What’s the hurry?
Salesforce.com made another announcement this week. This time they have announced a new integration facility that is based in part on the announced but as yet undelivered Apex programming language.
Not to quibble, salesforce has had a good year, but the company is slowly beginning to get into a futures game. The Apex language as well as the integration facility, ApexConnect, which was announced this week, are both scheduled to be introduced in the first quarter of 2007. Since the company has been very good at making its delivery dates on pre-announced products and since we’re into that part of the year when much of what many companies do is to plan the next year and try to close the books, there is little exposure for the company or its customers. Nevertheless, with two announced but undelivered products on the books I think Salesforce is starting to get a little ahead of itself.
It reminds me of the 1980’s when database companies would routinely announce features and functions months ahead of time. It’s a smart tactic that sometimes freezes buying decisions and drives competitors mad. The logic is something like, “Let’s not buy anything until we see the newest whiz-bang” even if that means waiting many months.
But wait a minute. Who is the competition? There isn’t much. Competition in the on-demand development, deployment, and integration space is rather limited. It might make sense to make an announcement simply to keep the brand in the public eye but announcing a product like this just to gain some publicity seems a stretch. Perhaps the announcement was aimed at some systems integrators and their customers who need to make decisions.
There will be plenty of need to make noise in the market in the new year and plenty of opportunities too, and NDA briefings go on all the time between vendors and prospects in the sales cycle so I am not sure why there was such a hurry to announce ApexConnect so early.
Still a good idea though
That said, the idea is solid and, I think, necessary in the grand scheme of things. There are already products on the market that do some of what this announced product will do. For example, Cast Iron Systems offers an integration appliance that provides very rapid connection to products like SAP for Salesforce users and AboveAll, offers a software solution that does similar things, just to name two.
Nevertheless, as a vendor of a development and hosting solution, it was incumbent on Salesforce to provide functionality for a broader spectrum of needs. For instance, in addition to connecting to popular packages like SAP and Oracle ERP, Salesforce also had to provide integration for its more than 400 AppExchange partners, middleware partners, other third party application developers, and the systems integrators that are building practices around all things Salesforce. That’s a lot and rolling it all into a single strategy makes sense.
According to the company, this new approach will enable a variety of vendors to pre-integrate solutions and thus reduce the cost of integration, which brings us to another reason for Salesforce to act—economics. According to Gartner, integration costs account for 35% of the cost of design, development and maintenance regardless of the size of the company or the applications.
That’s like saying integration is a green field for a company like Salesforce that has made a living out of doing applications better, faster, and most of all cheaper. If ApexConnect can help bring that cost down for Salesforce customers it will be another reason to buy Salesforce over traditional solutions.
In this announcement I see a subtle change taking place in the market. Historically, it was the responsibility of the customer to buy the necessary equipment and hire the systems integrators but increasingly that responsibility is being assumed by vendors. It makes sense too. IT seems to be the odd duck when it comes to creating basic infrastructure. Think of any utility—electricity, telephone, water, gas, even cable—all these infrastructures were produced by direct investment by the utilities themselves. If the trend is for the SaaS vendor to increasingly take on the integration and thus infrastructure responsibilities that trend is simply returning to historic norms.
More than simply making the connection, though, this announcement, therefore, is about something bigger. It seems to me that we have always taken a rather simplistic and clinical view of integration. In the past, we integrated systems to make it easier to get data back to the headquarters where the accountants could count the money. Today, though, integration is likely to be more about supporting the customer and the end-to-end business process. Also, integration is to be accomplished to support data flow in both directions—Salesforce might update SAP but the potential exists that SAP will need to update Salesforce too.
With ApexConnect Salesforce has announced the ability to update backend systems but other parts of the company’s integration strategy already make it possible to do the reverse. The net result gets us to the round trip for the business process and that should go a long way to helping Salesforce and its partners carve a bigger piece of the enterprise pie.
Salesforce.com’s earnings
You have to take your hat off to Salesforce.com, I think. Last week’s earnings call was a thing of beauty. It was the kind of thing that I bet every entrepreneur must dream of doing someday—reporting to the investors on a great quarter for their newly public company.
It wasn’t so long ago that rivals would call me every time Salesforce.com announced their latest subscriber-base growth to say things like, “They’re lying, nobody has that many customers.” Certainly, the callers didn’t have that many customers.
Well, times change and some of those vendors are out of business now but Salesforce.com is still announcing increases. These days, as a public company, there’s an added incentive to tell the truth. It’s called jail and that’s one reason the company takes great pains to be transparent about the things it needs to be transparent about.
For the quarter, the company’s CEO, Marc Benioff, said that the company added 61,000 subscriber seats representing 2,300 companies and that revenue was up 57% year-over-year. Not too shabby.
It’s funny but there are still nay-sayers out there. On one hand it is very healthy to be skeptical—some of us make a living at it—as long as there is some legitimacy to the argument. For example, people still ask me about defections or customers who do not renew. That’s a fair question and one that is masked by reporting the net increases in seats and customers, but even as net numbers what the company reported looks pretty healthy. What’s interesting to me is that some other companies in the on-demand space are making offers to re-host customers who might defect. In other words, defectors are going to other on-demand solutions, not so much to in-house systems.
On the other hand there are skeptical comments that in my opinion don’t really shed much light on the overall phenomenon of on-demand computing. An example here would be the contention by some of the competition that on-demand isn’t suitable for this or that application area.
While there is some legitimacy to that kind of thinking, it also represents a nicely packaged retreat up-market by conventional vendors who are digging in to some hard to reach niches. For instance, some banking application areas are required by law to house their systems behind their own firewalls to prevent data theft. But how long will something like that survive if the alternative solution proves to be equally safe and significantly less expensive?
We’re number 40!
At last week’s earnings call, Benioff made a big deal about his company’s revenue run rate. The company says that it generated $130 million in revenues in the latest quarter putting it on track for a half-billion dollar annualized run rate. The significance, according to Benioff, is that only forty software companies in the world have revenues that large. Thus Salesforce.com figures itself to be one of the forty largest software companies, an inauspicious position for a company whose tag line is the end of software.
The biggest rub for Salesforce.com right now might be just how to position itself. Fortieth Largest Software Company doesn’t exactly roll off the tongue and neither does the largest software as a service company, though it is far more germane. Though the lion’s share of its revenues come from CRM and most of its product focus is in the front office, CRM might, in a few years, prove to be too constraining of a description.
Most people I talk to agree that Salesforce.com’s future is in its platform and application hosting businesses. Already according to one tidbit announced at the earnings call, there are companies subscribing to the service, not for the CRM functionality, but who instead want the development and deployment environment for their IT shops. These companies are happy to use the platform to build and support applications in-house for their unique business processes and to run them as hosted solutions for their employees.
There’s good logic to that approach because it makes the applications available to traveling or remote employees that need access to company information and who need to participate in its business processes. This approach relieves the IT department of a lot of overhead leaving more time to concentrate on the business process. It is in this capability that I think that both the company’s long term direction and its description lie.
We all know that applications served from the Internet can be delivered virtually anywhere, and applications written for the on-demand platform can unite business processes that span the globe and that are indifferent to time zones. All this can greatly accelerate the pace of business while reducing error and costs. To date, companies that wanted that kind of functionality usually had to come up with 24/7 support infrastructures which can add a lot to a company’s IT costs.
So rather than retreating up market as many other companies might be doing, Salesforce.com now has an opportunity to create another new market niche where it can be number one instead of number forty. I still don’t know what to call a facility that enables and enhances global business processes, but I bet the Hawaiian word, “wiki,” will have something to do with it. Just a hunch.
As Benioff might say, aloha.
When in doubt, ask the customer
One of the benefits from the explosion of sales effectiveness solutions has been the effect on the marketing process. For too long, selling was regarded as a pseudo science while marketing was regarded as an art that needed to be tightly controlled to prevent waste. So it was no surprise to hear discussions of marketing ROI or to see marketing automation defined as a product set that had a lot in common with accounting.
That thinking was symptomatic, in my humble opinion, of an attempt to fix what wasn’t broken. The early markets especially for technology products hooked many enterprises on rapid sales and high margins and when that inevitably slowed down it was only natural to attempt to manage the process better in an effort to forestall the inevitable market cooling.
The inevitable happened, nevertheless with the result that customers gained the upper hand. Today vendors compete harder for business and take smaller margins in the bargain. In the early market it is relatively easy for a vendor to be unique. Today, though, for every product category there are multiple authentically competitive products and vendors must compete either by knowing the customer and the customer’s needs better or by discounting.
Vendors who are unaccustomed to getting to know the customer, or who have little interest in that approach, will find that their options are limited and price erosion is inevitable. However, vendors that reach out to customers are finding there is a wealth of free information to be gained and turned into products, messages, and services.
In earlier columns I have talked about the idea of capturing the voice of the customer (VOC) and its centrality to sales and marketing. Once an organization gains customer knowledge, though, it has to act on it, keeping in mind that it has a half-life and that’s where the importance of a revamped marketing process comes in.
New sales and marketing products in categories like market and sales intelligence, sales operations, and sophisticated demand generation are leading the way towards leveraging readily acquired information for several front office processes. While we focus a lot on sales and marketing, there are also other processes that leverage the idea of collecting information including channel management and product innovation.
Product innovation is one of my favorites because capturing the voice of the customer supports on-target product development which delivers multiple benefits all the way up the production and supply chains. Emerging companies know the value of staying close to their customers and it is often this customer focus that helps a company go from good idea to market dominance. Older companies drift away from that kind of focus and too often rely on gut and experience to bring about the next round of product innovation and too often that round fails.
Until recently, the alternative was slow and costly focus groups and conventional surveys but the new emphasis on Internet driven VOC capture has changed that. Organizing customer communities for the purpose of capturing VOC has resulted in some impressive insights that have driven product introductions and great success. The trend is most pronounced in the business-to-consumer market but it is spreading to the B-to-B side as well.
Similar results have occurred in the indirect channel. As vendors have become smarter about how they can leverage the Internet to capture information from their channel partners, the information has begun to drive more effective and enlightened business processes and practices.
What is impressive to me about all this is that the technologies required by many of these new business processes are not terribly advanced. What is advanced is our way of viewing a business problem and it is the changed way of looking at a problem that makes new solutions possible. A new view surfaces new challenges and only then can new solutions be contemplated.
To be sure, we still spend too much time forecasting demand based on what worked before rather than asking what’s new or what has changed but we’re getting better at it and products in categories we label with the word effectiveness are one very important reason why.
Marketing has taken on more stature in CRM recently largely because we now think more about the inputs to the sales and marketing process rather than just the results. The definition of marketing as gathering VOC and doing something with it has not really changed but it has been rediscovered and part of the reason is that we now have good tools that make it feasible and affordable to reach out to the customer. Of course, everyone hasn’t gotten that memo yet but markets are built and dominated by early birds.
Effective Selling
I have been very encouraged by the flurry of activity in the sales effectiveness space. Over the last 18 months or so, emerging vendors there have taken a concept that had been around for a while and breathed new life into it.
Sales effectiveness is still a catch-all category and if you had to distill it to its essence you might describe it as sales applications that are not SFA. It’s never a good idea to define something by what it’s not—politicians seem to do it a lot but that tactic works best in a contest where there are only two choices. The real world is a bit different.
Included in sales effectiveness are applications for content management, sales operations, intelligence gathering, demand generation, and many more. The thing they have in common is making a sales representative’s time more focused and productive. The trouble is that a company could spend a lot of time and treasure figuring out which effectiveness solutions are the best choices. It’s a moving target that is influenced by things as basic as the kinds of products a company sells, the terms it offers, the sophistication of the competition, and who knows what else.
It would not surprise me at all if at some point in the not too distant future the category fragments and the big pieces form their own new categories. I prefer to think about the category from a different perspective, though—the business process that is supported. Taking a business process view helps clarify a number of things. If you start with the notion that each organization should be able to custom design its sales process then the whole idea of fitting together different components makes a great deal of sense.
Let’s start with a relatively straightforward four part definition of the sales process itself—identify, qualify, sell, close. That’s admittedly a simple definition and many would say what about a step for presenting or demonstrating? My answer is that although it’s a valid point, there aren’t a lot of products I know of that do the demo for you so it’s implied but not included.
The latter half of the process seems to be pretty well covered with SFA and possibly some other tools, like compensation management—a potentially great tool for modeling the pipeline. In my opinion, the early part of the process was never covered really well. Marketing was expected to cover it but the results were pretty uneven. Too often marketing identified prospects that were not really ready to buy and put them in the funnel only to have them rejected by the sales force. Hindsight shows that often many of the leads were just handed off prematurly and eventually resulted in sales but with a typical 90 day or lower threshold sales lacked the patience to mature them and too often good leads were discarded.
On the other hand, sales has been notorious for grabbing a list of suspects and cold calling the list in the hope of finding an opportunity. That wasn’t the best use of expensive sales person time but the practice has remarkable persistence.
Sales effectiveness organizes the front part of the sales process by providing tools that help organizations to mature suspects into leads without resorting to expensive manual labor. Taking the labor and cost out of early information gathering and dissemination is something that many sales effectiveness solutions do a good job at. You might say that’s what marketing and advertising are for but if those things worked we wouldn’t be having this conversation.
One of the advantages of the sales effectiveness approach to the early part of the sales process is that it can have a great deal of specificity. Judgments can be made about which prospects to pursue in ways that are at best passive in more mass market approaches. That specificity is very important because very often, companies find they are not in mass markets and that they must deal with customers on a more intimate level. The key difference is in understanding this information and using technology to time offers and interactions.
The power of sales effectiveness applications is brought into sharp focus by some recent developments. I have noticed a small group of vendors who are banding together around the idea of an integrated sales process. Each vendor knows that the sales process is larger than any single solution and that has brought many of them together in an effort to supply integrated end-to-end process support.
We’ve heard of best-of-breed before but there is an important difference here. The old style best-of-breed assumes that the customer take responsibility for integrating disparate solutions. Here, the responsibility for integration is taken on by the vendors and in the process they are building something that is bigger than any one of them. One combination I like is the integration of Eloqua for demand generation and lead maturation with Pragmatech for content management. It’s an elegant and mostly automated way of taking the customer’s pulse and supplying the right information at the right time.
Of course, that’s just one example. As sales effectiveness gains more momentum you might see this kind of advanced mash-up really take off. I hope by then we have a term that’s more definitive than sales effectiveness though.
The Innovation Issue
I got a call from a friend the other day lamenting the loss of technical IT jobs to lower cost economies. I know this is a charged subject but I thought I would wade into it to explore what it means for CRM.
First off, I am not sure I agree with the point that many people make that exporting jobs generates more jobs in our economy. Not long ago there was a study published in the Harvard Business Review that showed that jobs really are created in the economy that exports jobs, but only after a significant lag in which some choice jobs have been exported. So, I guess you could say that in the long run more jobs are created but as John Maynard Keynes famously said, “In the long run we are all dead.”
You need only look at the results of importing massive numbers of cars that began in the late 1970s. As foreign cars came into the country, companies like GM saw market share drop from near 50% to just about 25% today. True enough, jobs were created in this country, for example, some foreign car makers opened up manufacturing plants here and more people were hired to unload cargo ships but it was anything but a zero sum game.
First of all there are lots of places, like Detroit and Flint Michigan that have still not recovered. These once proud manufacturing centers are hollowed out and economically depressed today. Next, and perhaps most important, while new assembly jobs are now located in other states, the research and development is off shore. You can’t look at the car industry today particularly at the emergence of hybrid propulsion technologies and not think that once, that kind of innovation was what we did here.
When the research and development moves away it takes more than jobs; it takes innovation, and its entire infrastructure. The research that was funded domestically and performed in local universities becomes globalized and money no longer goes to domestic universities, programs get cut, and what was once a cutting edge higher education system is something less. All that makes it harder to come up with the next innovation.
Now, this is not to blame any foreigners for the loss of leadership, at least the blame does not need to be exported. The US car companies were not building world class cars when they were disrupted by the foreign car companies. It was the result of many years of non-competition among domestic vendors content to build products that were good enough (for a good analysis, David Halberstam’s book “The Reckoning” is still worth reading).
The disruption of the US car industry was also the result of paper or financial entrepreneurship. In financial entrepreneurship, companies make money by lowering their costs rather than by innovating products. If you export jobs, cut quality, or engage in financial transactions that make money without making better products, you are engaging in financial entrepreneurship. The bottom line of your financial statements looks the same whether you made and sold a new product or service or if you cut your labor costs by shipping some production jobs to a lower cost market. Net/net, you still get your bonus and stock options. At the same time, though, you hollow out your company and if enough companies engage in the same tactics, you hollow out the economy as well.
So here’s the CRM point of all this. I see the same kinds of things happening in CRM and the tech industry right now that we saw in the car industry many decades ago. Having just been through a round of user group meetings, I have to say, I have not seen a great deal of real innovation happening.
Everywhere I have been the vendors managed to highlight their improved user interfaces, which I have a hard time getting excited about. Mostly they have been repackaging their old wares and adding a few words about the customer experience, but I don’t really think they understand the experience they are talking about. There was also a great deal of slide-ware and some wait till next year presentations. Meanwhile, some of the biggest systems integrators are talking about how many jobs they have spun up on foreign shores.
For the record, I am not against hiring people overseas and I do understand that we don’t produce enough people with the right qualifications to hire people only here. As a matter of fact we never have been able to staff all of our innovation with native-born Americans. In just one example, Einstein, Fermi and others who worked on the atomic bomb were refugees from Europe, and we were glad to have them.
My concern is with the corporations, specifically the corporations who should be leading the charge in enterprise software but who are not. While companies like Salesforce.com, NetSuite, and many others are busy inventing the future of IT, established players with loads of capital seem lost. Why did Salesforce.com invent the AppExchange instead of Microsoft or Oracle? So many of the leaders of the CRM and SaaS movements are alumni of Oracle; the ideas for SaaS were certainly floating around inside Oracle in the late 1990s but they never crystallized there. Why is that?
Today the US is the global leader in software innovation and the software economy, and the very center of it all is in Silicon Valley. How long will it last? The manufacturing economy lasted about 250 years from the invention of the steam engine to the late twentieth century and the information economy took over from there. Judging by the state of innovation I have seen lately, I wonder if the vendors who should be leading have given up.
