Oracle buys NetSuite
You had to believe this day was inevitable. Oracle announced it was buying NetSuite a cloud ERP provider with over 30,000 customers worldwide for about $9.3 billion. Oracle founder, Larry Ellison also had a large part in founding NetSuite including being one of its top investors. I have always looked at it as Larry’s experiment in cloud computing and I think that is key.
Eighteen years ago, when NetSuite got going, Oracle was already a very big company dominating the relational database market as well as the market for enterprise business applications. Oracle’s challenge then was best summed up in Clay Christensen’s book, “The Innovator’s Dilemma,” though it never mentioned Oracle or NetSuite explicitly. The dilemma being when should a successful company consider cannibalizing its own business to avoid enabling new entrants to the market to do the honors.
The dilemma stems from the fact that successful companies had, until the last 20 years, been loath to change their secret sauce, the thing that made them successful. But a series of disruptions initiated by cloud computing pioneers like Salesforce, showed that standing pat was as dangerous as playing with matches around your balance sheet.
So that was Oracle’s dilemma and you could see it unfolding as then CEO and founder Larry Ellison carefully launched what was then called NetLedger under the leadership of trusted lieutenants Evan Goldberg, CTO and founder, and Zach Nelson, CEO. NetSuite was a lifeboat strategy intended to provide a safe place to pour customers, cash, and expertise if the need ever arose.
As a startup NetLedger morphed into NetSuite and had far less overhead and bureaucracy to contend with than an established company like Oracle and so its innovation cycles were quick and nimble. Taking no chances, Oracle plunged ahead into cloud computing building its own platform and applications, which would eventually displace its traditional products. It also bought a slew of other cloud companies too because buying companies is less risky than trying to fund a similar amount of development in house.
So in this regard, buying NetSuite can be seen as just another cloud company acquisition by Oracle but it’s much more than that. It’s the culmination of long-game thinking—precisely the kind that few public companies can invest in today given the short time horizons of quarterly earnings reporting.
This long game approach is what critics lament is no longer practiced in the Fortune 500. But today, one of the founders of a Fortune 500 company (#77 if you are counting), a brash, fast talking, America’s Cup winning, technology industry showman, pulled a rabbit out of his hat. This shows that planning and execution still count for a lot in business if you know how to adapt.
Four attributes of customer loyalty
This is the first of four posts on modern approaches to customer loyalty aimed at improving it through customer engagement. A fuller discussion is available in my new book, You Can’t Buy Customer Loyalty, But You Can Earn It.
As I see it there are four basic capabilities or attributes to building better customer loyalty that I learned about in an article from two McKinsey researchers David C. Edelman and Marc Singer in a 2015 Article in Harvard Business Review, Competing on Customer Journeys. Edelman and Singer say (and I agree) that they are,
- Automation
- Proactive personalization
- Contextual interaction, and
- Journey Mapping
What strikes me immediately is that only two of these attributes are purely or largely technological (1 and 4) while the others are decidedly organized as human mediated processes . This strongly suggests that we can’t simply throw technology at the problem to make it go away. Moreover, the human mediated parts require a good deal of high-level thought to pull off. But this is getting too far ahead. The first item is automation and it deserves full examination.
Automation
Most thought leaders on customer loyalty will acknowledge the importance of automation but few get us to the point of understanding that even here, each business’ automation will be vastly different from any other’s. Why? Because circumstances such as products, business models, employees, and many other attributes form unique offers that have to be handled as one of a kind ideas.
The purpose of automation has always been to reduce labor input to derive greater throughput from business processes, maximizing the utility of the resources we invest. On the employer side, this is usually called productivity but automation can have the same impact on the customer side. Simply because a customer isn’t on the payroll doesn’t negate the importance of respecting a customer’s time and effort; thus, automation is a great way to take some friction out of a business process on behalf of a customer—and it works.
Often (but far from always) automation comes down to mobile apps so they’re a good place to start. In my book I look at two very different mobile apps, the Starbucks mobile app and the Hilton Honors (HHonors) app and, as I mentioned, they couldn’t be more different.
Starbucks
The Starbucks mobile app encompasses the company’s revamped loyalty program. It was so successful that it left executives with the happy problem of having to explain a huge revenue bump in an earnings call last year. With the app in place, year-over-year revenues for the company jumped by 17.8%, an unheard of amount. The new automation carved a good deal of friction out of the customer experience for its users by letting them order and pay with their mobile devices rather than waiting in lines. They showed their appreciation with more business.
Of course there was a strong dose of the other three attributes in these results. For instance, the app incorporated the customer journey to a high degree affording the ability to proactively personalize the Starbucks experience and we’ll explore these ideas more in a future post. For now, it’s exciting to see such powerful results from the app’s deployment.
Hilton
About the only thing that Starbucks and Hilton apps have in common is that they run on iOS and Android. But more importantly, each does a great job of anticipating customer needs, too. For Hilton this means that the app helps people reserve rooms and also lets them check in without standing in line at the front desk. Not only that but with the app customers can select a room on the property, order room service or a morning paper, and the app even enables the phone to function as a room key.
What’s powerful about both apps, and what’s often overlooked, is that they are additive. For example, turning a smartphone into a room key as Hilton has done is not as complex painting Cubism, but few businesses would go out of their way to build just that functionality. The Hilton app’s hidden benefit is that it acts as a platform on which the company can build all manner of solutions for customer outreach. When I wrote the book more than a million people per month were using the Hilton app to check in and that number is likely growing. The same is true for the Starbucks app, which is also functioning as a platform.
Customer engagement
We’ll revisit the idea of customer engagement again and again, and it’s worth pointing out that the best automation is designed to make it easy for customers to reach out to vendors. Customer initiated engagement is more valuable than almost anything for developing relationships that lead to customer bonding and loyalty. The secret to developing apps that support customer loyalty is to focus on being present in customers’ moments of truth—the times when they need you most. For Starbucks this meant ordering and payment, remembering favorites, and identifying new locations among other things. For Hilton, it meant reducing friction in the hotel stay.
If you’re looking for commonality between the apps that’s it—being in customer moments of truth. And if you look at your own business you’ll find unique moments that you can take advantage of in the same way.
Waiting for change
A couple of weeks ago Allison Arieff wrote a piece in the New York Times titled “Solving All the Wrong Problems” that gets to the heart of the technical times we live in and its focus is not what you might think. She includes a long list of things we can buy or subscribe to such as:
A service that sends someone to fill your car with gas.
A service that sends a valet on a scooter to you, wherever you are, to park your car.
An app that analyzes the quality of your French kissing.
A “smart” button and zipper that alerts you if your fly is down.
A sensor placed in your child’s diaper that sends you an alert when the diaper needs changing.
It goes on but you get the idea and you can always read the article here.
All of these things have in common the idea that just because we have the ability to make them doesn’t mean we should. Presumably the ones that got venture capital financing had someone asking, how does this make money and receiving an acceptable answer.
At about the same time this article ran, I needed a water heater so I went to a big box store and searched for—wait for it—someone to wait on me, to answer a few questions in other words. There were three models on display but in a perversion of good, better, best, there was standard, deluxe, and WiFi. The top of the line water heater could send information to my smartphone about, oh, I don’t know what really.
In my long life I’ve noticed that water heaters either work or they don’t. When they don’t work, I take a cold shower and summon a plumber to rectify the situation. The idea of having a water heater that I could interrogate through my smartphone seemed importantly like a moment in history when a new neurosis is proclaimed—hydrothermia gondii, perhaps.
But I have an explanation or actually two that seem to pacify my mind. The first harkens back to Linus Pauling, a two time Nobel Prize winner who once famously said that if you want to have good ideas, you need to have a lot of ideas. Translation, it’s a numbers game and most inventions don’t make the cut. Of the long list in the Times article, most if not all but the one that evaluates the quality your French kissing, are bound for history’s ash heap.
But Pauling’s point was that you never know what’s going to hit so you take the risk of ridicule and ruin for the chance of success and all that attends it. Still, some of these inventions up to an including the WiFi water heater strike me as over the top science fair faire.
The other reason in my mind might be closer to the truth. It’s that we’ve reached the end of the current paradigm. By paradigm, I mean the thing that frames our economic and social lives, the technology boom. According to the late Russian economist, Nicolai Kondratiev, a paradigm animates our economic lives and lasts between 50 and 60 years before another replaces it. Within a paradigm you can have trends and business cycles but the paradigm is ascendant.
You can know when the end is nigh because it gets really, really hard to innovate around the core tenets of the paradigm without bumping into something else that does pretty much the same thing. In other words, all of the niches are full. When that happens people try to invent niches which is why you get online water heaters and French kissing apps.
Eventually Kondratiev’s wheel turns again and we start anew with a different paradigm. But new paradigms are expensive; they result in what another economist, Joseph Schumpeter, called creative destruction in which some of the earlier and perfectly good established economic order is trashed. So, not surprisingly, the establishment will resist change which brings on a period of stasis.
You know you’re there when someone invents something equivalent to a sensor placed in your child’s diaper that sends you an alert when the diaper needs changing. Come to think of it, that’s a perfect metaphor for the times we live in. We’re waiting for change.
Unforeseen consequences
The American sociologist Robert K. Merton popularized the idea of unforeseen consequences, so says Wikipedia. An unforeseen consequence (UC) is simply what happens when you get a result that’s different from what you expected or planned for. You can break this down into three buckets—good, bad, and perverse.
A good UC looks a lot like luck and we know what that is. A bad UC is what happens when something negative tags along for a ride with the good consequence, or the one we expect. The operation was a success but the patient died. Finally, perverse UC’s are what happens when you plan left and everything goes right. A UC that is unforeseen and makes a problem worse is perverse. For Prime Minister David Cameron, the Brexit vote is perverse.
Cameron went into the situation expecting an easy win but found himself campaigning for his political life just to get the polling too close to call, but it wasn’t. When the results came in Cameron and the UK were holding the short stick. The perverse consequences are numerous. For instance, despite the non-binding nature of the referendum, Cameron now sees it as his duty to carry out the will of the people. But I wonder how many people didn’t vote because the whole Brexit nonsense was non-binding.
At any rate the larger and more perverse outcome of the vote might be either the final death of much that’s now classified as journalism, or the emergence of CRM as a necessity of government. Here’s my thinking.
The government-constituent relationship may be the last one governed almost exclusively by broadcast media including print and electronic media such as radio and TV but not exclusively including the Internet. Independent news organizations scour their geographies looking for news as they define it to report. But all of the traditional approaches at best represent half of a loop. How do constituents return questions, comments, or corrections? Usually they don’t and government misses key feedback.
The focus group has been a favorite of the political class for a long time, even now after business has conspicuously moved on to social media. Politicians have social media of course; one need only search for their Twitter feeds to confirm this. But as is usually the case with new technologies, the politicians are using social incorrectly in this case as if it were a less expensive broadcast megaphone and not a two-way communicator. The problem with all this is that politicians and businesses before them can and do say pretty much anything they please in all of their broadcast outlets including social.
If you look at the Brexit campaign or the US presidential contest, you can see that all parties treat the truth as a quaint artifact and plunge ahead saying anything they please. Actually, for any given issue one party is telling the truth more or less while the other is promising the repeal the law of gravity. This sets up an unequal dichotomy since repealing gravity with all the associated chaos it would bring is much, much sexier than most forms of truth telling.
All of this has a point. Not long ago the vendor community was dealing with the difficulties of retail marketing—attempting the one-to-one model on a huge scale without benefit of technology. It can’t be done. The best a vendor can hope for in such a situation is to broadcast some bland ad and hope for the best. In the world of markets this worked reasonably well in that most vendors managed to get a respectable slice of their markets.
But government is way, way, way different. Where markets are pluralistic, government, especially winning power, is binary. You can have a nice life with say, 30 percent of your market but in politics and government generally you need half plus one vote to control things. Hence the 48 percent voting against Brexit are plain old out of luck. It doesn’t matter that the UK just officially voted to effectively repeal gravity, it’s that 52 percent said, sure, I wonder what my gas mileage will be like now.
So the point is this: If business can’t be satisfied with the hit or miss marketing it was used to, can government be different? Can government be complacent with letting a third party intermediate the news? The problem is that too much news coverage has become little more than chasing the controversy and not the story. Since the last election there’s been a noble attempt to fact check political statements but fact checking is after the fact.
The last 50 years have given us ample examples of why after the fact checking is no good. In the 1970’s and 80’s we discovered that quality manufacturing needed to be built in not added on at final inspection. In the CRM era we learned much the same lesson about customer-facing business processes. Now we face the same basic problem in the last bastion of old style broadcast media, government.
People used to consume broadcast media for things like classified, personal, and help wanted ads as well as the news. But those media cash cows are gone to the Internet and are largely free today. So understandably to retain eyeballs the media tried to make their remaining products sexier by chasing controversy rather than the source stories. It’s not working as the hyper-expensive hyperbole around any democratic election shows.
Journalism won’t die but in the face of the frenzy around every bright and shiny object dangled before the public by any citizen with a Twitter account, every democratic government now has to ask if there are better ways for communicating. We need more reliable ways to understand people’s needs and we need better ways to communicate solutions to them, that’s why CRM as a government function is no longer a pipe dream, it’s a necessity.
Vendors discovered a long time ago that they had to be able to communicate through any channel that customers happened to use. The same thing is true for governments and citizens. Social media and CRM have trained the electorate to form communities and socialize ideas. Perhaps your 70-year-old aunt isn’t going to use a smartphone, that’s okay, perhaps she still goes into the bank lobby too. But we can’t expect to run modern governments only with the tools that will appeal to that aunt.
Right now it appears that government is being disrupted but really it’s a communications revolution that’s forming and the only reason the disruptors are winning is that there’s little opposition. It’s time to level the playing field by introducing CRM tools for government functions.
