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.
Price Competition
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.
Market Disruptors
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.
Time to build your communities
Happy New Year! Let’s be counter intuitive for a moment, shall we?
We’re in a recession and we all know it. Traditionally (and sadly) in an economic downturn when companies seek to lower their expenses they cut their marketing budgets, and why not? Marketing costs money and if you believe your marketing messages will fall on deaf ears in a slowdown, then you certainly won’t want to spend money on marketing programs so cutting marketing makes sense.
Before you run out and fire everyone or slash the budget to the point that stamps are rationed by the CEO, consider something else. Marketing is essential to promoting your ideas and even in a recession, promoting your ideas is a powerful tool for doing business now and down the road.
Slashing the marketing budget might have been a reasonable idea back in the last big recession—the one that happened before the fax machine was big news—but in today’s world, with fabulous communications and dirt-cheap ways of reaching people, it makes sense to think twice about marketing cuts.
There are three things that marketing—alone or in conjunction with sales—can do to help you make the downturn as shallow as possible for your bottom line. In no particular order, they are: spreading your thought leadership, showing your customers that you are involved in their success a.k.a. doing the right thing and building communities that will drive your inevitable upturn.
Thought leadership
So your customers aren’t buying more of what you provide. They bought from you once because they think you are the best at what they need you for and you want them to keep thinking that way for two reasons. First, if you manage to provide them with ideas for maximizing their business with and without the use of your products and services you’ll at least get to the point where they place a replenishment order. Also, keeping the customer’s mind occupied with thoughts of you will keep them from looking around for brand X because it’s cheaper.
Do the right thing
More importantly, though, sticking with your customer by showing you understand and are involved with their success is a great way to build bonds and to show them concretely that you are the real deal. Historically, sales people were almost exclusively relied on to provide the thought leadership and show involvement but two problems come with that approach. Sales people sell, which is tactical, they aren’t great at the thought leadership and doing the right thing because these are strategic activities. Stopping by with donuts might be the closest a sales representative can come to being strategic, but how many times can that work before the customer gets fat or annoyed or both? No body likes to have to say ‘no’ as in “No we aren’t buying that today” so don’t make them say now when it’s just as easy to get them to say ‘yes’ to becoming involved in a community.
Building communities
Now is a great time for marketing and sales to work together to build customer communities. A good community takes a bit of time and effort for the organizer and for the attendees and while no one would like to admit it, in a slack period, time is something we all have in a bit more abundance.
What does a community do? It brings together customers on a periodic basis—once or twice a month—to trade ideas about current use and future need. Smart sales and marketing people will look at a community as a laboratory where they can test ideas for products and messages, and to just listen.
Communities are gold in a slump because they enable customers to share the Kool-Aid, which is a natural thought leadership conduit. Communities also give the customer better insight into you and your products and, if you are doing your thought leadership job properly, they set the stage for your recovery by identifying needs for existing products and services as well as needs for new ones.
Marketing departments are the natural and rightful places for much of this activity and married with effective sales representation they can do a lot to keep the valley of a slump from turning into a crater. So while you might be thinking about cutting your marketing budget, also consider how you can redeploy some of those resources to prepare for the upturn.
