What’s in a Name? Consumer or Customer?
It’s the middle of summer. People are conveniently away from their desks and if not outright on vacation, at least their voice mail greetings give the impression that because “I will have limited access to voice mail and email” you should expect a bit of a delay before they get back to you.
I recall that when I was a kid all the factories in town shut down in unison for two weeks in July and that was that.
Main Street had a kind of ghost town feel to it and trees were mostly still as even the breeze seemed to have left town. That’s all I remember about economic activity back then, I was a kid after all and two months without school seemed like an eternity.
This being the middle of summer with lots of people off to the beach and mountains to spend vacation time, activity in the CRM market seems to have slowed a bit so I thought it might be fun to explore the consumer side of the equation.
We are very smart in CRM to use customer instead of consumer which is used a lot in the general press. I did a quick on-line search of consumer and found just what you might expect for that word. My favorite definitions were from economics — a person or organization that uses a commodity or service — and ecology — an organism, usually an animal, that feeds on plants or other animals.
A little further down I found something that reminded me of college biology classes:
“A heterotrophic organism that feeds on other organisms in a food chain. Herbivores that feed on green plants and detritivores that feed on decaying matter are called primary consumers. Carnivores that feed on herbivores or detritivores are called secondary consumers, while those that feed on other carnivores are called tertiary consumers. Compare producer.
I recall being fascinated one day when a professor told us there were very few examples of tertiary consumers because the food chain is like a pyramid and the higher up you go the greater the energy need of the individual and the fewer individuals there are. Lions and tigers, for example are active only about four hours per day, an energy saving response to being so high up in the chain. It takes a great deal of size and strength for a lion to bring down a wildebeest what would it take to bring down a lion?
What got me started today though were the words “Compare producer” right at the end of the paragraph. A producer is the antithesis of consumer.
In the theater, of course, the producer is the person who is responsible for raising the money, and every time I think about it Mel Brooks comes to mind and I get off track. It’s the economics definition that interests me here though, “A person who creates economic value, or produces goods and services.” Logically, if a producer creates economic value the consumer must take it away — a somewhat pejorative connotation.
In fact, consumer was a slightly pejorative word until the post war period when abundance ruled. Prior to that, decades of war, depression and Calvinism made many people guard against over consumption and wary of those who did though in every age there have also been people who celebrated consumption. The early University of Chicago economics professor and social critic, Thorstein Veblin, made a second reputation for himself when he coined the phrase “conspicuous consumption” — never mind about his other reputations, that’s a story for another time.
Among Veblin’s advice to those who wanted to communicate their great wealth and status without actually having to state it (that would have been too vulgar), he said make sure your wife doesn’t work outside the home except in un-paid charitable activities. Another Veblin strategy was to get a dog since taking care of the animal was an almost full time and unpaid job in itself.
Of course we are all both producers and consumers. All you need to do is look around to see the enormous economic activity we engage in and the value we create to know that we consumers produce a heck of a lot too. As much as we produce though, there seems to be no end to the need for us to consume.
For a long time, many people have observed that CRM is not really about customers or relationships but the need to manage consumers and thereby manipulate need and consumption. Would it then be more correct to mark it with a producer label instead? Perhaps we could call it Producer Process Optimization. There’s nothing wrong with that, it’s just more accurate labeling and it represents nothing more than an adjustment in the category or market niche such labeling might actually help.
This is not an idle summertime dream. As we think about what many are calling CRM 2.0 questions about what to call CRM 1.0 are timely. There is symmetry here between producer and consumer and understanding the divide might spur some creativity in both camps to deliver even more innovative solutions.
Ten Lessons in SaaS Transformation
When it comes to advice about making the transition from on premise to SaaS or on-demand, there has been a drought of insight from real life practitioners. It’s one thing to remake your software — that’s the easy part — but it’s something else to remake your company.
Think about all the moving parts involved — product development (of course) but there’s also personnel, staffing, the kinds of jobs each person does, the sales model and process, the development and deployment cycle, and much, much more. There’s also a small thing called the business model or put in a less genteel manner, how the company makes money.
Now Brian Zanghi, CEO of Pragmatech software, is sharing his experiences and knowledge derived from three years in the trenches. A lot of Zanghi’s wisdom can be boiled down to “think different” but such encomiums can only take you so far. More practical advice comes in his “Ten Lessons from a SaaS Transformation” article which you can link to here.
http://www.sandhill.com/opinion/editorial.php?id=143
When it comes to sequencing changes to different parts of the business, think like a surgeon, get in, get the job done and get out. Be quick lest the patient die on the operating table. And since you are going to have to change the whole company, don’t be afraid to do many things at once since so many things are interdependent. After all, it’s the transition state that is the most unstable so limit the time you spend there.
Zanghi estimates the whole trip takes three years but also admits that with hind sight, it could be speeded up. One of his most relevant observations is that the CEO must be comfortable as a trailblazer inventing as he or she goes along because there is not a great deal of experience and advice for CEOs to lean on. That might have been true when he started out but Zanghi has done a lot to dispel the darkness and make the trek a little easier for the next guy.
Show me
Microsoft introduced the latest version of its Dynamics CRM product at the Microsoft World Wide Partner Conference last week in Denver. The company said that this version of the product is completely multi-tenant and capable of being deployed in any mode — conventional licensing, partner hosted or hosted through Microsoft. The flexibility of the system is based on the single code set that underpins the system, the company told me.
Any time Microsoft, Oracle or SAP announces something it’s worth paying attention to given the size and clout these industry leading companies have, but in the on-demand space, none of these companies is in a leadership position — the leaders have names like Salesforce.com, RightNow and NetSuite. So when a company like Microsoft makes an announcement about on-demand computing you have to investigate it partly wondering if this is the announcement that catches it up with the leaders.
It looks like the company has made good progress on the technology, for example, the integration with Outlook looks solid and the functionality appears to be competitive but it looks like the business model might still need a little work.
If I had to sum up the business model I would have to say Microsoft is trying to position itself in the catbird seat, ready for any eventuality or shift in the market. The single code base makes the product very scalable and equally adaptable for traditional users implementing behind a firewall as it does for those users who might be traditional customers of the emerging trinity of Salesforce.com, RightNow and NetSuite. (While we’re at it can we coin a new moniker for them? SRN? Doesn’t have quite the panache of Wintel does it?)
In the catbird seat, you don’t really care much which model wins. If on-demand takes over the world you have a solution, if the traditionalists hold out, no big deal. If everyone suddenly decides they want to straddle the fence that’s fine because your solution is right there on the rail too.
The part of the business model that makes me just a little hesitant is the way partners are employed. Microsoft is relying, at least in part, on its partner base to customize and install the products and the company has put significant resources into a certification program for ensuring that the partners are up to speed on the product. All that is good, the partner channel is a legitimate force and Microsoft has put a lot of time and money into making it first rate. However, it is still possible for a partner without all the certification to sell and install the on-demand product so the usual caveats to buyers need to apply.
In a related issue, I tried to figure out who has ultimate responsibility for uptime and that can be a bit confusing. For example, as I understand it, a partner could sell an on-demand system which would run on Microsoft’s servers but other partners might decide to do their own hosting and it’s all perfectly fine. Again, some diligence is due here because I think the amount of back up and redundancy involved in partner hosting might vary from country to country.
In the demo I saw, Microsoft made a big deal of showing how a partner or user could customize the CRM application for a vertical market. I had a problem with that. The customization demo took just a few seconds and it was predicated on accepting and installing all of the features of the vertical application. When was the last time a customer did that?
Hidden from view was all the messy work of understanding a business, developing business rules and codifying them in software (and much more). Even the best tools take a little time to do all that and you can’t get away from the fact that most of the work involved is thinking, for which no commercial computer applications exist (yet). So, needless to say, there’s still a lot that is not visible in the three second customization process demonstrated in the video.
What’s really going on here is more interesting, I think. Microsoft has rarely been first to market with a new gizmo — the Surface is a notable exception though I consider it more concept than product. Over time though, Microsoft has managed to bring out more than its share of innovative products that have made the company lots of money. While there is still a lot of money to be made there, the innovation play in enterprise computing today is not CRM, it’s the platform.
Salesforce.com and a few others have launched the platform market. Initially, the platform was an outgrowth of CRM but that was for reasons of convenience as much as anything. Today the platform and development tools are the tail wagging the dog and Salesforce.com looks like they’re ready to eat a few lunches on the Pacific coast and elsewhere and that’s especially true of Redmond.
A lot of what Microsoft announced last week sounds really good such as the new release of Microsoft Dynamics CRM, easy customization and programs that further energize the partner base. Nevertheless, we have heard things like this before, and the delivery dates are too often tantalizingly just over the horizon. For me it will take more than a few minutes of video in which a generic CRM system is converted to a customized vertical solution before I say this is the real deal.
Maybe I should just move to Missouri.
Salesforce.com’s Summer ’07 release
I think the big news about Summer ’07, Salesforce.com’s latest release, has to be the general availability of Apex code. The language that Salesforce.com announced last winter is now ready for prime time according to the company which plans an August official release.
You have to salute the company’s savvy marketing; they’ve gotten great mileage out of the pre-announcement, the announcement of the announcement, the announcement and so on. They never miss a chance to get some free advertising but just as remarkable is the face that they always make their dates — no extensions for these guys.
So what’s so special about Apex? Well, nothing really except that it’s part of a development suite that enables companies to build applications from scratch for just about any in-house or commercial need. Remember all those spreadsheet tracking systems you once got along with? Gone. Don’t need them any more. In the time it takes to build something crude in Excel you can build something that looks and acts like software.
More importantly, with a real application you can do things like generate reports, run analytics, add intelligent workflow (another feature of Summer ’07) and much more. If you like you can also take the product to market and sell it on the AppExchange. It’s what they once used to call long tail applications for the fact that things that exist out in the long right hand tail of a Bell Curve never saw the light of day. For those applications Excel was a blessing but the days of Excel based applications are nearing the end of the line.
Change happens.
NetSuite’s stealth S-1 filing
It’s just a hunch but I think that NetSuite CEO Zach Nelson will not have the same problems with the SEC regarding his IPO that Marc Benioff had a couple of years ago when he took salesforce.com public. You might recall that Benioff was slapped with a large fine for speaking about his impending IPO with a New York Times reporter. Insiders in the finance biz cite a quiet period prior to a stock’s offering which is supposed to ensure a hype-less environment so that no widows or orphans get flim-flamed.
In reality IPOs are a schizoid cross between a circus and convent producing much ado about something we all avoid mentioning like the 800 pound gorilla in the corner. Into this tradition, NetSuite announced its S-1 filing with the SEC on one of the slowest news days of the year. There was no brass band, just a band of groggy tech journalists awakened to wonder if they could go home for the holiday. Instead they got to cover the NetSuite news.
So for better or worse the news is now out and sometime in the next few months NetSuite will sell a few million shares of stock with Credit Suisse managing the affair. Since the markets will be closed for Labor Day, we at least know that NetSuite will be forced to make a little more noise when the time comes.
The immediate questions that come to mind include, Is this good? For whom? And what about all the other vendors? Let me offer some ideas.
Is this good?
Sure, why not? It’s good for NetSuite because, if they raise the $75 million they hope to it will fill their coffers and they will be able to hire more sales people and do some more marketing. As a private company they’ve done a nice job of growing their franchise (with the financial assistance of Larry Ellison who owns about 70% of the voting stock according to the filing). Nevertheless, there is a practical limit to how fast you can grow in organic mode where you rely on revenues and outside cash to pay for things like marketing. Seventy-five megabucks could help in that department.
Who is this good for?
Well, lots of parties. Obviously the company benefits as well as the investors (that would be Ellison, primarily) but in addition, I think the marketplace benefits a lot from the effective maturation of another dot-com era company reaching this milestone. More to the point, we need to keep in mind that on-demand — which is NetSuite’s delivery model — is not simply a market, it is a paradigm shift; the way computing will be done in the future. NetSuite’s IPO, when it happens, will be another proof point for delivering software services as if they were natural gas or electricity.
More broadly speaking it would not surprise me to see other publicly traded on-demand vendors’ stock prices go north at the same time if you follow my milestone theory. Some people might suggest that another on-demand company might start making the marketplace look a little crowded but I don’t agree.
On-demand is like book publishing and if you and I each publish a book, the only way it becomes a problem is if we write on the very same topic. On the face of it you might think that’s what NetSuite is doing relative to Salesforce.com or RightNow or even Oracle but it is amazing to me that the on-demand companies do a pretty good job at the moment of staying out of each other’s way. Salesforce.com is blazing a trail in platforms and development tools as well as upper end CRM while RightNow is primarily known as a service and support company despite the fact that they also offer sales and marketing systems. NetSuite combined front and back office systems with eCommerce and that’s a bit different than the others. So the mount of overlap is not as great as you might think.
Non-SaaS vendors
This is a very different story. First, we need to keep in mind that NetSuite already exists and is in the marketplace, so an IPO will not drop a completely unknown factor into the laps of traditional enterprise software vendors. True, additional marketing and sales muscle will change the complexion of the market, but not tomorrow. It will evolve over time.
Even taking all that into account, there are a couple of vendors who should be squarely in NetSuite’s sights and they are SAP and Sage. Each company is much larger than NetSuite at the moment but NetSuite offers a tantalizing new set of choices to some of the same customers these companies serve. For SAP, which has been working out the kinks of its on-demand strategy for a long time, NetSuite is a potentially disruptive innovation in the same mold as Salesforce.com vs. Siebel. A NetSuite system that is easier to use, lower cost and more compatible with SMB business, especially at the lower end of the market, could present a serious challenge to SAP.
At the same time, that lower end of the market is not underserved. Sage represents a serious competitor with both on-demand and on-premise solutions that cover some of the same territory as NetSuite. In addition, Sage also has a significant reseller community that can put many more feet on the street than can NetSuite.
Sage has its own issues though and one of them is the company’s large collection of different applications which can both help and hurt Sage’s case. In CRM, the collection includes ACT!, SageCRM for on-demand and on-premise, and SalesLogix as well as an assortment of back-end accounting systems. Sage’s strength is its resellers who ensure that all markets are covered with the company’s large variety of solutions.
My bet is the NetSuite initially threads its way through the SMB market focusing on verticals that are underserved by SAP and Sage while building strength for a breakout and I see signs of this in the company’s recent announcements about vertical strategies.
So it looks like the IPO that many thought would be continually delayed and never happen might be about to occur. What that all means is somewhat of a guess for a lot of reasons. It’s a big market though and overall I’d say the event will be a good thing for everyone in the industry, when they find out about it.
