One More Time, with Feeling!
Oracle announced another software company purchase today. Its purchase of Responsys makes a few founders, VC’s, and assorted vested employees very happy for the holidays. Good for them. Really, I mean it. Good for anyone who has a liquidity event like this, regardless of time of year.
Now what?
Over the last decade Oracle has demonstrated its ability to imitate the business model of Computer Associates, which made an art of buying software companies and milking them for their support revenue. It did quite well in the process though buying old companies is a bit like buying a used car. There might be some good miles left in the old dog but you also have to embrace the risk of future unexpected breakdowns.
But that was Oracle-as-CA 1.0, when it bought Siebel, PeopleSoft, and all the other client-server applications companies. Responsys is far from an old company and if you look at the companies Oracle has bought recently, they are far from over the hill. They are emerging companies in an emerging market with plenty of tread left on the tires, to continue the metaphor.
This has led many people to issue warnings to other vendors in the space like Salesforce. For instance, Raghu Raghavan, founder and CEO of Act-On, and a co-founder of Responsys, has a post addressing the purchase that says in part, “Salesforce now has a formidable competitor for the Marketing Cloud that they have so expensively acquired. On the B2C side, Oracle/Responsys is (and always has been) clearly superior to Salesforce/Exact Target, and on the B2B side, Oracle/Eloqua easily trumps Salesforce/Pardot. Whoops!”
Well maybe. The thing about predictions, which I always put into a sports metaphor, is that while a team might look pretty awesome on paper, you still have to play the games. Nowhere was this clearer than with this year’s Red Sox. The team crashed and burned in September 2012 and no one expected much out of them this year but they went on to win the whole enchilada. Ditto the Yankees. Riddled with injuries and a certain albatross named A-Rod, they didn’t have a great year (for them) but they sure were entertaining in part because they kept finding a way to compete and win. I see Salesforce more like the Yankees. They’ve had some stellar seasons and they always find a way to win.
One thing Raghavan’s quote obviously doesn’t take into account is that the world has already moved beyond marketing automation as the shiny new object. It’s still way, way important but as recently as Dreamforce, Salesforce indicated that marketing is already in the rearview mirror just as surely as the current year is. That’s important too because, Salesforce has been calling the tune in CRM for many years now. First it was multitenancy and SaaS, then cloud, then social, then marketing, and now platform and becoming a customer company. This last advance is more than a slogan and it is the heart of why Oracle’s acquisition signals overreach and not shrewdness.
The fundamental assumption of the approach used by Oracle, and you might as well say Microsoft and SAP too, is that the market has not changed and will not change much. That vision is expressed in the vendor-consumer model and the product sale vs. subscription consumption model, take your pick. The reality is that vendor-consumer works well in new markets with new categories because it depends on land rush customer mentality. Seen many new categories lately? Hmmm?
Also, the subscription model is advancing on multiple fronts turning all kinds of products into services. More importantly, subscriptions are teaching consumers to be customers in a very different model where the customer forms half of a virtuous cycle of dependency that is antithetical to the vendor-consumer linear model. It’s a subscription culture today and culture is pervasive so regardless of whether you operate a subscription model or not, your customers are approaching you from that mind set. Approaching them from your old mindset might be hazardous to your business.
If Salesforce’s CEO and ringmaster, Marc Benioff, is right, then becoming a customer company is going to take more than the resources of a single company, it will require the efforts of a village, a community of loosely associated partners with solutions based on a common platform.
In the matchup between Oracle-as-CA 2.0 and Salesforce, I like Salesforce’s chances. I’ve said it before but it bears repeating, these guys have a Blue Ocean Strategy that isn’t predicated exclusively on which companies they buy and send into the breach.
They’re envisioning a future of business that they iterate towards and with every Dreamforce they get a little closer. But because the competition is stuck in an old model, Salesforce’s moves don’t entirely make sense and their boss can sometimes look like a simple huckster.
Who’s right? Which team will win it last game of the season? You have to put them on the field and let them play. So, game on, 2014, over and out.
Theory and Hypothesis
We’re winding down to the year-end holidays and CRM news is slow so I decided to scratch an itch. I’ve been interested in the difference between a theory and a hypothesis for a long time but lately it seems we’ve done a bang up job of confusing the two, not because of anyone’s evil intentions but due to differing definitions. So I decided to do some research and to the best of my ability see if the confusion could be dispelled. Of course, some people might like the confusion or prefer their definitions but this is simply my attempt to provide some organization.
The difference between hypothesis and theory is a lot like the difference between data, information, and knowledge, which I have been writing about all year. Data, information, and knowledge represent a hierarchy of, among other things, truth though some scholars like the early data scientist, the late Claude Shannon, would have also said that they represent increasing entropy in the top down view i.e. knowledge to data.
By analogy a theory is a hypothesis that has had some work done. Specifically, in the formal sense, a theory has been scientifically tested and found to be valid for explaining certain aspects of the world. The trouble comes from realizing that theory has both formal and colloquial definitions and that people sometimes use them interchangeably as they do data and information.
Lawyers have theories of their cases like Col. Mustard, in the library, with the candlestick. In a case tried in court the opposing attorney might concede the library and the candlestick but dispute the actor in this case the colonel offering instead another suspect.
Here’s where it gets interesting. The prosecutor accusing Col. Mustard has to prove the theory beyond doubt but the defense only has to offer a plausible alternative in other words, to sow enough doubt that the prosecutor’s case falls apart. The arbiters of this pseudo scientific experiment are twelve people on the jury. This is pretty close to scientific inquiry but it falls short in part because while the theory of the case might be proven or disproven, there are too many variables such as the jurors to compare a trial to a scientific experiment. After all juries get it wrong often; witnesses’ recollections can’t always be trusted, and so on.
The scientific definition of theory is more rigorous. A scientific theory is testable at any time and is the product of testing a hypothesis and finding that the hypothesis does, indeed, explain some aspect of the natural world. Experiments are designed so that they can prove or verify a hypothesis or disprove or falsify it. Once arrived at, a theory is one of the highest forms of scientific knowledge on a par with a scientific law, like gravity.
Remember the Col. Mustard example above—Mustard, candlestick, library? A theory describes the mechanism from which we get the conclusion and that’s the important difference between a theory and a law. A scientific law does not posit a mechanism to explain phenomena. Take gravity for example. The law of universal gravitation has been around for a long time. Newton provided the math for it saying basically that gravity was inversely proportional to the distance between two objects and directly proportional to their masses. But the mechanism of gravitation is still being worked out at places like Cern where scientists smash atomic nuclei together to observe the subatomic particles that result hoping to discover the particles that cause gravity.
Netting this out we know gravity exists from repeated observation even if we don’t exactly know how. At my house, my wife simply expects the car to run, I would say she believes in the law of the car. I attempt to understand the car’s mechanisms so that I can understand if a repair is necessary. I think of myself as believing in the theory of the car.
Lastly for this section, laws and theories have to be falsifiable meaning you must be able to design experiments that will conclusively prove or disprove them. For a very long time Newton’s explanation of physics was thought to be the last word because it seemed provable in all tests. But then along came Einstein who showed that Newton’s laws were a special case of a more generalized law that took into account the speed of light and what happens to matter as it approaches that universal speed limit.
Now this is important. More often than is healthy some of use conflate the meaning of theory. Is it the colloquial theory that’s more like a hypothesis that we’re talking about or is it the scientific and verifiable through experimentation concept that scientists hold to? The answer is important because we can often see arguments about theory that seem insoluble like the participants are talking past one another. One might say “It’s just a theory” implying the “it” is simply a hypothesis while another might say, it’s a theory and it’s scientifically proven.
Everything goes kaput if someone brings a deity into the discussion. Something done by a deity might be quite nice but completely incapable of proof. Quick—design an experiment that tests the impact of a deity. The first thing you’d have to do is figure out a way to control for deity, to run the experiment with no deity present and compare it to the same experimental run with the deity present. There’s the rub. No one has been able to do that so hypotheses assuming a deity are considered outside the realm of science and therefore untestable. More importantly these hypotheses cannot be evaluated on the merits of scientific theories because, well, they aren’t falsifiable.
This brings us right back to the “just a theory” statement. If we’re going to strive for clarity in our communication, we really should be working from the same set of definitions. So the next time someone tells you “it’s just a theory” ask them tenderly, politely, what they mean by theory in the first place rather than trying to prove or disprove your basic idea. You might head off an argument simply by agreeing to disagree on the meaning of the term. But be prepared to defend your definition too.
Enjoy the holidays!
Happy New Blog
Once a year I write a post that tries to predict some of the big happenings of the year ahead. The success of these efforts relies on clear thinking and objectivity — trying to figure out what will come to pass rather than what I want to see happen. It’s hard but thankfully no one ever checks up on me a year later.
First, let’s take a look at the general economic outlook. The global economy is improving, unemployment is trickling down at least in the U.S. and there are some bright spots like improvements in manufacturing and construction. The Federal Reserve is poised to get a new leader and Janet Yellen has been nominated though at this writing it is far from certain that she’ll pass the senate because she’s a Keynesian after all.
But in a recent Op-Ed in the New York Times, Martin Feldstein, a professor of economics at Harvard, who was chairman of the Council of Economic Advisers from 1982 to 1984, under President Ronald Reagan, suggested a very Keynesian stimulus so perhaps some further stimulation of the economy could be in the offing.
Long story short, the economy is looking better than it has for some time but it’s not great. On the other hand, there is a goodly amount of capital floating around looking for homes in late stage start-ups and the class of potential IPOs looks strong with names like InsideView, Xactly, Apttus, TOA Technology, ServiceMax, FinancialForce and many others. None of the CEO’s want to talk about that stuff, it’s like each is a pitcher in the dugout in the 8th inning of a perfect game.
All of these companies offer SaaS solutions and all are available on the AppExchange which suggests that my universe needs to expand. Nevertheless, the Exchange is a good place to look for signs of opportunity. I suspect application stores or exchanges are going to be very important incubators for new ideas in front office computing so I’ll continue watching them for new signs of life. You never know what you’ll find.
I expect a continuation of a trend that started last year in which marketing became the new darling of the front office suggesting that customer service (which is always important) is cycling out. Service is where vendors go during downturns so that they can try to protect existing revenue streams and, of course, SFA takes a back seat. But after a year of marketing hoopla I think the stage is set to put more wood behind the sales arrow to begin reeling in some of the leads that new marketing systems have been nurturing. So I am looking for new activity in the SFA part of CRM. But not just any activity.
I am still digesting the Bluewolf report “The State of Salesforce” that came out just before Dreamforce. One of the most intriguing findings from the report is that community is the new CRM. If that’s true, it is fairly easy to postulate significant changes to the way we sell. Perhaps sales people will become more involved with communities sponsored by their companies as a way to accelerate sales processes and lower the costs of making customer calls. What sales manager wouldn’t like that?
But I think the hidden message is that community will evolve more as a marketing and service hub, than as a sales tool. Sales will be a by-product of a lot of customer-to-customer interaction. Currently communities are mostly thought of as a part of marketing or as a part of service but I do not think it too far fetched to consider the possibility that community will become its own entity on a par with sales, service, and marketing — its primary consumers. Away from its departmental blinders, the community might be more able to take action to benefit all departments instead of just one.
Run well a community can provide a lot of information to a company and at some point it might make sense to give it its own charter and budget rather than having it mooch off the budgets of marketing or service. I suspect when that happens it will get a new name. Right now we have IT, which takes a technology perspective and that perspective is valuable. But this new entity will be more focused on information development or intelligence. This seems right and I like everything about it except the moniker. No one is going to want to work for ID, just a hunch but I can’t see calling the new department the intelligence department. Given the NSA’s reputation right now, we’ll keep clear of that.
This transition won’t happen over night so it won’t be complete in 2014, which sort of gets me off the hook in prognostication. But from another perspective, the oft quoted Gartner idea that the CMO will have a bigger technology budget than the CIO in a couple of years, I think, goes to the heart of what I am saying. But it won’t be the CMO’s budget, it will be the CIDO’s or whatever we decide to call him or her.
Add Data as a Service to Your Wish List
Cubist art is a reordered rendering of everyday data.
In our discussions of data we seem to focus on two major areas, either collecting a lot of it or making sure it’s clean and tidy, but there is a third idea worth considering in relation to overall data management, too. The collectors are a bunch of usual suspects who espouse the importance of capturing customer crumbs so that you can figure out what they, at least in aggregate, want, think, feel etc.
Then there are the cleansers, the vendors that provide ETL tools — that’s extraction, transformation, and loading — which neatly describes a round trip also described as wash, rinse, and repeat. It’s all good and valuable but if that’s all you have you are missing something.
What’s missing is encapsulated in the sage saying that you don’t know what you don’t know. The data we collect is overwhelmingly first order in my conception. By that I mean that one way or another, I can collect a bunch of data about a customer and derive information from it. But the information won’t necessarily be enough for decision-making because it will not necessarily be complete.
Even in a business to business or B2B setting, if I collect data about your company, where it’s located, who the executives are, who the decision-maker is for the products I sell, and more, I might not stumble across the fact that your company is owned by some other company and most importantly that decision-making is handled by the other company. I could simply ask someone that I am calling on in a sales situation about that, and that’s what I did in the bad old days. But truthfully, once I am in the account it is becoming too late because I’ve invested time and resources. In other words, the cement isn’t hardened yet but it is setting up.
It would be preferable for planning purposes and resource allocation if I knew all that before I picked up a phone. As it turns out that’s at least part of the value of Data as a Service. It’s the ability to fill in the information gaps that might not get filled any other way. In a similar vein, you might also be able to get such non-trivial information out of a service as the prospect’s credit rating, which could come in handy when you want to get paid.
All this is to point out that the growing data industry is something of a three-legged stool consisting of vendors that supplement, clean, and manage data for your company. This is obviously completely different form the data management you need to do to keep on top of accounts and revenues but that’s usually an in-house job and there are other vendors for that.
I keep DaaS separate in my mind from sales or marketing intelligence. There’s no reason that a vendor can’t supply both kinds of solutions but they are different enough in my estimate to keep them distinct. It’s also likely a vendor might want both. Intelligence vendors provide more breaking news-like information that is often consumed by sales and service organizations while DaaS can be consumed by sales and marketing but also finance to help guide financial decision-making. The two services overlap and it’s getting harder to tell them apart. Each provides a relatively low cost approach to more rational decision-making that didn’t exist a short while ago.
Add this data discussion to a changing market and you see where this is going. We are inexorably changing the way we sell from a face-to-face process to something that’s a bit more automated especially in the early going. That means less opportunity to ferret out hidden data and greater reliance on electronic sources. As we contemplate the new year and our sales and marketing planning it might be a good thing to examine how our organizations capture, manage and use data, and whether or not we have enough of it.
Get a Horse
I was literally gobsmacked and I had to re-read the post several times. Gartner analyst Robert Desisto—who I don’t know at all—wrote a short post last week saying that today’s SaaS vendors, “will resist the move to ‘pay as you go’ because it will have a very big impact on their business model predictability” and become “legacy dinosaurs” as his headline said.
But, but, but! I stammered to myself. How can that be? I have been researching and writing about this space for fourteen years. I was the first analyst to cover Salesforce and a bunch of other early entrants, and one of the first people to have a practice dedicated to SaaS. They all had pay as you go models, at least back then. Did I miss something?
One of the real challenges of running a subscription business, and this includes SaaS companies as well as the Dollar Shave Club, ZipCar, and all the other companies that jumped on the bandwagon, is that you have very different revenue flows that must be accounted for. Companies like Zuora have built big businesses and attracted hundreds of millions of dollars in venture funding to build billing, payment, finance and accounting systems that cater to this massive industry. Now along comes Gartner with the clear implication that the pay as you go model is not in fact alive and well? I didn’t get it. Still don’t.
As a sanity check I contacted Tien Tzuo, CEO of Zuora, a subscription billing, payments and finance provider. In his previous life Tzuo was CMO of Salesforce and at one point had the job of inventing a billing system for Salesforce that operated the way subscriptions run. Here are some points from Tien.
- Just because some SaaS companies do three-year contracts that doesn’t make them enterprise software dinosaurs. Every successful SaaS company realizes that keeping churn low is a core part of the model, and every successful SaaS company realizes that long term contracts do not equate to low churn—the only thing that truly reduces churn is to have strong adoption and customer success. That’s why SaaS vendors invest in customer success while on premise software companies do not
- Many SaaS companies actually don’t offer three-year contracts. At Zuora, we see lots of companies with month-to-month models. CDNs, cloud companies, API companies, point-of-sale systems—these industries all skew towards month-to-month. Radian6 also had a month-to-month model. The post also says doing three-year contracts makes SaaS companies vulnerable to other startups who choose to offer month-to-month … but there’s nothing to stop the SaaS vendor from changing their billing policy whenever they want. (my note: provided they have a product like Zuora that makes this easy to do the billing and accounting).
- Customers don’t have to accept three-year contracts. It’s naive to say that it’s the SaaS vendor that forces it on them—many companies actually prefer long term contracts once they are committed to the SaaS vendor, as this gets them the best price as well as longer-term price protection. This can be a win-win scenario.
- This does create havoc on revenue recognition. Monthly billing makes billing messy but revenue recognition easier. Annual or multi-year billing makes billing easy but revenue recognition very hard. There’s no free lunch.
It was such an odd thing to read. It reminds me of some other chestnuts like, “If god wanted man to fly he would have given us wings,” or “We will never need telephones in England because we have such an abundant supply of messenger boys,” or “Someday every town will have a computer,” or my favorite, “640 KB is all the memory your computer will ever need.” These are all such Luddite comments you just knew upon hearing them that they won’t stand the test of time. Heck, this one didn’t survive a day before people started scratching their heads.
Perhaps the last word on this comes from the most authoritative source—the marketplace. On December 10, BrainSell, a Boston-based technology company announced it would offer an integrated solution of Intuit’s QuickBooks with bi-directional synch to Salesforce. According to the press release, “What’s really great is that customers can get a Salesforce subscription from BrainSell with no contract, and the ability to pay month to month!”
