Contact manager competition heats up
There is a lot of unspoken information in last week’s announcements by Sage andSalesforce.com (NYSE: CRM) about their respective contact managers. Each is creating a disruptive innovation that affects the other, and the symmetry of these dual and dueling announcements is frankly beautiful in a funny way.
To review, Sage announced the 2010 version — with new bells and whistles — of its flagship contact manager ACT!, and a day later Salesforce introduced its Contact Manager Edition (CME). On the surface, it looks more like Sage introduced its routine annual update and no more, while Salesforce jumped into a new market. However, if you look closer at the two situations you might get a different impression.
For a long time, Sage has been adding functionality to ACT! that has made it a very powerful and complete contact manager, and some would say that it crosses the line into SFA (sales force automation). If that’s so, then Sage has a major price advantage in the SFA market and can steal SFA business from any number of vendors, including Salesforce.
However, Salesforce’s CME announcement does to Sage what Sage has been doing for quite a while to SFA vendors. At a mere US$9 per month per seat, Salesforce CME is a no-brainer for individuals and entrepreneurs who want to keep track of customer information on-demand but whose businesses are small and do not require all of the functionality of CRM. ACT! could fit the same need and usually does, but now there’s price competition.
Both companies face other competition from vendors like Microsoft(Nasdaq: MSFT) and Outlook, which is a virtually free, though limited, repository of basic contact information. But for our analysis, a customer still using Outlook or Apple’s (Nasdaq: AAPL) Address Book is outside of the discussion.
In The Innovator’s Dilemma, Clayton Christenson described the phenomenon of disruptive innovation in which a new entrant to a market disrupts a well-established vendor by providing a stripped-down product at a lower cost. The reasoning is that the established product vendor has, over time and because of increasingly demanding customers, over-engineered a product to meet the needs of the most demanding users. The disruptor enters the market with the advantage of having a smaller product that meets the needs of a large segment of the population and an upper price limit of the established vendor.
It is never a problem for the challenger to make money below the cost level of the incumbent, and frequently the incumbent flees the lower end of the market to chase the more profitable customers up market. That’s what Salesforce did to Siebel and what it is attempting to do with Sage right now in the contact manager space. However, Sage is more or less doing the same thing in SFA. ACT! is not a full-function SFA product, but it has a lower price point than even a Salesforce, Oracle (Nasdaq: ORCL) , Siebel or NetSuite subscription, and it offers a lot of functionality that many SFA customers might find adequate.
There are many complications having to do with the idea of product line cannibalization — each company has an SFA/CRM product with better margins to protect, for example. So Salesforce limits its CME offering to two users; if you need more, you need SFA, they believe. The same is true for Sage. SalesLogix is their full-function CRM package with SFA. So neither company can swing for the fences with their disruptive innovation strategies. Success for either of them at the low end would result in some takeaway business from the other guy, but it would likely hurt the house brand SFA too.
Room for a Third?
There is a danger in this thinking because it leaves the way open for a third competitor to enter the fray unencumbered by a need to protect an up market product. I am not sure such a vendor exists — at some point you get to the top of the food chain. Nothing hunts lions other than humans, but that’s a different story.
It’s hard to say which vendor has an advantage. Salesforce has well over 1 million seats deployed, and ACT! has about 2.9 million licenses under maintenance contract. Salesforce is a sales and marketing juggernaut, and Sage sells through a channel that is the envy of many vendors in the space.
This situation is the picture of yin and yang and should be entertaining to watch. Meanwhile, the competition definitely benefits the customer.
Contact management war revival
Two days in, September has been a busy month for contact managers. I haven’t seen this much activity in years. On September 1, Sage announced its ACT! 2010 release and then Salesforce.com dropped a small bomb — as of today they’re into the contact manager space too.
Contact management has been a poor cousin to sales force automation (SFA) for many years. Initially, there wasn’t much difference between the two. Contact managers were sort of a subset of SFA which tracks deals, opportunities and leads as well as contacts. For many sales people, the choice — if the choice was theirs to make and not the company’s — was largely one of work style. You could organize your work around the stair-step categories or just glom it all together in a contact manager through your own system of user defined fields and notes.
Real SFA also offers the important ability to connect to the broader CRM suite thus making the information collected by the sales person more useful and available to the rest of the company.
The two announcements — so far — this week blur some distinctions and to a degree trade roles of the leading vendors. Sage has been around for a long time and ACT! has gone through several ownership changes but has resided with Sage for many years. The ACT! 2010 release is a luxury edition, if you can call it that, which includes integration with Facebook, Twitter, LinkedIn and Plaxo. Sage has also introduced an optional integrated subscription-based E-marketing service, a very nice and new user interface and fully customizable opportunities to support multiple sales models.
All told, this isn’t the stripped down contact manager that was introduced in the late 1980s and you might quibble about whether ACT! 2010 is really a contact manager or if it has crossed the line into SFA territory. I don’t know. I am a realist and not too interested in theoretical issues like that.
Interestingly, Sage went out of its way to benchmark the new UI with a Keystroke Level Modeling study conducted by Measuring Usability, LLC. The company claims in its press release that the new UI achieves up to 35% better productivity than competing products. Clearly the company invested significantly in the new release to send a message to its 2.9 million users and any competitors, that contact management is a viable category and one that it intends to compete aggressively for.
You could say similar things about Salesforce.com today. The company had been testing a small version of its SFA product for some time and the announcement of its Contact Manager Edition culminates that process. There are several advantages that Salesforce brings to the table with its approach including its increasingly popular Cloud Computing Platform and easy migration to full CRM capabilities if and when the customer chooses.
How much upgrade or up sell business Salesforce generates over time is a question without an answer now. Contact managers tend to support two very different segments — small users like entrepreneurs who intend to stay small and for whom CRM would be overkill and large sales groups that are disconnected for many reasons from the rest of the company.
The later group might include the sales team of a partner in an indirect channel, for example. Such groups rely on internal lead generation and OEM marketing programs that are fairly detached from day to day selling. I am not saying this is a good idea, just reality. The first group, entrepreneurs and similar people, keep their own counsel and may not do much formal marketing preferring instead personal relationships, so they don’t need CRM.
Nonetheless, the recent announcements by Sage and Salesforce serve to blur many distinctions. ACT! is a high-end contact manager these days capable of taking on some of the less complex SFA functions and Salesforce, with its upward compatibility now reaches from the smallest to the biggest users. Salesforce may have an advantage in pricing at nine dollars per seat/month but at that level the cost differential is much less than a daily latte and I doubt it will affect many buying decisions.
Sage Insights Observations
A lot happened at Insights, the Sage partner meeting held in Nashville earlier this month, though not necessarily at the press release level. I was there and got a sense of change happening. It was the first anniversary of new CEO Sue Swenson coming on board and our first opportunity to see the imprint she is making on the company. Last year Swenson had been with the company for only a matter of weeks and as CEO could only talk about the future. With a year behind her some results are apparent but the expectation is that there is a lot of work ahead.
The big takeaway I got from attending Insights was of a slumbering giant was waking up. I was a bit surprised but also happy to see Sage embracing social networking in ACT!. Twitter and Facebook integration are on the agenda followed by other social media. As social media continues to increase in popularity you can bet more CRM vendors will take it on. My big question is how will Sage partners deal with it?
One of Swenson’s early moves was to bring in a new CTO, Montasim Najeeb. He’s taking a hard look at products, architectures and all the things that go into making whole products. Importantly, he’s a technology guy with business street cred. His resume reads like a mini-biography of Silicon Valley with senior positions in product and product strategy for such companies as Oracle, PeopleSoft and WebMD.
One of Najeeb’s challenges, which I think he acknowledged in his keynote is reviewing at a product portfolio that grew by acquisition and now looks like the Noah’s Ark of accounting and front office software. Noah had it easy by comparison — he could keep things apart. But in this era, companies are looking for economies that come from consolidation and part of Najeeb’s job is to modernize products and rationalize the portfolio while balancing the needs of the partners who sell the products. As G.H.W. Bush might have said it — Tough job. Gotta get it done. Wouldn’t be prudent not to.
Another new face in the executive ranks is Jodi Uecker-Rust President, Sage Business Solutions. She was previously corporate vice president of Business Solutions with Microsoft and COO of Great Plains Software. That’s a good background in this space. Uecker-Rust has a lot on her plate and will be working closely with Najeeb, I think.
The portfolio strategy left the company with many products that were and are architecturally distinct. The overhead associated with managing so many code sets must be pretty big. At some point, a prudent manager needs to take inventory and begin a consolidation process and that’s been over due at Sage.
One reason consolidation has not taken place, I think, is the way Sage goes to market. The company sells through a reseller channel. The model has some definite strengths and Sage is not the only company in the market to employ it. There’s no question though that an indirect channel adds complexity to decision-making. You can’t change a product too much, regardless of how beneficial the change might be, if the partners are not behind you. Not surprisingly, the company made multiple gestures of support to the partners and tried to reassure everyone that any changes moving forward would be net positive.
All that being said, the CRM/front office applications seem to be in good shape. Last year the company announced a multi-year plan (the 2010 strategy) to rationalize the CRM products, making ACT! work better with SalesLogix and incorporating new Web technologies. So far all that seems on track. I think there’s more work to be done relating to Web-based applications and no one debates that.
The next one to three years will be important for Sage. The company needs to make progress on some product upgrade and migration issues that, in truth, are over due. The good news isn’t hard to find though. Swenson appears to be making some good moves and tough calls and the partner channel is global and energized.