that I heard last week in Nashville, I would expect something is being planned and next year’s meeting message might just be all about that.