2011 Say Bye-bye!
Every year around this time I write two columns one on the year that was and another on what I expect the new year to bring. There is no methodology for this process and I believe this lack of method is important. I take a blank screen and fill it up with what has been on my mind for the last year and what made it out through my posts. Here are a few ideas that bubbled up.
Steve Jobs
We lost Steve this year and the outpouring in the media was inspiring. For some reason, many people felt the need to try to reconcile Jobs’ fastidious and demanding personality with the beautiful products he inspired. One who did not was Malcolm Gladwell who placed Jobs in a long continuum of people who did not invent original products but who tinkered with and improved them significantly. The world needs all kinds. That might have been true for the GUI but Jobs still gets high marks for things like iPod (an improvement on Walkman) and especially iPad, iTunes and the store for which there was little if any precursor.
A quote from a Time Magazine (July 10, 2011)review of GM executive Bob Lutz’s book from 2011 “Car Guys vs. Bean Counters” http://amzn.to/sZEwaq
makes an important point: “It’s interesting to note that the one area of the U.S. economy that’s adding jobs and increasing productivity and wealth is also the one that is the most relentlessly product- and consumer-focused: Silicon Valley. The company off Highway 101 that best illustrates this point is, of course, Apple. The only time Apple ever lost the plot was when it put the M.B.A.s in charge. As long as college dropout Steve Jobs is in the driver’s seat, customers (and shareholders) are happy.” Thanks, Steve.
Social, mobile and analytics plus cloud
On deck to assume the Jobs niche in the tech industry and beyond may be chairman and CEO of Salesforce.com, Marc Benioff. To be clear, Benioff and Jobs are very different people in most respects but Benioff has the same blue ocean strategy that Jobs had and a knack for entertaining his customers. Benioff also likes to invent things. He has driven the rest of the industry to embrace social, mobile, analytics and cloud much faster than it would have left to its own devices. This combination of attributes is really all any Martian would need to know to understand the market upon arriving here. The drive to embrace these technologies first is what separates Salesforce from all other conventional CRM companies and is a big reason for the Silicon Valley quote above.
Cloud computing
We’ve been hearing about cloud computing for many years already and interestingly 2011 was a year of a dramatic demonstration of its power in reverse. Target Stores pulled its web site from the cloud into the premises in time to launch a huge marketing campaign featuring Missoni brand clothing. The campaign was so successful that it clobbered the site and crushed the ambitions of any other IT leaders who might still think on-prem will be a workable strategy as we go “all in” on social, mobile and analytics. Right?
Curation
The Missoni fiasco gave me a chance to showcase curation software from Storify. Curation products enable anyone to find and bring together relevant content from the web to produce a one of a kind package of related information that is greater than the sum of parts. Curation plucks gems from the torrent of things rushing by in the digital river (pun!) and it will be an important part of how we use the web in the future.
The Subscription economy
With cloud computing more valuable than ever we see a new idea taking shape called the subscription economy. You probably recognize it and consider it old by some measures. But the interesting thing about the subscription economy is that so far it has been at best held together with bailing wire and spit. Old style ERP systems have been a major impediment to subscriptions and many of us never realized it. I quoted others talking about how ERP has held back business innovation but also about Zuora and others who are pushing the envelope with billing and payment systems that enable subscriptions like never before. Zuora announced its series D round of $36 million recently and I look for them to be a major IPO in the next 24 months.
Blue ocean strategy
In a press conference early in 2011, Benioff said he had no interest in developing an ERP system to complement his company’s growing front office footprint. Without using the words blue or ocean in the same sentence he let us know that there is too much untapped potential in the front office, often in the form of applications of social concepts and business processes that have still not been invented or fleshed out. By the end of this year that approach seems to have put Salesforce into a category of its own as most of the ERP players I watch seem to be focused on re-selling their legacy bases.
Oracle and Salesforce
One such ERP company is Oracle, a self described fast follower, that has nonetheless made big investments in the front office. In 2011 Oracle acquired ecommerce provider ATG for one billion bucks and followed up about six months later with a $1.5 billion acquisition of RightNow. We’ll miss RightNow but Oracle seems to have blue ocean plans of its own regarding retail in the future. Watch this space.
Dreamforce and OpenWorld
We got an eyeful of how competitive the atmosphere is in San Francisco and Silicon Valley when Larry Ellison disinvited Marc Benioff to speak at OpenWorld. At first it looked like a bizarre move by Ellison but later it looked liked improvisational comedy by a couple of masters. It was certainly entertaining. Ellison used the opportunity to announce his own cloud computing and social strategies though true to form I was not shown much product or given a date for general availability for some parts of the product line.
CRM Idol
Speaking of entertainment, Paul Greenberg got the industry organized around the Idol theme in the first annual CRM Idol competition, which I was part of. The concept is still rough around the edges — one wonders how entertaining business ought to be — but it brought the industry together across most of the world’s landmasses and fun was had by all. We discovered some very interesting companies and at least one, Assistly, was bought before the competition even finished. I think Idol has legs if we can get a better set of pre-conditions in place to screen out some companies that are clearly not competitive. Just sayn.
What’s going to get the economy moving again?
Over the summer there was fear of a double dip as the economy seemed to slow but that scare seems to have passed and the tepid recovery continues with job growth in the last 21 months and counting. Not enough jobs to erase a big unemployment number mind you, but progress, slow and steady.
Marketo CEO Phil Fernandez offered his own prescription for recovery saying that the revenue performance management (RPM) methodology that he and others (Eloqua, Cloud9) are promoting could generate as much as $2.5 trillion in new revenue globally. Maybe he’s right, but…
It’s all about energy
In May I was in Chicago to give a talk and noticed the prices for gas were almost hitting the five-dollar mark. The cost of energy, transportation and raw materials all derived from petroleum, hold the key to recovery (and, yes, European bankers and politicians). There’s no longer any slack in the petroleum production system and when demand spikes so do prices and when that happens, the economy cools. We’re in for some uneven performance as long as that is true.
Books I have read recently such as, “The End of Growth” by Richard Heinberg http://amzn.to/vYJesf and “World on the Edge” by Lester R. Brown http://amzn.to/sv0pvy, tell the same story. Nothing grows forever and on a finite planet there are finite resources, which ultimately places a cap on many things. That doesn’t mean doom and gloom but it does mean we need to think about our next steps as a species. Global warming isn’t going away on its own.
All the technologies we’ve been debuting in the last few years will be an important part of the next strategy, especially as we are required to pivot away from dead plants as our energy sources. That’s one vantage point from which I will be evaluating our industry in the new year. The business processes we use are directly related to the technologies we have to work with — the subscription economy is a case in point. Along with helping us make money, our great new technologies must serve our need to get carbon and costs out of our business processes ASAP.
But for now let me simply say thanks for reading my column this year and for your many good observations and comments. I hope you enjoy your year-end celebrations, however you do them.
The Subscription Imperative Revisited
As often happens in evolutionary systems, availability precedes demand. That’s a complicated way to say that we build products then figure out what they’re good for. It’s not that innovators develop things willy-nilly, but no matter how well thought out an innovation is, the marketplace has the last word on its utility. When we speak of early adopters and mainstream users it’s this dynamic we’re referencing.
In recent years one of the best examples of this evolution in action has been subscription billing. Today we speak of the subscription economy and subscription billing as mutually reinforcing but when it was first introduced subscription billing was targeted at a more narrow business problem. Initial buyers were companies that began offering their products as subscription services rather than as products to be bought once and then serviced. Their need was for flexibility, speed and accuracy in the billing process, things that conventional billing systems could not adequately handle given the number of customers and transactions that subscription vendors were encountering.
If subscription billing merely stayed in that expanding niche its future would have been assured as increasing numbers of companies were converting to subscription business models. But then the marketplace changed in two fundamental ways opening up even greater opportunity for the subscription model.
The first change was the rapid adoption of subscriptions as a new way to deliver products to customers. Subscriptions proved to be so much better than conventional purchases with their large cash outlays, that customers rapidly concluded that subscriptions were better. Market demand has driven numerous companies to scrap their decades old business models in favor of subscriptions. Those companies that have not converted see evidence mounting daily that tells them to convert of perish.
The second change, which has not been remarked on nearly enough, is the credit crunch that has hobbled the economy since the housing debacle of 2008. While business is still obviously being done, the economy is barely growing but a consistent bright spot is subscription companies because their business models enable customers to use their products while effectively amortizing the cost — without involving a lender. This enables them to sidestep a conventional financing process that is crippled due to still tight credit conditions resulting from weak bank balance sheets.
The subscription economy isn’t a band-aid that companies put on their business models to weather a tough economy. Driven by customer demand, the subscription economy is increasingly the way that customers prefer to do business and this preference is driving the market.
But the benefits that the subscription economy delivers are hardly one sided in favor of the customer. Vendors have discovered that their old billing systems had been dictating the kinds and types of products they delivered to the market. For instance, a good idea that could be built but not billed accurately and timely — which is the case with many subscription services — was simply a non-starter. But the flexibility of the subscription model enables companies to break their complex products into smaller units that customers can then assemble in ways that make sense for them. Customers are increasingly able to custom design products that fit their needs much better than the one size fits all products that are relics of the industrial age. And vendors can flexibly respond to customer needs even if those needs change very frequently.
The marketplace has discovered many uses for the subscription economy and its enabler, subscription billing in the handful of years since the idea was first introduced. As we can see, some of subscription billing’s uses were not even envisioned a few years ago but alert innovation by users and, especially, Zuora, have made subscriptions a phenomenon.
We’re certainly passed the early adopter stage in this market and mainstream adoption is well under way. Companies that once would not consider a subscription business model are discovering that with subscription billing they can make their transition and preserve their cash flows and in these tough economic times that says a lot.
Subscription Economy Going Viral
We talk a lot about the cost of gasoline these days. With prices pushing to the $4/gallon level it’s white knuckle time as we watch to see how the economy will react — and with good reason. The economic stagnation of the 1970’s was due in part to the rise in fuel prices and the last time gas prices rose to this level (2008), Americans drove less and the economy tanked.
It’s true that in the 1970’s we were also working off the excess spending of the 60’s which included lavish spending on the Space Race and on a war we didn’t need that arose over some wise guys’ ideas about dominos. But I digress. Similarly, a couple of years ago there was a debt crisis triggered by an epidemic of bad mortgage lending — which is still with us — that helped bring on the misery.
But stay with me fuel prices are a real concern. As prices continue to escalate the people who can least afford high prices — typically the young and economically disadvantaged — will begin to peel off from the car habit and look for a less expensive option that delivers transportation more as a service than as a possession. We already have that with public transit in cities but for the times when you absolutely need a car, the subway won’t do.
The cost of a car, even factoring in gas, is far from the whole story. There’s also insurance and parking to consider. If you’re lucky enough to have a late model car, the cost of maintenance might be very manageable and if you live in the ‘burbs parking won’t be much of a bogie. But if you live in a city all of those things add up in a big way. City dwellers, especially those who live in places with good public transit, avoid car ownership if at all possible and it’s the insurance and parking that pile onto the other fees that break the equation.
So it was with great optimism that Zipcar, a Cambridge, MA based company, went public last week. The reception has been robust. The company went out at $18 per share and climbed to $28 very quickly.
This is another example of the subscription economy at work. It’s doesn’t take any special intellectual capacity to figure out that all the costs associated with owning a car are prohibitive in a city and half a million people have joined Zipcar because they see the company’s “wheels when you want them” promise as a powerful alternative.
Buying into to a car service rather than buying a car is part of what many people are referring to as the subscription economy. It started in the software industry when companies like Salesforce.com began selling access to their customer management software rather than selling licenses. Just like the car example, software has many hidden costs beyond the core cost of the software. The term has been popularized by Zuora, a company focused on providing subscription vendors with billing and payment systems that cater to the unique needs of subscription providers.
Companies can easily spend multiple times the cost of software on things like computers, networking and integration services to make it all work. A subscription service for software is a neat and clean alternative that provides the customer with a single low cost bill each month.
Zipcar’s growing popularity evidenced by its IPO and already large customer base is a testament to the importance of subscription services. As many software companies move their offerings to the cloud and to subscriptions and many other companies like Zipcar apply the subscription business model, we are witnessing an important inflection point in business and in the way we live.
As businesses and individuals discover the benefits of subscription services many will see that they have more discretionary cash available because they have smaller monthly payments. Cash availability drives spending power, which may likely drive demand and create a virtuous circle that drives the economy.
Every recovery has an engine, something that drives demand and spending. Historically, this has meant a product category. The Internet served that purpose at the beginning of this century. I don’t know if a business model change has ever played the same role in a recovery, but the advent of the subscription economy may be playing that role this time.
Tien Tzuo Talks About the Subscription Economy
We just posted a new interview with Tien Tzuo, CEO of Zuora, a company that provides billing and payment systems for subscription oriented companies. Zuora sees a new economic model forming not just for SaaS but for any commerce that can be conducted through subscriptions. According to Tzuo, one of the things holding back more entrepreneurship in subscriptions is the ability to accurately provision, invoice and collect on subscription services. Tzuo thinks he’s got the answer and if the $20 million C-round he just closed is indicative, lots of other people think so too. Check it out.
The Subscription Economy
I get a lot of email. It’s not all because of my job or because I publish my work frequently. Some of it is like that, but it seems like my email address is on a lot of lists and I am one of the people who get spammed whenever there’s a webinar to fill. Perhaps you know this feeling. Last week I was invited to a webinar for a sales product and it made me think about why we aren’t more successful and what might be done about it.
Jim Dickie and Barry Trailer at CSO Insights (www.csoinsights.com) have a big data set culled from major sales organizations over many years. In their annual surveys they capture information about sales attainment and other things relevant to selling and managing sales people.
It should be no surprise that in a recession, companies have a hard time making their revenue numbers and the CSO data backs this up. Companies lay off under performing sales people, give more responsibility to those who remain and watch expenses carefully.
I am not sure if this helps a lot but it’s what we do and you can’t argue effectively against such actions. But in a world where we all know Einstein’s famous dictum that the definition of insanity is doing the same thing repeatedly and expecting different results the art of selling is over filled with techniques for doing exactly this.
For instance, two strategies to be taught in a sales webinar I was recently invited (by email) to include:
- Discover key techniques to break through the gatekeeper and get straight to the decision-maker.
- Discover key techniques that will get your prospect actively engaging with you instead of simply tolerating your pitch and ending the call with a vague promise of interest in the distant future.
Now, to be fair, selling is difficult under the best circumstances. Experienced sales people know that getting appointments is hard because people don’t have time or budgets or who knows what and getting to a decision maker is always challenging but always necessary. There are times when a straight ahead strategy works better than others, times when getting the appointment is really the key to getting a deal.
Nonetheless, we might all do better today if we consider the situation we find ourselves in rather than selling in the conditions we wish we had. We’re in an economic recession and budgets are locked down for many companies and spending on non-essentials is carefully scrutinized. In this situation decision making retreats up the chain of command and getting to a decision maker is indeed tough.
At this point you might seriously think of alternative strategies. Rather than using interpersonal tricks to get people to agree just to shut you up, you might consider selling to the pain. Often we define a customer’s business pain as being without our product and while that’s true enough, it might not be the customer’s only pain.
In the current circumstances, the business pain can easily extend from not having a product and its capabilities to not being able to afford it or to pay for it. In other words, if your product isn’t selling, the feature you might be missing may be payment terms.
I have written in this space before about creative financing in the form of the layaway plans that some retailers have fallen back on in an effort to keep sales momentum up in a down economy. The thing that layaway or any similar approach provides is not discounting, which many vendors instinctively reach for whenever there’s a price objection. Layaway provides a means for the buyer to maintain cash flow while paying for an item and I think this is exactly what we are missing in enterprise selling right now.
To the extent that a product we’re offering provides a way to improve output or reduce waste, there is a natural demand bias in favor of a purchase. So we need to carefully examine if slow sales is a function of demand or if the demand itself is being artificially controlled by funding. In that case, finding creative ways to finance a buy may make all the difference.
This is really a simple extension of the idea started by on-demand computing — companies pay by the month for computing services rather than in a lump sum. The purchase isn’t financed in a classic way with on-demand, it is eliminated and the capital expense is turned into an operational expense. It’s one thing to provide IT services this way and another to provide a durable good, but we should be able to find solutions.
Tien Tzuo, CEO of Zuora likes to talk about the subscription economy and I think he’s onto something. And I think one of the key takeaways from this recession might be the importance of subscriptions — metered and elastic provision of all kinds of products regardless of whether those products exist in a central location or on a customer’s premises.
As in the case of the retailer offering layaway, we might find that an adjustment to help the customer’s cash flow situation could yield benefits all parties in a transaction.
