April 23, 2012
US Airways may be about to buy American Airlines, a combination of two ailing commercial carriers that says much about the future of aviation across the globe. Increases in crude oil prices and highly competitive markets where it is nearly impossible to raise fares enough to cover costs, is driving consolidation that has already touched Delta and Northwest, United and Continental.
While headlines advertise increasing petroleum supplies through new drilling techniques, increased global demand from emerging countries like China and India for fuels to power their economies, keeps supply tight and prices high. While supply has increased somewhat there are two issues that make these increases hard to be felt.
First, newer extraction techniques are expensive and the costs have to be passed on to the consumer, which makes for more abundant and more expensive liquid fuels across the global economy. That means no real net gain, especially for airlines, which are constrained in what they can charge.
Second, while supply is up somewhat, demand still far outstrips supply leading the U.S. to continue importing. In the recent past the U.S. produced 4.95 mbpd (million barrels per day) with demand of 19.5 mbpd. Today increased drilling and extraction enhancements yield 5.75 mbpd, but while production is marginally improving, the decline in demand brought on by the prolonged economic slump that began in 2008 has done more to move the numbers together than any improvement in extraction techniques.
To net it out, production may be up but it still does not meet demand, and in a healthy economy demand rises. So there’s little if any good news on the energy front, which helps explain why airlines are merging.
My prediction is that once the mergers are complete we will see a round of fare increases and reduction in service. First to go will be some of the ultra convenient commuter routes like Boston to New York or to Washington. There are short haul flights like these all over the map but the cost of seats will soon make alternatives like trains and driving look inviting.
My kids go from Boston to New York all the time for a one-way fee of $15. There is a certain stigma associated with bus travel but an enterprising transportation company could easily put together service for, say four or five times that fee thus reducing demand from students and producing an environment that business people can embrace. That would include wireless services but so what? That technology is already widely available. And compared with Trains and planes, busses look pretty good from both a cost comparison and a door to door view.
Last point, four dollars appears to be a threshold that the economy doesn’t pass easily. When liquid fuels like gasoline get to that point the economy goes into slow down mode. This is not surprising. It means that we need alternatives to expensive carbon inputs throughout the economy. It can start with business travel.
CRM vendors that have wondered about the necessity of porting their applications to the small screen (i.e. mobile) should take note of last week’s acquisition of Instagram by Facebook.
Instagram is the tip of a big iceberg and is perhaps a signal of yet another disruption in a disruption prone industry. It represents a big trend by emerging companies to build their applications first for the handheld device market and later for larger environments like laptops and conventional desktops. Remember when the laptop was a “small” device?
Mobile device uptake is driving demand for applications more suited to business like a flock of Angry Birds. And vendors that build first for the small platform find there are advantages to this.
I think this provides an interesting correlation with early PC era when mini-computer software companies moved their products to PCs. The ports were largely successful but they made the PC run like a mini-computer. But when we all saw the kinds of applications, the performance and the intuitiveness of PC native applications we all knew that ported solutions were merely a weigh station. I think the same thing is happening with the new generation of small and very powerful devices.
According to a story in the New York Times, http://nyti.ms/HH4e7u it’s not only the companies themselves that are ushering in this phenomenon but venture capital firms are also fanning the flames.
As a technology decision, going small makes perfect sense. Small means small in most conceivable ways. So why architect an app for a larger computer when you know you will be reducing its footprint when you attempt to cram it onto pocket devices? In many cases apps that are hits on the handheld will transition to the larger formats of more traditional devices and they can easily grow in the transition once the developers have a clearer understanding of customer likes.
Of course, a growing percentage of device centric applications have no real analog on larger devices. For instance, Foursquare, an app that enables people to let their social followers know where they are and what they are doing, absolutely requires a mobile device to give it context. Foursquare for the desktop would barely make sense and have to be re-imagined.
So a billion dollars for Instagram not only highlights the importance of mobile devices but it reveals many new niches. For example, the already mentioned venture capitalists already have another technology area to analyze and invest in. And device makers have greater incentive to be first to offer specific applications running on their infrastructures. Where it was once enough to offer internet access for first generation social networks like Twitter and Facebook, device vendors now need to ensure that these third party apps look completely at home on their platforms.
But there’s more. Tool vendors who offer cheap, fast ways to develop, deploy and ultimately port applications from device to device become essential to this play. That means, the VC’s will quickly need to zero in on the infrastructure that supports device app building.
And what does this mean for CRM? A year or two ago vendors realized they needed to scramble to get their applications running well on portable devices because users were demanding it. The mobile sales person is ditching the laptop or at least leaving it at the hotel and managing the day to day with a smartphone or tablet. The better networks and more affordable communications plans, longer battery life (compared to most laptops) open new application areas too.
I am told that one of the favorite tablet applications on the iPad for pharmaceutical sales people is YouTube. That’s right, because instead of trying to ramble through a 30 second pitch, the rep simply asks permission to show a short video. Video packs more information and holds attention. It’s also more passive for the viewer so it has a future in CRM and thus so do smart and inexpensive devices.
The only yellow flag I see is the monetization issue. How do you make money at this? With many applications available for free and most costing under five bucks, it’s hard, if you are a VC, to see how these emerging vendors might become the billion dollar success stories of the next decade. Facebook can only buy so many companies.
Finally, for a long time we’ve been attributing the success of Arab Spring and Occupy Wall Street to social media. And while there is no doubt that social was a big component of the success, we’ve overlooked mobile devices, which are inseparable. Increasingly, as social media spreads around the world, it is being driven by the affordability of mobile technology. Mobile might be just another form of computing we all use, but for a growing segment of the global population, it is the computer.
In a world of Big Data, you don’t need to fret about CRM going away. The back end becomes more, not less, important as analytics surges. Big Data is surging too because social networks and by extension the mobile devices that inhabit them are generating the avalanche of data that must be processed.
And here we can see the most efficient model taking shape. The mobile device is rather dumb compared to the big CRM system, but it is a vital link. It sends data to the mother ship and expects information back fast so that the user can leverage the knowledge it contains and drive faster decisions. Time to invest in faster networks.
Shades of Tracy Kidder. IBM announced it was buying Varicent, a sales compensation solution provider and Xactly! the SaaS compensation solution, welcomed the new competitor with pretty much the same logic that Data General used when IBM announced its mid-range systems.
According to Kidder’s book, “The Soul of a New Machine,” DG famously developed, but never ran, an ad that discussed how IBM had legitimized the mini-computer market with a headline that read in part, “The Bastards Say Welcome.”
But enough of the history, you had to be there.
Xactly is taking a decidedly different approach to IBM’s legitimization of the compensation market. To call it a compensation solution is to miss about half of what it does with analytics and reporting and thus managing a company. But check their website for details.
Xactly CEO, Chris Cabrera was upbeat and quite happy when we talked on Friday about the deal. Among other things he said, “This is good for our space. We’ve said for a long time that this data is valuable. It represents a company’s family jewels,” because it contains information about what was sold, who sold it, what channel was involved and a lot more that a business can leverage.
I think Cabrera is right to be enthusiastic about the news. First, having IBM in the market proselytizing about the importance of sales compensation, its data and analyzing it can only be good for everyone. In fact, it looks to me like IBM might have the tougher row to hoe because Varicent is a traditional software company with all the costly implementation and maintenance issues that go with that category.
In contrast Xactly has a SaaS model which makes it light on the wallet for acquisition, deployment and maintenance. Xactly also relies on more modern cloud technologies like Hadoop and NoSQL Big Data so the competition will be interesting. If IBM aims Varicent at the enterprise market then I can see it being insulated from some of the challenges of competing with SaaS but even there and especially down market, I think Xactly will be tough competition. We’re talking about old style applications and the new century.
At the end of the day the competitive issues will center on analytics and the information a company can glean from its sales compensation data. IBM has a big salient in analytics and Xactlyhas one in compensation management. Success for either company may come down to how customers frame the issue for themselves and how each vendor responds. Let the selling begin.
Selling is hard work. In Sales 101 you need to learn that every customer objection is not a demand for a lower price, though that seems to be SOP for more companies these days. Sometimes a customer gripe is actually of the variety that says this doesn’t meet my needs. At that point what amount of discounting is appropriate to induce an otherwise sane person to buy a product?
The book publishing industry is one of those old school marketplaces where vendors compete on price when all else fails, which happens often. Thus we have the discounted book, the paperback, the eBook and countless remainder bins and second hand bookstores. If the originally published book didn’t sell, perhaps it was mispriced; there must be a market!
We are witnessing a particular or peculiar form of this logic in the book industry right now. According to an article in today’s New York Times, Justice Department is suing publishers and Apple for colluding to fix the price of books sold and delivered electronically. It gets complicated or even Hobbesian as the eBook has become the publisher’s way of selling another electronic book reader, content be damned.
So we have a bizarre situation in which Apple set the price for eBooks in its store and thus set the standard for the industry. Publishers and book sellers, competing on price decided they needed to be the low cost producers or die trying. Some have done both, RIP Borders. Now the titans of the book world along with the DOJ are trying to figure out whether ten or fifteen bucks is the right price level seemingly regardless of content but amid all this an important constituency has been over looked. How about authors?
Books aren’t a commodity capable of being mass-produced and sold off at close to the cost of running the presses. There are real costs associated with making a book like the year or longer it takes an author to conceive an idea and thrash it out. And that’s not even accounting for the latte bill, all those cigarettes and, if you write fiction, the beret, the cold water flat on the Left Bank and those French lessons. But I digress.
Here are some fun facts to consider. The standard writer’s contract with a publisher is an 85/15 split and no, that’s not why writers get rich. A typical book might sell ten thousand copies. Most publishers I have dealt with have their own proposal template that they want filled out when you propose a book idea. Along with describing what the book is about and chapter outlines, they ask such literary questions as, how big is your social network, how do you propose to market and sell this book, do you have a website and more.
For 85 percent the publishers do very little to market your book. They employ editors who should be able to help you improve your idea but much of the time an editor is simply a taskmaster. I am not going to go on. For the full experience you just have to put book writing on your bucket list.
The point of this piece is that publishers with the help of the DOJ and book sellers are squeezing the authors. Too often lowering the price of a book doesn’t do much to increase sales so you can forget making it up on volume. Less is simply less.
So if writers are going to get a diminishing piece of the pie, why do it? Why write a book? Why does Rice play Texas? You do it because you can’t imagine an existence where you don’t do it.
The good news is that thanks to the internet there is a growing industry concerned with helping people publish their books. Of course, with such democratization you can expect quality to suffer, but that’s not the point. If you have a good book and you know what you are doing, you can publish it with any kind of covers, even electrons, and you can sell it.
Self-publishers do the hard work of securing the sacred ISBN number and bar code that enable a book to be inventoried and sold through all outlets and they do the printing. Better yet, the self-publishers have their own on-line stores. So consider this. If you have to put together a sales, marketing strategy and build a website and promote a book to your social network, why bother with a publisher at all?
Book publishers abetted by the DOJ are trying to consolidate the publishing industry into a walled garden in which the publishers set prices that they think the market will bear, regardless of the effect on writers. But there is a big open gate in the wall through which writers will escape.
You can argue that book sales are not the way most writers make a living and that books are just an introduction to the world of public speaking, teaching and other forms of writing or thought leadership. To that I say, right! So if a writer has to be self sufficient in all those other ways, why bother with a publisher at all?
Thanks for the overwhelming response to last week’s post, “Why CRM Works.” It was surprising and gratifying that so many people read and tweeted about it given its length — almost double my usual contribution. Since it was based on Daniel Kahneman’s groundbreaking work, I give all the credit to him and his great career in trying to understand how we think.
One comment came in that I thought would make a good jumping off point for this week. Barry Dalton wrote:
“I’m confused as to how the Sales VP involvement metric is a System 1 decision point. If it is based on quantifiable evidence, derived through an analytical method, wouldn’t that be a system 2 decision? Or, is it the fact that, once the analytics proves the assumption to be true, it no longer requires analysis at each decision point, so therefore moves from system 2 to system 1 because you’re now accepting it as fact without additional analysis?”
Dalton answered his own question in his second interpretation. Once the thinking has already occurred, the result is a real metric that with use becomes a KPI or key performance indicator. In my response to him I said that the great thing about KPIs is that they cross over from System 2 into System 1 land. Everyone doesn’t have to do the same thinking and re-discovery, they only need to use the KPI as a valid new measure.
The best analogy I can come up with for KPIs like this is of an enzyme, a biological catalyst that makes reactions happen faster or require less energy than the reaction would require under un-catalyzed conditions. Ultimately that’s what we all want — ways to do the right thing without having to cogitate over it incessantly.
System 1 and System 2 are really just the beginning of the story though and the value of understanding Kahneman’s work is that it helps us identify when we might be slipping into System 1 thinking even when our limited System 1’s might be out of their depth. According to Kahneman, System 2 is powerful but “lazy” in that our brains would prefer to rely on a more or less automatic System 1 response than engage System 2.
You can see this in real life. System 1 is rarely stumped for an answer and often when confronted by a System 2 problem we might simply opt to change the subject. So, for instance, you might find yourself or someone you are speaking with answering the question they wish they’d been asked rather than the one they don’t have an adequate answer for. This happens all the time. No wonder we can sometimes seem to be talking at cross-purposes!
There is a practical CRM application here too and I’ve been waiting for weeks to set it up. So much of conventional sales and marketing is mired in System 1 activity. Customers have short attention spans and we have relatively small windows to try to get a new idea (our products and services) into them. If an idea seems the least bit foreign there is a good chance it will be rejected by System 1.
The solution is to attempt to reach a customer’s System 2 thinking apparatus. That’s what we do in a conventional sales process in which a sales person builds up credibility and trust with a customer so that he or she can educate the customer through System 2. It’s often said in sales that people make logical decisions (System 2) for emotional reasons (System 1) and this is my interpretation of how and why.
But how do you achieve this today? Companies trying to cut costs put products into other channels, for example or they develop freemium models that enable customers to educate themselves. Unfortunately, the revenue potential of a freemium is often bupkus. That’s where social media is so valuable.
If we believe the research, then people have greater trust in “someone like me” when it comes to understanding a product or service. Social networks and communities are places where people feel secure enough to expose the System 2 side of their thinking and to receive other people’s ideas. And that’s why social media is so important to the future of business. If you can use social techniques to reach System 2 you can catalyze your business processes. But there’s a cost associated with this.
The new role of the enterprise is to ensure that in its social space people are respected for their ideas and that only truth is allowed to be broadcast. That’s also why potentially embarrassing or negative information about the vendor is allowed to circulate. Nobody’s perfect and trying to suppress truth is how to engender dis-trust.
This is all very interesting to me and another question worth exploring is how social media can really succeed inside the enterprise. Consider this: if social media has the potential to make us work or work harder and our brains love to be in System 1 mode, how do we use social constructs to get people to willingly engage their System 2’s inside the enterprise?
That’s not an idle question as many organizations are attempting to cross a chasm right now from old style thinking (and business) to become new and modern social enterprises. Let’s tackle that one next time.
