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It always amazes me that there are people who read this blog. Not that they shouldn't, but it says a lot about you who read that you found the blog and that you return. Thanks a lot of making the effort and for your good comments and suggestions. I had a fun doing this and I am looking forward to writing more and more often in 2007.
Happy New Year!
Denis
When making forecasts for a year ahead, I have always found the ‘greater fool’ theory comforting.
In short, it takes a fool to make a forecast and a greater one to believe it. On balance then, I think it wise to hide these predictions from children, the gullible, the insane, etc. Some people will look at this and see doom and gloom because there are some things to be concerned about, but the concerns are simply the environment we have to deal with. We can still find some ways to make lemonade out of our lemons and that’s what I hope to do here.
First, the economy
The economy is our environment and it makes no sense talking about CRM until you get this baseline established. In general, I think the US economy is in for some rough sledding and I hope I am wrong. The housing bubble is showing signs of bursting, interest rates are stable but fuel prices are on the rise again after a pre-election soft landing and the dollar is pretty weak against the Euro. Consumer confidence has been in negative territory for a while. All these things are indicators that economists routinely scour to figure out the economy’s direction. As some wag once said though, they’ve predicted 12 out of the last 9 recessions so take it all with a grain of salt.
Despite the weak dollar, our exports are expensive compared to Asia and we continue to lose high paying jobs. I heard an economist on public radio the other day say that although we are exporting jobs, we are creating jobs too. Well, a job is not a job and some measure of job quality must be applied before we declare victory or even a truce on that front.
Speaking of fronts, we will be mired in a foreign war for 2007 and that continues to add to our economic woes. I am not here to make a political statement but I simply must emphasize that CRM’s performance will be tethered to that of the economy at large.
One thing to keep in mind is that even if the US economy hits a rough spot, the rest of the world will not necessarily feel the pain. The European economy looks stronger than it has in a long time and if Asia cooled off a bit, it would still be growing at a torrid rate. To net it out, one strategy for US CRM companies might be to look to export more and given the on-demand nature of many software products today, that strategy has never been easier to implement.
A bright spot
If there is a bright spot in all this it continues to be the on-demand market. For all of its life so far, the appeal of on-demand, at least in some measure, has been related to its significantly lower costs compared to traditional software. Given the economic scenario I am forecasting, this should be pretty good news for on-demand providers.
To sell their wares, on-demand providers will need to show powerful cost reduction potential and big positive ROI. That will get some companies moving but others who have more or less paid for their traditional infrastructures will be tempted to sit on the sidelines waiting for better conditions.
For CRM vendors, this means that existing customers might continue to pay their maintenance contracts unless they discover that maintenance, plus some amount of labor costs, plus a pending hardware upgrade equals a decision to go with an on-demand solution. Stranger things have happened.
Beyond conventional CRM, I think there should be many smaller areas where CRM can shine. We have talked about it before, and in the economic environment I see ahead, companies will want technology solutions that can help them do four specific things better and cheaper: enhance products, extend product lines, target market, and develop better processes that drive positive customer experiences.
Much of the CRM world that I see is focused on the more traditional aspects of CRM, and they will be hardest hit. I think smaller companies with innovative on-demand ideas will find traction in this environment especially if they can help with the big four requirements above. The companies that catch will grow, be acquired and do some acquiring, and form the nucleus of the brigade that will stoke the engine of growth again in time for the elections in 2008.
The CRM areas that I would target include what is called sales effectiveness but which is really a market basket of companies that need better definition. Also, marketing and social networking companies will, I think, find receptive audiences. Finally, the call center looks to be ready to make some changes due to the increasing availability of on-demand infrastructure.
So the strategy I would pursue in 2007 is to remain nimble and opportunistic—innovative solutions that help to lower costs should find a decent reception and opportunistic buyers might be able to score some deals.
Hard to believe it’s time to make predictions for the year ahead again, it feels like I just finished that job but here we are again. I dug up my 2006 predictions and was amazed at how close some of them were and the lesson I derive here is that I must not have been trying hard enough. The funny thing is that no matter how advanced and risky you think your predictions are reality, and the march of time, have a way of making them all look rather tame. That attitude is especially needed for the next two columns—this one looks backward and the next one tries to look into the year ahead. First things first. Last year I said that in 2006:
1. The economy and the pace of activity in CRM would accelerate. I was thinking about more emerging companies getting a boost and driving new activity and I think that was pretty much on target. A CEO of an emerging company recently told me that her 100 person company has 23 openings and I have seen and heard similar things from many people. People in Silicon Valley tell me it is hard to find marketing people again and that salaries are beginning to rise as a result. All of these are good though anecdotal evidence that the pace of business in our sector and beyond is picking up. Next week we’ll try to figure out if this will continue.
2. I also said that there were (and are) a lot of companies that have been toiling in the shadows for about 5 years and that they are ripe for a breakout. Two that I mentioned had very good years. Rearden Commerce, a category builder in employee spend management, just signed a big deal with American Express—the kind of deal that makes companies and categories. I wish I could buy stock. Another fast riser is Communispace, a company that builds customer communities to gather market feedback that drives innovation. You could add to that list companies like Centive and Xactly who focus on compensation management, Pragmatech and SAVO which each address content management and there are many more companies that I can’t mention here. A great place to look for examples is the AppExchange directory. There were 157 AppExchange partners displaying their wares at Dreamforce in October and the place was jumping. This trend has legs.
3. Where the big guys are concerned—Oracle and SAP specifically—I really expected more and I am now somewhat disappointed by what was delivered. I said that Oracle needed to begin to deliver on its big plans for bringing together all of the disparate applications it suddenly found itself owning. That much was fulfilled at Oracle Open World in October but the time table is still “out there” and 2007 looks to be when we will see if the vision matches the reality. On the other hand, SAP was disappointing, I said, “SAP is in the catbird seat in enterprise software…Look for some inspired thinking from SAP on the future of enterprise software, especially CRM, as well as new products and services for the company’s huge installed customer base.” So, for the record, I don’t always beat up on the big guys but it is fair to say that we are still waiting to see some results.
The fact is that Salesforce continues to attract enterprise customers, their offerings for integration and customization have received a boost from recent announcements, and there are documented customers who are now buying the development and deployment technology without regard for the CRM components.
As good as that was for Salesforce though, the company wasn’t alone. NetSuite announced its own development environment, NetFlex, and it is in the process of building its infrastructure to go after a similar but not identical market. The point here is that a marketplace is emerging for on-demand applications, development, and deployment services. With a viable market in place traditional vendors will continue to feel the heat.
At this point I am tempted to delve into what I think 2007 will hold in store but that would be jumping the gun—come back next week. One thing I will say though is that the future is hard to predict and a little intuition won’t make you a guru.
I have been blog tagged by Paul Greenberg
There is apparently a game going on around the blogosphere in which bloggers tell five things about themselves that you probably don’t know and then tag five other bloggers to do the same. And the game goes on. This will require discovering some new skills to link others and it will also require me to find five other bloggers. Hmmmmmm…..
First the easy part. Five things.
1. I have been a parent for 17 years. My wife and I call it being in the baby tunnel. Though it has been a long time since we dealt with diapers, it certainly has changed how I interface with the world. I recently discovered that I know almost nothing about popular culture, fashion, art, music.
2. My kids aren’t much help. They’re Jazz musicians, been that way from the get-go. The benefits associated with this are huge—they have introduced me to John Coltrane, Thelonius Monk, Dizzy Gillespie, Charlie Parker, Miles Davis, a guy named Cannonball, and a lot more. I love them for it. Down side though is that I don’t know anything about current music. My dog’s name is Jaz.
3. The last novel I read was The English Patient and I long to find fiction about something larger than a few people’s feelings, which usually make me feel a little creepy, or another murder mystery. That’s gotta be a resolution for 2007.
4. I love reading op-ed pages. I also like reading magazines like The New Yorker, The Economist, Wired and would love to write for any of them.
5. I give myself weird projects to research. Recently I looked up nuclear fusion. The other day I was thinking about the Hundred Years War and then remembered there was a Thirty-years War too, and then I thought about the disastrous 20th Century, and it all made me wonder why there has never been a Hundred Years Peace. My hypothesis is that there has never been a clinical approach to peace. We plan and execute every detail of war but when it comes to peace we simply try to stop war but we don’t plan and execute peace. Anyhow this is probably too deep for blog tag but check back in a year and maybe I’ll have some answers. Or more questions.
Now the hard part: five more bloggers...uh...truth is I don't know any
Salesforce.com is having a good year this quarter. That’s not a typo, the company seems to be announcing a year’s worth of new products in a very short time, though delivery for some of the announcements might stretch out to this time next year. This week, Salesforce announced what I think of as the other shoe or the business side of the AppExchange and associated infrastructure.
So far, the focus has been primarily on Salesforce’s novel approach to building and deploying business applications and, while it is important, that discussion does not lead directly to revenues. As a result, Salesforce has pulled together the business implications of its new technology into a package that will appeal to Wall Street.
Concept-to-cash
The AppStore, the focus of the announcement, is both an acknowledgement that the original focus of the AppExchange—build it and they will come—is just a tad ambitious, and a segmentation of the business process into very traditional parts like sales, delivery, invoicing and collection. Taken together they have fully automated and made on-demand, the concept-to-cash business process, something every company needs and few have integrated to such an extent.
The first impression I had when briefed on the AppStore was how conventional it all is; nevertheless, it’s this conventional piece that emerging companies frequently get wrong. The AppStore and everything it connects is not very ground breaking as a business proposition, in fact it is conservative—it’s called vertical integration.
Consider the pieces
Idea Exchange captures customer wish list ideas for new applications.
Apex has been designated as the development language though as a language it is insufficient to stand on its own. For full application development, extension, integration and all the rest you need the rest of the tools, but this is quibbling. Suffice it to say that the development box has been checked off.
In a slight change, the company now positions the AppExchange as a marketing tool and separates other important parts of the application sales process to the AppStore coming soon, they said this week.
Partners
The business process is not the only thing conforming to traditional business norms, so is the partner program. There are three levels to the new program which offers partners marketing assistance, lead sharing, and direct contact with Salesforce’s field sales force—for a price. The price ranges from free to 10% or 25% of the price partners charge for their applications and that is on top of the additional seat licenses that Salesforce will automatically sell to make those seats viable for presumably new users. Coming next December Salesforce will offer to take over the billing and collection from any partner that effectively develops a solution, drops it on Salesforce’s door step and heads for the beach.
There were two channel models that could have been employed here: either sell the OEM product at a discount to the reseller who marks it up or charge a markup back. Since Salesforce is doing the marketing, selling, hosting, and everything else it makes more sense to construct the model as it has. With Salesforce handling the receivables the partners will simply receive a check net of Salesforce’s part.
Still there will be challenges and adjustments for the new model. For one thing, there is no runtime license which will probably be addressed in the new year. Without a run time license, a company would need to pay for a full seat subscription for any new user brought on to use one specific, non-Salesforce, application.
That situation represents a challenge for Salesforce. Certainly customers running applications other than the core CRM suite deserve some price relief, but the vendor has a right and a need to charge for the infrastructure being used as well. Sometime early in 2007 look for Salesforce to come out with some way of segmenting users into different classes for the purpose of assigning a value to the runtime subscription.
Some of what Salesforce has announced—specifically the AppStore Checkout Partnership—will not hit the market until December of 2007, a long time in this business, but one suspects the announcement of everything at once was required by the scope of the undertaking. The analogy I see is with the announcement of FedEx more than 20 years ago. Like a prime number, the system can not really be factored into smaller units.
My analysis
Finally, let’s consider what this means in the big scheme of things. There is now the capability to, at least in theory, build any business application and deliver it on-demand such that the new application is fully integrated out of the box (or off the wire) with anything else in a rapidly growing suite. Also, there is now, or will be about the time we get back to real work in 2007, a more or less complete facility to identify, test, install, purchase, pay for, and receive support and maintenance, on line.
Salesforce has developed a full function business software utility and with it an economy or ecosystem of builders, buyers, and sellers that spans the planet. Good for them, but now the hard part starts.
So far, the market and Salesforce have been focused on replacing the tired infrastructure that supported building and buying software licenses. With that out of the way, much more attention will need to be focused on leveraging software to do better business.
There has never been a time when the old IT adage and acronym, GIGO, had greater potential resonance. If we can keep ourselves from building every bad application possible simply because it is easy to do so, it will be because vendors develop and market practical or subject matter expertise regarding business processes.
The next big challenge that I see involves business process management. Software had been a limiting factor for many business processes in part because the process and practices were inextricably tied together. In the future process and practice will be separate and a door will open for a different kind of IT or business consulting. It is now time for software companies to change focus to take advantage of the new opportunities.
I have always advocated that CRM is a growing field and that it grows at the margins whenever some innovative company introduces a new application type. As such, the definition really speaks more about all of the front office than CRM alone. Nevertheless, over the last few years we’ve seen a lot of new applications in sales, marketing, and service that fit this description. So imagine my surprise last week when I was speaking with the CEO of a self-described social networking company.
The CEO told me in plain terms that they didn’t want to be associated with CRM and that their customers found more resonance in social networking as well as an easier time in cost justifying acquisition when they called this particular solution social networking rather than CRM. My first reaction was to say, something like, “No you can’t do that!" and "Where are the CRM police?” but then it made a certain amount of sense.
If you ask me, social networking suffers from some of the same positioning woes as sales effectiveness. The description is so nebulous that I am not sure it has value. Sales effectiveness covers a lot of ground from intelligence gathering to operations and while every solution in the category can make a case for belonging, to me it’s like a zebra trying to take center stage at a horse show. Same thing for social networking—there are so many solutions that use the moniker from things like YouTube and My Space to Linkedin that you wonder what the connection is.
I believe there is a legitimate argument for including social networking in CRM. At its core, SN enables customers and vendors to interact better on multiple levels and if companies use SN’s techniques they might be able to capture thoughts, impressions, ideas, needs, biases, and a lot more from people and contribute greatly to CRM processes. For example, this voice of the customer data can be folded into product development to accomplish co-creation of value which makes a company more competitive because it can deliver products, services, messages, Web experiences, and real in-person experiences better and faster.
Now, to be fair, every SN application doesn’t do these things and a select group of functions, techniques or methodologies—call them what you will—should be attached to SN to help define the branch that butts up to CRM. I am all for that and will help with that process, as the opportunity presents itself.
No offense to the SN sites that my kids subscribe to, but that’s not CRM, and I think most people would agree with that. Also, I am pretty sure that any technology that enables perfect strangers to ask me to forward their resumes to my friends at a company is not CRM either. A tool that enables a marketer to develop a volunteer community of interest to probe the public perception of products and product ideas as well as marketing messages would fit the definition though.
What I think this is saying is that just as CRM is a way of doing business and a set of technology, so is social networking. A company that implements a CRM system without adopting a CRM outlook is like a symphony trying to play some Charlie Parker bebop. The symphony will probably hit all the right notes but the notes won’t swing.
So in case no one has done it yet, let me be the first to claim part of social networking for CRM or more precisely, the front office. SN is an important new contributor to front office business processes, it gives us a way to look at the world through the eyes of the customer and makes good on some of the promises of CRM.
Today’s CRM is based on the idea of using technology to improve internal business processes and that was and is a good goal. When CRM got going, internal customer facing business processes ran on a shoestring and scraps of paper. But I think we might have taken that kind of CRM as far as possible for the time being. We have all kinds of CRM systems today that systematize and organize our customer facing processes but what we lack right now are effective ways of capturing customer feedback.
With feedback we can know whether or not we’re on the right track earlier than the time when we first put a product on the market and that kind of information serves to save money and improve our business processes in immeasurable ways. So, no offense to my friends who think that social networking is a separate activity but I really think it’s our space.
Thomas H. Davenport: Competing on Analytics: The New Science of Winning
Read this book. I offers lots of insights on how companies are using analytics technology today to manage and most importantly to see the future of their businesses. Recent acquisition of the remaining analytics companies by titans like Oracle, SAP and others shows how important they think analytics will be in the years ahead. Lots of application to CRM. See why. (****)
Jen O'connell: Cell Phone Decoder Ring
Full disclosure: I know this author. I like her too, she's smart and a rising media star. Jen O'Connell is going to do for cell phones and other communication technologies what Martha and Suze did for entertaining and finance. It's about time too. If you've ever felt stupid trying to figure out how to use your cell phone or just what the difference is between GSM and the Gross Domestic Product, this book is for you. Full of insights and advice about how your phone works and how to work with your phone. (*****)
Eric D. Beinhocker: Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics
Like Paul Ormerod, Eric Beinhocker is another economist exploring the relationship between evolution and the dismal science. Beinhocker is just as readable as Ormerod but offers more research in support of the evolutionary-economics thesis than any other economist that I have read. In dealing with evolution in economics Beinhocker ventures deeply into a new field called complexity economics that does for this field what General Relativity did for physics. I'd read it again. (*****)
Walter Isaacson: Einstein: His Life and Universe
Wow! I bought this book in San Francisco and read it all the way home. That's not to say that it's a potboiler, it's biography afterall, but Einstein was one of the great minds of the modern era and it is fun to retrace his life, to understand his genius as well as his all to human foibles. The author also does a credible job of making Special and General Relativity understandable to the average reader. Good stuff. (*****)
Al Gore: The Assault on Reason
Ok, I try not to be political in anything i do in business but, hey, I consider myself a fairly logical guy and the political environment of the last few years has, shall we say, defied logic. Regardless of what you think of Gore, his arguements are pretty good. (*****)
Paul Ormerod: Butterfly Economics: A New General Theory of Social and Economic Behavior
Anything by this accomplished economics writer will be thought provoking and entertaining. He's done a lot of work explaining the intersection of economics and evolutionary thought. Economics is, like many social sciences a study in human behavior as much as anything else and this slim volume is a great way to get started updating your thinking about this science. Still think economics follows strict rules and formulae like Physics? Read this book. (****)
Fred Reichheld: The Ultimate Question: Driving Good Profits and True Growth
Fred has been studying loyalty for a long time and he has championed ideas like the Net Promoter Score (NPS) which is a simple measure of whether your customers are happy and willing to tell others about you or not. Great companies have high positive scores, others don't. A simple idea that has a lot of traction. (****)
Lynne Truss: Talk to the Hand: The Utter Bloody Rudeness of the World Today, or Six Good Reasons to Stay Home and Bolt the Door
Yes, it's a book about manners, though not the kind to give any guidance about your salad fork. This is about impersonalizing influences in our lives. At the top of the list is technology. Without talking about CRM directly, Truss makes more than a few valid points about how technology associated with CRM is driving us nuts. Automated phone systems come in for a hit but so do surly store clerks, and, sadly, our fellow citizens making use of the public commons. In its own humorous way, it gives a lot to think about. (****)
Eric von Hippel: Democratizing Innovation
First, you can get this as a free download if you don't mind reading a book in PDF. It's worth reading too. Von Hippel looks at some of the things we don't do with customers right now that we might want to do. For example, "free sharing" might sound a bit dorky but only until you realize that he's really taking about co-innovation -- asking the customer about needs before building product. Given the fact that something like 80% of the 36,000+ new products that hit the shelves in 2005 were projected to fail, this guy might have a point. (****)
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