Beagle Research Group

Niches

I don't do endorsements - that's for ball players. For me to endorse a product would be the end of my credibility, all I look for is what works and, if it does, I'll point it out. If something doesn't live up to the hype, I follow my mother's advice and say nothing. That's why I was surprised when someone brought to my attention a borderline situation in which a vendor did its best to imply my endorsement against its rival, Salesforce.com.

Now, Salesforce.com is not a perfect company and now and then I point that out publicly, but I also advise them from time to time and I want that made clear too. The whole episode and what follows is my musing on why one company, like Salesforce.com, becomes enormously successful while others eat dust. This is not a definitive study, just my observation.

It seems like a lot of companies in the CRM space are now trying to use what they see as Salesforce.com's tactics to get a leg up in the market, but, predictably, they are getting it wrong and this is important. There are more than a few companies that claim to do everything the Salesforce.com does but at a lower price point or with greater reliability or some other "differentiator". I call this the classic takeaway because the competitor is simply trying to slip into a market niche established by its rival.

In the animal world there is a species of bird - I think it's the cuckoo - that lays its eggs in another bird species' nests. The unwitting bird hatches the cuckoo's egg and raises it as if it were its own. Perhaps the word cuckold has roots in this piece of avian legerdemain. It's a nice trick if you can get away with it and that's what so many vendors try to do - lay their marketing eggs in a nest already built by someone else. In markets it rarely works.

Some of you will say that's what Salesforce.com did with Siebel and turnabout is fair play, but on closer examination that's not what I think they did. Siebel became the biggest CRM vendor (with $2 billion in annual revenues for a while) on the strength of its client-server based solution - think of that as the nest. Salesforce.com did not try to lay its eggs in that nest, in fact, Salesforce.com did everything it could to trash the existing nest and build another, better one, right next door. Salesforce.com turned Siebel's primary strength into a liability effectively making Siebel unattractive for a growing part of the CRM market.

To succeed, Salesforce.com had to risk being different. They didn't run around saying they were 10% better than Siebel, they invented their own niche and delivery model and sold that as a 100% superior solution and that's my rather simple point. That's why endorsements don't mean much when they are used in a classic takeaway strategy but they are worth a boatload when a thought leader identifies something new and tells the world about it.

Just in case you might think this is all over, you should think again. Eventually, the hoard of competitors will wear down even the best new niche and the messages of "We're cheaper" and "We're more reliable" will have their effect. When the barbarians finally break through, though, there won't be much left behind the wall. They will find they have been actors in a creative destruction play.
Smart companies don't wait for the inevitable because they are always looking for new niches to build. You can see that happening right now. Although Salesforce.com makes virtually all of its revenue from CRM, the company is thinking ahead to the next wave in its evolution with its platform strategy. Other vendors are working away at platforms too and Salesforce.com will not be alone but as it did with on-demand computing, it will have the pole position based on its first move into the space.

I have written a lot about the disruptive innovation part of this tactic and thinking about disruption is another important way to arrive at the same point. It is the companies that change the rules and find a new way to do something by way of a process, product, or model, that have the best chance of succeeding.

As for the others, the ones that scream, "We're just as good, but cheaper!" they never get it. Maybe one or two of them will survive for a while in a shrinking niche, but eventually they are irrelevant, Geoffrey Moore and Clayton Christensen each in their own ways wrote books that explored these inevitabilities and it amazes me how well their theories predict movements.

I am just the guy that gets to watch everything unfold. Some job, eh?

On-demand Call Center's Real Benefits

I was doing research for a white paper not long ago and it gave me reason to speak with people who operate call centers. The call center operators I spoke with had one thing in common; they used on-demand call center services. If you are not familiar with on-demand call center services, it's much like on-demand anything else - like SFA - but it seems the impact is greater. Let me explain.

By this point we're all pretty well acquainted with the benefits of on-demand, though many people and their organizations have not yet adopted on-demand as their primary method of sourcing IT products and services. For most of this industry's young life the benefits most bragged about centered on cost. On-demand provides everything you need through a browser and lets you pay by the seat each month rather than purchasing a traditional system to run in your IT department.

Companies that have adopted on-demand solutions by and large are in love with the ease of configuration and use and the low expenses compared with a traditional purchase. If low cost was all that on-demand provided it would be a good deal, but there's more to the story that does not become apparent when you are only considering SFA or other front office systems. The reason is simple, on-demand SFA works about the same way as the traditional variety, there are no major surprises. With that as a given it is no wonder that so many organizations have opted for the lower cost variety.
When you get to the call center though, the differences are magnified and while cost still plays an important role, the down-stream effects are greater. The call center is highly dependent on equipment, more so than any other part of CRM. One of the call center's biggest expenses after equipment is telephone. Call centers that have access to predictive dialers can be in the business of making outgoing calls but those without predictive dialing capability are usually relegated to only taking incoming calls. One of the major benefits of the on-demand call center is the ability to provide any relevant equipment a call center operator might want thus reducing the cost of entry into potential lucrative markets.

If you perform similar analysis for other parts of call center activity you make similar findings. For example, since on-demand services are delivered over the Internet, it does not matter to the technology where the agents are sitting, thus opening up work at home possibilities. Managers have separate concerns about productivity but they are addressable.

Having people work at home reduces the amount of office space a call center operator needs and it reduces the commute for agents. Working "in the cloud" also gives the call center a broader population from which to recruit and greater ability to find the perfect match for a particular job.

There are other advantages like using VoIP for lower cost communications that can make the call center manager smile, but this isn't an attempt to make an exhaustive list. My point in bringing all this up is that the call center is a great example of how on-demand computing did not simply lower the cost of call center operations. On-demand computing actually enables new and possibly better business models to emerge, even in what is often thought to be the boring, dead-end call center.

The basic unit of call center provisioning used to be the whole call center - computers, databases, switches, desks, you name it, to get going you usually needed one of each. But today the basic unit of the call center has become the seat; with a browser and a USB headset you can be in business. Because of this transformation the business model has expanded. You can still find traditional call center operations that just happen to use on-demand services, but increasingly, what you find are companies with partially or completely remote staffs getting the work done in T-shirts and bunny slippers with no one the wiser.

There are also call centers in foreign lands that take advantage of on-demand services but increasingly, operators are finding that it little matters where the call comes from or where it goes. In a follow-the-sun strategy some call centers are finding that it is cost effective to hire domestic agents as well as some on the opposite side of the planet.

So, what I learned from my research was not just that on-demand call centers are cheap and easy to deploy - that much can almost be assumed today. What I learned was more significant. On-demand computing is breaking through its embryonic niche of low cost and in doing so it is enabling users to think outside the box, to develop improved business models and strategies. That's really exciting because you never really know where an innovation is going to take you. They say markets grow at the margin; this is one example.

Happy evacuation day

Today, March 17 and St. Patrick's Day, is an official holiday in Suffolk county, Massachusetts. For you out of towners, that's the city of Boston. Many people automatically think, Of course! All the Irish bars are doing great business!

Well, they probably are but that's not the point of this piece.

As it happens March 17th is celebrated here as the day in 1777(?) that the British left Boston, never to return. It wasn't their choice but one night a few days earlier some very fine cannon appeared on Dorchester heights overlooking the city. The cannon were captured at Fort Ticonderoga the previous autumn by a band of patriots led by Ethan Allen. Knox a 25 year-old book seller from Boston -- as well as Nathaniel Green of Rhode Island -- had never served in the army and what they knew of war came from reading. Nevertheless, Washington immediately saw in each of these men extraordinary ability and each quickly rose to the rank of General.

At any rate, Ethan Allen and his group of Vermont "Green Mountain Boys" captured the cannon without loss of life and Knox proceeded to drag them on sledges across New York and Massachusetts through the long winter. The effort was aided all along the route by locals who hitched up their oxen and horses in a kind of early American tag team. By March Knox was able to post his new guns in Boston to checkmate the hated British. It was an important victory for Washington in what would be a long war full of setbacks and disappointments.

St. patrick's Day is special in Boston for all kinds of reasons. When I lift my first pint today I'll be thinking of all those people dragging cannon through a long winter.

Mud Season

Ahh, spring! Mud season in these parts, and as if on queue Nucleus Research has delivered a small monsoon of data about SAP's customers and held up a mirror to their latest ad campaign.

The skinny: SAP claims in a global ad campaign that their customers average 32% better profitability than the companies that use Brand X for things like ERP, supply chain management, and CRM. Nucleus Research, which has been known to crash and spoil vendor self-congratulatory parties like this has said, not so fast. According to Nucleus, a population of reference customers from SAP's Web site showed they were 20% less profitable than their industry peers.

If all you read is the headline you might conclude that Nucleus has provided us with a valuable service and taken the big corporation to task. The fine print might reveal something more - or less.

The issue is that Nucleus did its research on 82 customers bragged about on the SAP Web site, a minuscule portion of SAP's 32,000 customers - about a quarter of 1% to be precise - and, of course there is also the issue of whether or not this is a representative sample. People who like to see the glass as half empty (and it was cheap whiskey too) will probably say, of course these customers aren't representative. They ought to represent SAP's best if they're referenceable. On the other hand, people who say the glass is half full might point out that no one stays on top forever, life's vicissitudes and all that.

Not to put too fine a point on all this, there are also some questionable circumstances such as, the research group that provided the data on which the ad campaign is based, Stratascope, is headed up by, Juergen Kuebler, a former - you guessed it - SAP executive. Moreover, the data is culled from a report that has so far not been shared with the public.

It's hard to pick a favorite in this mess. SAP has played fast and loose with its customer data for years and Nucleus seems to have made a career out of planting a pie in the face of an unsuspecting high flying corporation. I have never been a fan of the idea of splitting the difference on something like this, of saying, "A pox on both your houses." Maybe it makes me a bad negotiator or maybe it simply says that things should be run to ground, if possible, that we shouldn't just give up.

Several memorable research reports by other firms like Credit Suisse First Boston (CSFB) have shown that in previous years SAP was so intent on capturing the pole position in the CRM market share race that it invented a novel way of counting deployments. Surprise! SAP became the market share leader. Maybe they really are today, I don't know. I don't keep close tabs on market share because I don't think it measures anything other than sales. I think a lot of people feel that way at least in part because the definition got blurred just before the trophy got retired.

Nucleus, on the other hand, first came to prominence (at least to me) when they did the same kind of research on the Siebel customer base. Actually it was a handful of Siebel customers promoted on the Siebel Web site, and the metric then was customer satisfaction. At that time Siebel was promoting its customer satisfaction scores which were in the 90% range as proof of its wonderfulness. It was such a small sample that Nucleus researchers were able to interview the Siebel customers individually. I forget the actual results but they were substantially at variance with Siebel's 90% claims and a small scandal ensued. At that point I asked Siebel for access to their customers to conduct a statistically valid survey which would, hopefully, get to the bottom of it all. Siebel complied and what I found was very interesting.

We got over 300 completed responses to our survey and the data proved Siebel's assertion of 90% customer satisfaction. We also conducted a small number of direct interviews at random with Siebel customers. What we found in direct interviews was that although customers were satisfied with their purchases, they were not so enthusiastic when it came to all of the work involved in deploying a new version of what was then client-server software.

From that we saw the smoldering discontent with client-server software and the evolving importance of loyalty versus simple satisfaction. It was an eye-opening experience and it set the stage for a lot that has happened in the years since in areas like on-demand computing and the escalating importance of customer loyalty.

I hate to sound like I am splitting the difference but I don't know who was right then and I don't know who is right now. Certainly all the players know how to use statistical analysis and as we all know, you can often get statistics to support your thesis. That's basically where Disraeli's famous quote, "Lies, damn lies, and statistics," comes from.

If there's a lesson in all this I think it is that when a tool like ERP, Supply chain management, or CRM becomes ubiquitous, it ceases to have a major impact on competitive advantage - you either have it and continue to compete or you never adopted it and are probably out of business or heading that way.

The winners don't look back because they are always looking for the next innovation.

You've got SPAM

At first I did not know how to react to the news that AOL and Yahoo were going to be charging companies to guarantee delivery of e-mail. Was I supposed to feel good as a CRM person that a new avenue of message delivery was opening up or was I supposed to man the barricades as a consumer to protest this invasion of my space?

To bring you up to speed, AOL and Yahoo have announced a partnership with Goodmail Systems, a mass e-mailer, which will guarantee delivery of what we might now call SPAM through firewalls and SPAM filters and into your inbox. For a quarter of a penny per, these pillars of the Internet have agreed to drop their, ahh, prohibitions - or maybe the word is inhibitions, though I prefer to call it principles - to let commerce run amuck in an effort to reach the consumer.

Perhaps these guys just want to show that they really do care about ensuring the free flow of information across the Internet. You might recall the Chinese government strong arming some of these same companies last month over their search engines' alarming propensity to deliver the truth, warts and all, to Chinese users. In a country that does not believe in transparency, telling the truth is not a good idea and there are things like the Tiananmen Square massacre that are not fit for domestic consumption.

On the other hand consumption of material goods, many of which are made in China is so important in this country that even people who don't want to know about the latest product offers should be force-fed an e-mail stream.

What's particularly galling is that some experts have started calling this an "e-mail tax" as if those doing the mailing should be seen somehow as the victims of this whole charade. What about the customer, the person being bothered by this stream of unconsciousness? If you compare the four-for-a-penny charge for this service with the cost of direct mail (which I love to throw away unopened) you might get the idea that SPAMMERS do not care.

The double speak being generated by the perpetrators is mind-boggling. According to ABC News, a spokesperson for AOL, Lisa Gibby, "said the company will receive incremental payments from the premium service, but any profits will 'be put back into our effort to fight spam.'" I feel like the AFLAC duck. Come again?

In the same article, Richard Gingras, CEO of Goodmail Systems said, "certification will be used for 'transactions between businesses and existing customers, not for selling.'" I am sorry, I have tried really hard to come up with an example of an existing relationship that would need help getting an e-mail through a SPAM filter and the best I can come up with is the relationship between ex-spouses in a really nasty divorce. I can hear it now, Ding! You've got a subpoena!

Of course this is about selling.

Ok, so I am a CRM guy and you've probably read this far to see what the CRM angle is so here it comes: we are over using it. We increasingly use CRM as a blunt instrument to go after customers; we are making the same kinds of mistakes with CRM that previous generations in broadcast mode made without it. We are caught in the delusion that if we just try a little harder, become more efficient, and broadcast to more people that we will get the returns we want, but we won't.

We've reached a point of diminishing returns for broadcasting unsolicited offers. Customers are too individualized, they know this, and they expect to be treated accordingly. For the foreseeable future if you want better sales you'll need to start with better inputs to the sales process and that means more qualified prospects. That idea scares a lot of people because it implies asking a lot of open ended questions about lifestyle, preferences, and needs; moreover, the results are hard to quantify and even harder to calculate an immediate return on.

Too often we think of selling as a hierarchical activity like football. In football you huddle, call a play, and march down the field against the opposition to a goal. But marketing and selling is much more like basketball where you play a strategy game even when you don't have the ball. Players run the fast break, set picks and go up for rebounds without knowing if they will get the ball or get to score.
Scoring is relatively easy in basketball, that's why a basket is only worth two points. Basketball is like marketing-centric selling; it's all about the set up - getting the ball, getting to your end of the court, and getting the ball into the hands of an open player who can make a fifteen foot jump shot. In basketball, the team that plays the best fundamentals provides the best inputs into the scoring process and usually wins.

Will certified e-mail help companies sell more? I doubt it. The best use I can think of for certified e-mail would be for inviting potential customers to on-line forums to tell marketers exactly what they really think. That would provide us with the fundamentals we need to improve the selling process.

The Loyalty Question

I take between three and seven briefings each week from software companies. Some of these companies are known quantities that I like to keep up with while others are new to me or possibly new to the world. Most times companies are looking for an objective opinion on a plan, a message, an idea and they figure there's always a chance I might mention them here. That's certainly happened, though I am afraid my track record seems to run in the other direction. I am frequently critical so be careful what you wish for.

Fair is fair though and if I have something critical to say, I say it in the briefing and withhold the name of the company if I write about a topic relevant to them. Of course, companies in the public eye that make announcements or otherwise draw attention are fair game, just not the ones opening up the kimono and asking for an opinion.

Last week a small company briefed me on their products and strategies which focused on customer satisfaction though they really wanted to position themselves as a loyalty solution. The whole thing told me a lot about where we are on the loyalty frontier.

It really is a frontier, there's very little settled, a lot of what happens in the loyalty discussion is really about satisfaction. We are still in a period when customer satisfaction is the dominant idea though it appears to be fading. Satisfaction has been bandied about by companies trying to convince new prospects of their worthiness for quite a while. A few years ago, a cottage industry dedicated to identifying and measuring satisfaction and then applying it to generate ROI evolved but something happened on the way to utopia.

Critical observers noticed a gap opening up where satisfaction promoters said there should not have been one as supposedly satisfied customers showed a propensity to march right through the gap to defect to a competitor. How could they defect if they were satisfied? We all scratched our heads for a while as if we were trying to untwist one of those brain-teasers the guys on NPR's "Car Talk" uncork each week. The short answer is they can and they do. A slightly longer explanation is that satisfaction dwells primarily on the past and loyalty is about the future. A lot of satisfaction is about feeling you got what you paid for.

Loyalty takes things a step further and tries to figure out if you'd do it again - if you'd buy more. You aren't loyal if you feel you did not get a good deal and you are looking for a new vendor, that's a given. Also, if you can't buy more - perhaps your budget is shot or the need is taken care of for the foreseeable future - you're not loyal either but if feel you got a good deal, you might be a good reference. Lastly, you are not loyal if you feel you got what you paid for but it wasn't enough or you have problems with the relationship for reasons that could include pricing, service, or someone's attitude. You are only loyal if you are satisfied and if you are ready and able to buy more and perhaps tell a friend.

That was my position going into the briefing where the company in question tried to show me a customer rating scale that went from dissatisfied, through satisfied and all the way to loyal. Satisfaction and loyalty really are not on the same scale, satisfaction is all about attitude; loyalty includes behavior.

Moreover, the company briefing me was only trying to measure the attitudes of people who voluntarily showed up to take a survey. How representative is that sample? Might the people who voluntarily show up have something of a bias that needs to be controlled for? In the end, we agreed to disagree.

My point in bringing this up is the revelation I got from this encounter. In early markets almost no one has a whole product suited to a business need. The first players in are the first to be able to begin working on fleshing out a solution and it's no different in the ideas market. The evidence I see is that we are currently very early in the loyalty market.

Right now we are at the stage where we are trying to identify what loyalty is and to develop logical ways of measuring it. Soon enough a workable definition of loyalty will pervade the market (my definition comes mostly from Walker Information of Indianapolis, who seem to have it all figured out) and we will turn our attention to metrics and measurements which will inevitably lead to reliably generating loyalty. Loyalty will become all the rage just as customer satisfaction was. It will be the next thing on every CEO's mind and every pundit will have an opinion, and every vendor will have something to sell.

Loyalty will be so essential we'll lose sight of what it is and why it's important and we will begin to look for ways to make it more affordable. Then, like a flock of sparrows changing direction in unison, we'll all figure out a way to do loyalty for less. It won't stay that way forever though. As soon as someone invents the next product that everyone has got to have, loyalty will be out the window because new markets are driven by early adopters who only need to be satisfied that a product gave them what they paid for and in a new market that's a pretty low hurdle.