There is opportunity in adversity, I have been told, and I happen to believe it. Since adversity is unpleasant it is sometimes hard to look close enough to find the silver lining, but if we can get over the unpleasantness we might be able to prosper.
I have been reading and writing about the economic consequences of this recession recently and last summer about what was then the high price of petroleum. The two have come together in interesting ways presenting one of the best opportunities to come along in a while.
We recently did a survey of people who manage sales in which we tried to identify the issues of most concern to them. While the idea for the survey originated in the summer energy crisis, it ended in the panic of the early recession. One choose-all-that-fit question stands out in my mind. “What changes are you making in your sales organization as a direct result of the economy?”
Most obviously, the people who answered—nearly three-quarters managed sales at some level—said they were cutting back on non-essential hires. That’s typical of a recession and almost serves to define it. The next highest scoring issues involved travel, either cutting back or finding alternatives and these issues caught my eye.
In some ways it’s easy to cut back on travel. Fewer people in the sales group automatically results in lower travel costs, but at the price of less coverage. Alternatively, simply driving more and flying less can improve bottom line results, but what we do instead of traveling is the heart of the issue.
Last week I noted how Oracle held an on-line trade show and how the company and its customers saved a boodle on housing, entertainment and transportation costs. How much? I don’t know because I don’t have the raw data nor do I know how many people would have stayed home if the option was a conventional show. And it will take time to know if the event was positive for sales, so there were many unknowns.
As luck would have it, though, I met up with Joe Gustafson, CEO of Brainshark, the other day and he gave me an inkling of the magnitude of savings. Brainshark is not a virtual trade show company like On24 or Unisfair. Instead, Brainshark produces an on-demand environment where companies can deposit their marketing media such as video, audio and PowerPoint slides. Users of the media can review and rate the content and the system can rank them for effectiveness. Users can be anyone. Think of it more as the library you go to simply because it’s what you like to do and you’ll be close.
Brainshark’s approach is somewhat like Kadient’s, another company in the same approximate market, which uses its tool to support the sales process through playbooks. To oversimplify, the two differ in their uses and the audiences they serve.
At any rate, Gustafson told me this story, which is equally useful in a recession or in a carbon footprint abatement strategy. Brainshark had a customer with a thousand sales people and no money to put on its annual sales kick-off. The company had been planning to spend north of three million dollars for the event when the CEO said there was no budget.
Obviously when the CEO says there is no budget he or she does not mean don’t have the event. It is simply the driving force or necessity that is the mother of invention. Gustafson’s company helped this customer stage an automated and asynchronous sales kick off that delivered the training and information to the sales team for about $500k—a fraction of the original budget.
Was it the same? No. There is a lot gained at a sales meeting from the group dinners and workshops and tall tales told around a hotel bar, but it got the job done. There is also a lot to be gained from learning a lot of new material at your own pace rather than through two days of bombardment by PowerPoint too.
The stale economy is cause for numerous re-thinks like that sales meeting. I suspect that even when the recession ends there will be lessons learned from it that will cause permanent changes to the ways we sell and market. As I have noted before, face-to-face meetings were more frequent before on-line conferences made them less necessary in the last recession. This time, larger meetings and information dissemination might be up for permanent change.
Companies like Brainshark and Kadient have been around for many years, tending small patches of the market. A discontinuity like a recession or the high price of fuel or the concern about carbon footprints is often enough to tilt the scales and cause a tipping point. Put all of them together and, regardless of the health of the economy, a permanent change looks to be afoot.
Oracle did a cool thing today. They held an on-line trade show called Applications Unlimited Experts Live. The company leveraged On24’s virtual trade show technology to make it all work. As luck would have it I have recently interviewed a user of a competing trade show product for another project so I was able to get an understanding of what’s involved.
You might think that because the event is on-line that it’s easy to put one together but the same amount of planning and the same or greater amount of content has to be prepared for these events. The real payoff is that it’s a lot easier to get people to a virtual event—it’s less expensive and far greener.
One complaint, attending the event required a robust set of software for viewing and listening and although Oracle had instructions for PC’s and Mac’s, I think the PC instructions worked better (I hope), I finally got everything configured and downloaded and heard Ed Abbo’s keynote.
The interface and the virtual venue were fine and you could, if you wanted, chat or otherwise communicate with people. As an analyst there wasn’t a lot of new content for me but that isn’t the point, I get briefings all the time. What impressed me about Oracle’s on-line trade show was how well it was put together and how it operated.
There are many ways to demonstrate thought leadership in a recession and show that you are engaged with your customers, this was novel and quite good. The virtual conference saved a lot of money and ensured that customers with real interest would not be precluded from attending because budgets are tight. While that might look like great customer intimacy (and it is) it is also great operational effectiveness because it made Oracle look like a company that is easy to do business with. In a recession operational effectiveness is a great weapon that far too few companies use.
It also stole some thunder from Microsoft’s Convergence, a flesh and blood trade show happening this week in New Orleans. Think about the contrast!
Last Monday at Demo, Zuora CEO and co-founder Tien Tzuo introduced Z-Commerce for Facebook—a significant announcement that might be looked back on as a turning point in the evolution of on-demand technology.
Zuora, if you don’t know, provides an on-demand billing and payments suite for companies that sell software as a service. You might think that these companies don’t need specialized billing systems but you would meet many objections from the companies involved. Selling SaaS is intricate and difficult to do. It requires perfection throughout the customer life-cycle because the customer base votes on retaining you with every billing cycle. Screw up and your customers could easily migrate to someone else. That is both the beauty and the terror of on-demand business.
Forgive me if you have read this far and said the equivalent of, so? Hang on, there’s a little more to so about.
You already know Facebook, which is in part an application development platform for small, personal applications related to social networking. People who develop applications for Facebook do not have many options for monetizing their investment in products. They can post ads or give their product away. The ad model of monetizing the Web doesn’t work very well here. You doubt that? Have you ever read the words ‘Facebook millionaire’ in a sentence that was not about the founders? Ok.
Let’s just say that for Facebook application developers the low revenue potential is frustrating and may be holding back innovation on the platform. How big is the frustration or potential? Some simple math helps here.
There are about 660,000 Facebook applications and 150 million active users, numbers that will only grow. If ten percent of the users subscribed to an application at one dollar per month collectively there would be a revenue stream of fifteen million dollars per month or $180 million per year. If you ratchet up the user count, monthly fee or both the numbers get big quickly.
But how do you process a bill and make money on a dollar or two per month? Tzuo and his partners are betting that this revenue stream doesn’t exist yet because there has been no way to efficiently capture it. The premise of Zuora is that developers of small and large on-demand applications can monetize their applications better through on-demand billing than more traditional means and the evidence so far is that they are right. The Facebook venture is an extension of that logic.
Consider what this means for a moment. Innovation at the product level is bottlenecked by something other than the typical reasons—breakthrough technology is needed, capital requirements, lack of ideas. Instead, the raw products exist but innovation at the secondary level—making a business model that works and charging the customer appropriately—are the barriers.
I have thought hard about this but I cannot come up with an analog—a time or a situation where innovation was held up by operational considerations like this. Furthermore, if Zuora had not stepped up and said there is a potential market in Facebook applications we might not have even noticed. But they did and we have. So what does this mean in a big picture way?
Are there other markets where subscription billing could improve business models? The first and perhaps most natural place to look is where your mind naturally goes to think about subscriptions, publications. Why do we renew magazine subscriptions for one or more years at a time and why through the mail? It’s must be expensive to send out all those reminders and bills. And why is a magazine subscription time limited? Newspaper subscriptions aren’t. With a modern on-demand billing infrastructure what could a traditional magazine save over its conventional billing system?
And speaking of newspapers, maybe you’ve noticed they’re in trouble in the U.S. Newspapers are thriving in many other countries but not here. Around the world 1.4 billion people read a daily paper according to a study published in December 2008 by Dr. Jack Miller, president of Central Connecticut State University. Has the U.S. consumer tired of news or of the newspaper business model of hand-delivering information on squashed trees?
At first blush, none of this billing talk looks like a CRM issue at all, but it is. When your customers abandon you because of your business model, it’s a CRM issue. When a business fails to thrive or can’t even get started, there is a CRM component involved. When we make our businesses easy to do business with we are engaging our customers at an operational level that is every bit as important as customer intimacy. In some ways it is the relationship.
What is truly fascinating to me is that we are at a stage in many markets where innovation is turning from product and relationships to operations. Zuora’s instincts about this are spot on and I think we might be witnessing a disruptive innovation with on-demand subscription billing that is every bit as important as the on-demand innovation that started the ball rolling down hill just one decade ago.
Microsoft Convergence is being held in New Orleans this week. If you are lucky enough to get out of the cold weather, NOLA this time of year can be wonderful. I stayed in Boston hunkered down in the late winter mix of sunny days, occasional snow and cold nights. I took a briefing from Bill Patterson, Group Product Manager for Microsoft Dynamics CRM about the announcements related to CRM.
You can read the press release on-line so I won’t repeat it all here. There were a couple of things that caught my attention including a new SLA and what the company is calling accelerators and there were eight in all.
The SLA, or service level agreement, was long over due and a security blanket that larger companies need—every company needs—to have confidence that the on-demand system will perform. Microsoft says it measures its performance against the SLA on a monthly basis and gives a free month of service if it fails to meet its goal. The goal in this case is 99.9% up time, which is realistic. Do the math and look at the difference between three and four or five nines. The only thing I know of that is so reliable (or better) is my heart.
The other idea that impressed me was the accelerators. Microsoft has built a set of applications that users can download as they like to enhance the functionality and relevance of their CRM instance. BI sounds like a no brainer but not for everyone so it is a prime example of an accelerator. Get it if you need it. The same holds for an event management accelerator and an e-service portal. Good ideas for the most part.
As good as that sounds, the flip side is that these applications have a depressing effect on innovation on the Microsoft platform by independent third parties. In this model, Microsoft could conceivably continue innovating in the small application niches leaving little room for third parties.
That might be fine for Microsoft because it has a partner program full of OEMs and VARs—partners that sell and install the product. It’s a very traditional business model but it ignores the changes in the market brought on by on-demand technology. A whole class of partner—companies that build added value products but who may not resell—is potentially excluded with this approach. But it is precisely this class of partner that can best innovate in the small niches around the product.
I can’t fault Microsoft for doing this, it’s in their DNA and they are far from alone. Salesforce.com is another company that offers many applications around the margin of CRM but the difference is that Salesforce makes some room for ISV partners who often offer a better mousetrap in the niche area. For example, Salesforce offers bulk email distribution but limits the units per day. When a customer outgrows that base level capability there are many qualified ISVs to help out.
As the market continues to move to solutions that are simpler to own and operate, it makes sense to give partners something else to do. Innovating, rather than installing, makes sense in that context.
Last week Salesforce.com marked its tenth year in business. To celebrate, the company held a conference call to discuss its earnings and CEO Marc Benioff, brought presents for his investors.
The big announcement was that Salesforce had succeeded at generating just over one billion dollars in revenue for its fiscal year—the first time in history that any on-demand company posted numbers like that. Moreover, Salesforce reported that it gained 3,600 net new customers in the last quarter. It’s hard to say from that data whether companies in these economically distressed times are opting for on-demand or if this simply represents normal growth.
Other companies like Oracle and Siebel reached the billion-dollar milestone sooner in their corporate lives but I think that perspective compares apples and papaya. Software companies that reach the billion-dollar plateau have always done so on the basis of products on sale for considerable sums—often hundreds of thousands to millions of bucks. Reaching a billion dollars based on charging by the seat every month is an entirely different matter.
So a billion dollars worth of trickle-in revenue is even more impressive and it says a great deal about the acceptance of the business model as well as the technology. If Salesforce had a different pricing model, I think they would have gotten to this level a long time ago.
Critics might say that most of the seats represented by this revenue is SFA based but that can be said about almost any full suite CRM provider. There are many more sales people than marketing people in a typical organization hence more SFA seats to buy. Very large companies often have massive call centers too. No matter, Salesforce is selling in all CRM verticals and they are increasingly selling generic seats to companies that simply want to write their own on-demand applications.
It’s worth noting that there were other on-demand SFA solutions on the market when Salesforce.com got started ten years ago with names like UpShot and Salesnet. Each company had the same basic idea and each was dedicated to the multi-tenant model. But neither of those other companies is a freestanding entity today. Siebel bought UpShot and integrated it into Siebel’s on-demand offering. Then Oracle bought Siebel and Oracle CRM On-Demand traces its lineage through that line of inheritance. RightNow bought Salesnet then decided to stick to its service and support knitting.
I think a great deal of credit has to go to the CEO for Salesforce’s success. I knew the chiefs of UpShot and Salesnet at the time. Both are good people, good businessmen and each wanted to succeed. But, in my opinion, neither one really understood the disruptive innovation that on-demand computing presented. Or possibly the potential was more concept than reality and it took Marc Benioff to press the issue.
At the end of the day you could argue that it was Benioff’s vision that made the market. Without Benioff it is possible that on-demand computing would have remained a backwater, a cute idea for supporting salespeople the same way that social networking has pretty much remained a nice consumer idea.
It is interesting to note that the rise of social networking as a business tool closely correlates with the ability to form mashups with other on-demand products, notably Salesforce.com. And Benioff is behind some of it. He shared the stage with a Facebook executive late last year to announce the integration of their products and to promise that integrations with other social media were not far off.
Benioff’s vision of on-demand computing is older than Salesforce.com. As an executive at Oracle he championed the on-demand idea along with Evan Goldberg , a founder of NetSuite. Timing is everything and though the idea was mature enough when he was at Oracle, Benioff had to wait for a few technologies, like the Internet, to catch up.
As on-demand computing enters its second decade it’s worth taking a moment to consider where the original invention will take us next. Social networking, hand held devices and a vastly improved wireless Internet will no doubt contribute to driving computing deeper into our lives. But the style of computing will be far different from what we see today. It will be ubiquitous for sure, but it will also be personal to an unprecedented degree and I think it will owe a lot to on-demand, platform-based applications mashed up with social networking and who knows what else.